Moody's Investors Service upgraded its credit rating for Central Falls, R.I., to B2 from Caa1 after the city's emergence from chapter 9 bankruptcy, Reuters reported on Friday. The credit rating agency also revised its outlook for the city to positive. The actions affect $14.7 million of outstanding general obligation bonds. A state-appointed receiver for the city won court approval for a bankruptcy plan on Sept. 6, laying out an exit course just 13 months after its bankruptcy filing.
After 15 months, Central Falls, R.I., officially pulled itself out of chapter 9 bankruptcy yesterday, WPRI.com reported. The city's chapter 9 plan laid out six years of balanced budgets for Central Falls, but with higher property taxes and lower pensions. Any changes to the city's budget will have to be approved by a finance officer, who will then report to the state through fiscal year 2016. Meanwhile, court documents indicate some city pensioners will receive 55 percent less than they were promised, but the same documents show the pension fund is now sustainable. Central Falls also lost about a third of its municipal work force since the original receiver took over about a year ago.
California Public Employee Retirement System (Calpers), America's biggest public pension system, filed a formal objection yesterday to a quest by San Bernardino to seek bankruptcy protection, citing the "disarray" in the Californian city's finances, Reuters reported yesterday. San Bernardino, a city of 210,000 people 60 miles east of Los Angeles, declared bankruptcy on Aug. 1. Since then it has halted pension payments to Calpers, its biggest creditor. Last week Calpers made clear in public statements it would not tolerate San Bernardino, or any other Californian city, missing payments into its fund. Since it declared bankruptcy, San Bernardino has missed six biweekly payments totaling over $6 million.
Three interconnected forces brought the working-class, inland Southern California city of San Bernardino to insolvency: a burst housing bubble and lethargic economic growth, high police and firefighter salaries mandated by the city’s charter and compounding pension obligations, according to a commentary in the City Journal yesterday. Bankruptcy should give San Bernardino leverage to deal with the last two, but the big, structural changes required will not be easy or pleasant. Absent such changes, though, salaries and pensions will continue to grow faster than the city’s revenues, crowding out most other government functions and services, according to the commentary. The city, with a poverty rate equivalent to Detroit’s and a homicide rate that has quietly surpassed Chicago’s, declared a fiscal emergency in early July and officially filed for bankruptcy on August 1. Deferring payments to bondholders just to make payroll, the city has been forced to trim its budget radically. As a bridge to the bankruptcy proceedings, interim city manager Andrea Miller attempted to reduce the deficit by proposing a new budget called a pre-pendency plan. Her austerity budget, which passed with only a few changes after much haggling, will form the basis of the plan submitted to the bankruptcy court. The city projects a $45.8 million budget deficit, which the pre-pendency plan would reduce to $7.5 million by making “draconian” and “catastrophic” cuts, in the words of some city council members.
Pay cuts and other concessions by employees of Atwater, Calif., may help the city balance its budget and avoid bankruptcy, Atwater Mayor Joan Faul said on Friday, Reuters reported. Atwater, a city of about 28,000 residents in California's Central Valley, faces a budget gap of more than $3 million and is a candidate to become the fourth city in California this year to seek protection from creditors under chapter 9 after it declared a fiscal emergency this month. Atwater's staff will brief Faul and other city council members today on concessions agreed to by its work force.
San Bernardino, Calif., has failed to make more than $6 million in payments to the state's powerful public employee pension fund, heightening speculation of a high-stakes showdown between the fund and other creditors as the city seeks eligibility for bankruptcy protection, Reuters reported yesterday. Since July 31, the day before San Bernardino declared bankruptcy, the city has failed to make six biweekly employer contribution payments of more than $1 million to the California Public Employees' Retirement System (Calpers). The action taken by San Bernardino is in stark contrast with two other California cities - Vallejo, which emerged from bankruptcy in 2011, and Stockton, which is seeking bankruptcy protection. Both cities decided to keep current on all payments to the pension fund.
California, where three municipalities have filed for bankruptcy since June, is working on an early-warning system to prevent more by detecting signs of financial trouble, state Treasurer Bill Lockyer said, according to a Bloomberg News report yesterday. He compared the goal to stress testing, "where we try to determine what are the right metrics to cause red flags, alarm, some form of friendly discussions with experts, external advisers about what might be done to avoid a potential crisis." Stockton, San Bernardino and Mammoth Lakes have sought chapter 9 protection, stoking investor concerns that more will follow as municipal finances worsen and bankruptcy’s stigma fades. Lockyer said he doesn’t expect the trend to continue. The early-detection system is a collaboration among the treasurer’s office, the controller, the Legislature and officials in Los Angeles and San Diego, Lockyer said. Lawmakers would have to approve the plan, he said.
A coalition of New York mayors is debating whether to push for changes to state labor law that would give fiscally troubled cities more negotiating leverage with public-safety unions before binding arbitration, the Wall Street Journal reported yesterday. A proposal gaining traction with the mayors of Syracuse, Rochester, Albany and Yonkers would require arbitrators to give more weight to a city's finances when imposing a binding contract. Among the factors would be whether a city can pay for salary increases and health insurance plans without raising taxes or cutting services.
Bankruptcy Judge Thomas Bennett yesterday cleared the way for Alabama's bankrupt Jefferson County to shut down in-patient services at a government hospital for poor people that loses $10 million a year, Reuters reported yesterday. Jefferson County, which filed a $4.23 billion bankruptcy nearly a year ago, says that it can no longer afford to cover the losses for a 319-bed, in-patient operation that serves only a few dozen people on an average day. But Birmingham, Alabama's biggest city and the Jefferson County seat, had asked Judge Bennett to keep the city-based Cooper Green Mercy Hospital in full operation. The county proposes to replace Cooper Green's emergency room with an urgent care facility and to provide indigent care through outpatient clinics. Patients needing hospitalization would be sent to other hospitals, which would bill the county. Judge Bennett, in rejecting Birmingham's request, said state law did not require Jefferson County to run a hospital, though it was obliged to pay for the medical care of the poor.
A U.S. Securities and Exchange Commission “informal inquiry” of San Bernardino, Calif.'s finances requires the bankrupt city to preserve bond documents and communications with underwriters, Bloomberg News reported today. The nature of the agency’s inquiry isn’t detailed in the Oct. 11 letter from Robert H. Conrrad, a Los Angeles-based SEC senior enforcement counsel, to City Attorney James Penman. It calls on city officials to preserve all records of securities offerings and written communications with underwriters, fiscal advisers and credit ratings companies. The SEC has stepped up efforts to enforce disclosure rules that apply to states and cities that raise money from investors, and has said it plans to recommend ways to improve regulation of the $3.7 trillion municipal-bond market.
