Analysis Undue Hardship Provision Proves Tough Barrier to Shedding Student Debt in Bankruptcy
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Analysis How Plan to Pay Stocktons Pensions Backfired
Stockton, Calif., sold about $125 million worth of bonds in 2007 to obtain cash to close a shortfall in its pension plans for current and retired city workers, but the strategy backfired and is partly the reason the city is now in chapter 9 bankruptcy, according to a New York Times analysis today. Stockton is trying to walk away from the pension obligation bonds and to renegotiate other debts during its chapter 9 proceeding. After reviewing an analysis of the bond deal, underwritten by the ill-fated investment bank, Lehman Brothers, and watching a recording of the Stockton City Council meeting where Lehman bankers pitched the deal, finance Prof. Jeffrey A. Michael of the University of the Pacific concluded that "Stockton is entitled to some relief, due to deceptive and misleading sales practices that understated the risk." Financial analysts and actuaries say essentially the same pitch that swayed Stockton has been made thousands of times to local governments all over the country — and that many of them were drawn into deals that have since cost them dearly.
Jefferson County Can Use Nearly 2 Million in Reserve Fund for Courthouse Rent Payment
Bankruptcy Judge Thomas Bennett ruled yesterday that a reserve fund of nearly $2 million for the Bessemer Courthouse lease payments can be used to make Jefferson County's (Ala.) Oct. 1 payment, the Birmingham News reported today. The ruling would allow the county to pay the more than $1.9 million in interest due. The next payment, which would be much larger, on the lease is due April 1. It is unclear how long the the county can remain in the courthouse, however, after the Jefferson County Commission voted last week to reject the courthouse lease. Commissioners have said that the county cannot continue to pay $8 million a year in rent for the facility. The commission's decision, which could force the relocation of county offices from the Bessemer courthouse, still has to be approved by Judge Bennett. He has set a hearing for Sept. 13 to discuss the request to reject the lease.
Battle over Pension Debt Looms in San Bernardino Bankruptcy
A high-stakes showdown pitting California's public employee pension fund against Wall Street bond firms in bankrupt San Bernardino, Calif., could be further complicated by wildly disparate estimates of how much the city owes for its retirees, Reuters reported yesterday. San Bernardino, a city of about 210,000 near Los Angeles that filed for bankruptcy on Aug. 1, has listed the California Public Employees' Retirement System (Calpers) as its largest creditor, with unfunded pension obligations totaling $143.3 million. But Calpers, in response to an inquiry from Reuters, pegged the debt at $319.5 million. Experts say the dramatically different calculations of San Bernardino's debt to Calpers will likely lead to litigation between the two entities, unless the city quickly agrees to the retirement system's figure.
Jefferson County Sees Bankruptcy Plan by Year End
The head of Jefferson County's governing board said that the cash-strapped, 658,000-resident Alabama county intends to file by the end of the year a plan explaining how it will emerge from the largest municipal bankruptcy in U.S. history, Dow Jones Newswires reported yesterday. County Commission President David Carrington said that the county is on pace to file its reorganization plan before the start of the new year. The county has been under pressure to move forward on that reorganization plan from bondholders who extended $3.6 billion to fix the county's leaky sewer system. Those bondholders joined other Wall Street firms in accusing county leaders of stalling on the politically unpopular task of raising residents' sewer rates, which have not gone up since 2008.
Californias San Bernardino Seeks Job Service Cuts While in Bankruptcy
Officials in the California city of San Bernardino, which filed for bankruptcy this month, presented a plan yesterday to slash its budget by 30 percent and eliminate more than 100 jobs and cut services, Reuters reported yesterday. The plan asks for the elimination of over 100 full-time city jobs, from the mayor's office, through city departments and in the fire and police services. Many other vacant jobs will not be filled and some part-time jobs will be eliminated. The plan also looks at cutting funding for the public library, and evaluations of whether to close the city cemetery and various community and senior centers.
Pennsylvania Judge Rules Harrisburgs City Council Must Hike Tax
A Pennsylvania judge ruled that Harrisburg’s City Council must double an income-tax rate on residents to help pay for essential services in Pennsylvania's capital, Bloomberg News reported today. The tax would climb to 2 percent from 1 percent for a year under the ruling yesterday by Commonwealth Court Judge Bonnie Leadbetter. The move was sought by William B. Lynch, the state receiver trying to fix a financial crisis in the insolvent city of almost 49,700. The city, where 30 percent of residents live in poverty, owes more than $300 million on debt tied to an overhaul and expansion of a trash-to-energy plant that does not produce enough revenue to cover the obligations. Besides boosting the tax, which would yield about $5.1 million in 2013, Lynch’s plan calls for the sale of municipal assets, including the incinerator.
More Talks for Stockton Creditors in Citys Bankruptcy Case
The city of Stockton, Calif., and its creditors were steered into new talks with a mediator who settled a key dispute in another municipal bankruptcy case as Bankruptcy Judge Christopher Klein said that it may take months to determine if Stockton deserves court protection, Reuters reported yesterday. Attorneys for Stockton and its creditors agreed to a schedule for the coming months for further review of objections to the city's bankruptcy eligibility claim. Stockton will provide documentation through September to its creditors, who have until October 26 to review it. They then face a November 9 deadline for filing substantive objections. Stockton has until December 21 to respond. Judge Klein endorsed the timeline, noting that he intends to methodically work through Stockton's bankruptcy case. He will hold a status hearing on January 8, 2013 on where the case stands and may hold an evidentiary hearing later that month if needed.
Fitch Some Past Chapter 11 Filers Again at Risk of Default
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Mammoth Lakes Calif. Ends Suit Causing Bankruptcy
Mammoth Lakes, the California mountain resort town, said that it settled the $43 million legal fight that forced the city into bankruptcy last month, Bloomberg News reported yesterday. The town is among three in California that have filed for bankruptcy since June. Mammoth Lakes' case differed from Stockton’s and San Bernardino's because it blamed a single event, a court judgment ordering the town to pay $43 million to a land company. Details of the settlement will remain secret until final documents are signed, the city said in a statement.