%1

Another Rhode Island city could be taken over by a receiver with the power to declare bankruptcy after the Rhode Island General Assembly adjourned yesterday without approving a tax increase that state and city officials say is critical to closing a massive budget shortfall, the Associated Press reported yesterday. A bill that would have imposed a 13 percent supplemental property tax on Woonsocket residents stalled in the House after hours of negotiations between members of the city's delegation and Gov. Lincoln Chafee's (I) administration. State Revenue Director Rosemary Booth Gallogly said that the failure to authorize the tax could lead to sharp cuts to services or municipal layoffs in the struggling city, which has a $10 million schools deficit and is running out of cash.

A Michigan judge yesterday dismissed a lawsuit that challenged Detroit's financial stability agreement and which had threatened to leave the city without cash to make a critical debt payment due on Friday, the Toronto Star reported yesterday. Ingham County Court Judge William Collette ruled that Detroit's corporation counsel, the city's top lawyer, lacked the authority to bring the lawsuit. Judge Collette said that the power to bring such a lawsuit rested with Detroit’s mayor and city council. Corporation Counsel Krystal Crittendon, who filed the complaint in the state Court of Claims earlier this month, claimed that the financial stability agreement, which put Detroit's struggling finances under stricter state control, was invalid because Michigan owes the city more than $230 million and it was in default to the city.

The state law forbidding Harrisburg from filing for bankruptcy expires July 1, and a majority of Harrisburg’s City Council is convinced that bankruptcy is the only viable debt resolution the city has left, the Harrisburg Patriot-News reported yesterday. Harrisburg's state-sponsored debt-recovery plan almost guarantees the city will be saddled with leftover incinerator debt after Harrisburg’s assets are sold and leased, especially since the state does not plan to negotiate with creditors until its assets are gone, council members contend. And when the revenue Harrisburg pulls in from its assets disappears, they said, the city will continue to be plagued by annual budget deficits. This year's budget gap is expected to be $6.8 million.

Alabama's bankrupt and cash-strapped Jefferson County has been hit by a computer failure that is delaying payments of bills and deposits, the county manager said on Friday, Reuters reported. Vendor payments by the county, which filed the biggest U.S. municipal bankruptcy on Nov. 9, will be a couple of days late, according to County Manager Tony Petelos. Other payments, such as payroll and those due creditors, were unaffected by the computer mishap. A nine-year-old computer server that was the last of 16 county machines capable of handling the financial software used for payment processing had failed last Sunday night and was revived only early Friday morning.

Fitch Ratings yesterday downgraded more than $252 million of Stockton Public Finance Authority debt after the cash-strapped city voted to allow the city manager to file for chapter 9 protection if necessary, Reuters reported yesterday. Stockton, located about 85 miles east of San Francisco in California's Central Valley, is in confidential talks with its creditors to obtain concessions to help close a $26 million budget gap before the July 1 start of its next fiscal year. Stockton has seen its credit rating slashed since its leaders said in February they would pursue a financial restructuring plan that includes defaulting on some debt payments and seeking mediation with creditors.

The judge overseeing the $4.23 billion bankruptcy case of Alabama's Jefferson County on Wednesday ordered creditors to take a second run at forming a panel to represent low-priority creditors in expected workout negotiations, Reuters reported yesterday. Bankruptcy Judge Thomas Bennett ruled that two of the three currently proposed members of an unsecured creditors committee were ineligible because their claims against Jefferson County were of a different category. Jefferson County, which is home to Birmingham, filed the biggest U.S. municipal bankruptcy on Nov. 9 after a tentative workout, mainly with Wall Street creditors, unwound and scuttled concessions that may have been worth $1 billion to the cash-starved county. One of the ineligible creditors, the UAB Health System, may also have a possible conflict of interest since it has been billed by the county's sewer system for $1 million in unpaid sewer fees, Judge Bennett said.

The Stockton, Calif., City Council voted to authorize a bankruptcy filing as soon as June 26 if officials fail to win concessions from creditors that would allow it to avoid becoming the biggest U.S. city to enter court protection, Bloomberg News reported today. The council, in a 6 to 1 vote, granted City Manager Bob Deis the authority to file for chapter 9 protection as the city is approaching insolvency when its fiscal year begins July 1. Stockton faces a $26 million deficit in the coming year. The city has been strained by soaring costs for pensions and retiree health benefits while sales and property-tax revenue plummeted after the longest recession since the 1930s. The decline of the city of 292,000 was compounded by accounting errors and large borrowings.

State and city officials in Birmingham, Ala., filed a $1.63 billion claim in Jefferson County's bankruptcy case on behalf of sewer system ratepayers, alleging that county employees engaged in criminal conduct, Bloomberg News reported today. Birmingham City Council President Roderick Royal and Alabama state legislator Mary Moore were among a group of 14 officials and private citizens who filed the claim yesterday bankruptcy court on behalf of about 130,000 ratepayers in the county. The claim is based on "published financial data and other evidence which establish the cost to the debtor county, and hence indirectly the ratepayer class, of dishonest, unlawful and sometimes criminal conduct on the part of employees of the county, certain private parties and others involved in municipal finance," according to the filing.

Alabama's bankrupt Jefferson County agreed to transfer $5.5 million to bondholders, extending a temporary deal to split cash from its insolvent sewer system with creditors while awaiting a ruling from a federal judge, Bloomberg News reported yesterday. The agreement with Bank of New York Mellon Corp., trustee for bondholders owed more than $3 billion, allows the county to begin several sewer upgrades using cash it holds. The agreement will last until June 29, or until U.S. Bankruptcy Judge Thomas B. Bennett makes a final decision on how to split sewer revenue between bondholders and construction projects the county says are needed to improve the system.

The city manager of Stockton, Calif., may be granted authority to seek bankruptcy protection in a City Council vote scheduled for June 5, moving one step closer to a fate the city has sought to avoid, Bloomberg News reported yesterday. The farming center about 80 miles east of San Francisco has been holding confidential talks with creditors such as public-employee unions to escape becoming the largest city to enter court protection in U.S. history. The talks with creditors, aimed at reaching an agreement under state-required mediation, have been extended until June 25. California’s constitution requires cities to adopt a balanced budget by July 1. Stockton faces a $26 million deficit in the coming fiscal year.