MuniLand

Public service announcement from the New York City Department of Transportation: Come take part in the fifth annual Summer Streets! On Aug. 4, 11 and 18 from 7 a.m. to 1 p.m., nearly seven miles of New York City’s streets will be opened up for everyone to play, run, walk and bike.

Good Links

IMF: Great Recession and fiscal squeeze at U.S. subnational government level

NYT: Calculated deal in a rate-rigging inquiry

Bloomberg: U.S. municipal bond trading volume falls by 10.4 percent in first half

Houston Chronicle: Local agencies in Texas could “deal directly with the feds to expand Medicaid”

SacBee: Dan Walters – California just as insolvent as bankrupt cities

Reuters: Political feuds, denial drove San Bernardino to bankruptcy

Bond Buyer: California dazed and confused over mounting Chapter 9 filings

Boston Review: A municipal bankruptcy, in pictures

@Twitter Talk

If state legislatures and governors choose not to play the #Obamacare game, then the game is over. j.mp/MZvzpD

— Cato Institute (@CatoInstitute) July 12, 2012

the oracle is doubling down with his thesis on a “terrible problem” in muniland….his worst call of his career as muni returns beat stocks

Now that three California towns have declared bankruptcy in the past few weeks, the mainstream media is abuzz with headlines of imminent doom for state and local governments. Adding fuel to the fire were Warren Buffett’s comments on Bloomberg TV about how cities may find it easier to declare bankruptcy after seeing others do it:

“The stigma has probably been reduced when you get very sizeable cities like Stockton or San Bernardino to do it,” Buffett, 81, said in an interview today on “In the Loop with Betty Liu” on Bloomberg Television. “The very fact they do it makes it more likely.”

He said the nation isn’t on the brink of hundreds of billions of dollars in defaults, as banking analyst Meredith Whitney predicted in 2010. “I don’t think we’re at the precipice,” Buffett said. “People will use the threat of bankruptcy to try and negotiate, particularly pension contracts, with their employees.”

The City Council of San Bernardino, California, has declared its intent to file for bankruptcy and has issued a fascinating document that outlines the steps it would take to regain fiscal solvency. It’s a very creative and orderly attempt to reshape the finances of the government.

Proposals include a tax on phone service, estimated to raise $6.7 million dollars a year; a comprehensive asset plan to set market-rate rents for some city-owned properties and below-market-rate leases for others to create incentives for development; an increase in fees for false alarms that police respond to; and the outsourcing of tree trimming, street sweeping, graffiti abatement, streetlight maintenance and trash collection.

Although these ideas could raise new revenues, they do not really address the most burdensome parts of San Bernardino’s budget.

I’m on the radio! Thanks to Pat Morrison of Southern California Public Radio KPCC for inviting me to a roundtable on how the San Bernardino bankruptcy is looking much worse than Stockton’s.

Good Links

Business Insider: 32 reasons why we need to end the war on drugs

WaPo: Medicaid expansion a tough sell to governors of both parties

Reuters: Most U.S. muni tobacco bonds will default – Moody’s

Pew States.org: Pennsylvania struggles to help its weakest cities

CSM: Cities going broke: Can Scranton’s minimum wage plan work?

Reuters: U.S. 30-year municipal bond yield falls to record low – MMD

WSJ: Quirks of bond indexing

@Twitter Talk

Evidence the public sector is shrinking: Government #construction spending plummets to a 7-year low bit.ly/NOEwhS

— GOVERNING (@GOVERNING) July 12, 2012

Strong and Steady for muni calendar. Here is next week’s deal calendar: bit.ly/Mnistw #muniland #munis — IpreoMuni (@IpreoMuni) July 12, 2012
 

San Bernardino, California made headlines this week for two distressing reasons. First, its city council voted to move toward declaring Chapter 9 municipal bankruptcy. Next, the city’s attorney made the shocking revelation that San Bernardino’s books have been cooked for 13 of the past 16 years, meaning that the surpluses the city had reported were, in fact, deficits.

San Bernardino is the third California city to move toward bankruptcy in the last few weeks, but the issue of bad accounting elevates this bankruptcy to a whole new level. The California Legislature enacted a new law last fall, AB 506, that requires 90 days of mediation between the city and creditors prior to a new municipal bankruptcy filing. But it is hard to see how that will be possible in San Bernardino’s case, since there are no legitimate financial filings to negotiate from. Moreover, the city doesn’t have the ability to pay its bills for 90 days during mediation. We’ve entered the twilight zone of muni workouts here.

Putting aside the issue of the city’s inability to follow proper accounting standards, San Bernardino may have a political leader in its mayor who is willing to take on the public unions and get necessary concessions from police officers, firefighters and other city employees. In the video above, Mayor Pat Morris discusses how the city will need to renegotiate salary and pension deals with city workers. Generally, salaries account for 70 to 80 percent of a local government’s cost structures and matter much more than debt service. Cities in California have the right to break wage and pension contracts with workers in bankruptcy. The problem is that we haven’t seen any political leaders willing to stand up to the unions.

Newport Beach, California, one of the nation’s richest communities, has one of the scariest police recruiting videos you can imagine. Many have warned about the militarization of community police, and this is a perfect illustration. In contrast the Decatur, Georgia recruiting video has a focus on empathy and working with members of the community. (Hattip OC Weekly)

Good Links

LAT: Rising costs push California cities to the fiscal brink

BreakingViews: Bankruptcy loses its taboo for California’s cities

Bond Buyer: San Bernardino Chapter 9 sets standoff with bondholders

Mastagni Law: A public union lawyer’s view on why cities scapegoat cops and firefighters

The Record: Retired Stockton employees trying to stop the city from ending their medical benefits

How does a bankrupt city pay its public safety workers twice the median household income of the area’s residents? More important, why haven’t the city manager and council stopped this wage bonanza?

In Stockton, California, public safety workers earn on average 126 percent of the maximum salary and at least 200 percent of the minimum wage for their respective wage categories. The California State Controller’s Office has all the data, and it’s not pretty.

Stockton’s median household income was $50,011 in 2010. In contrast, the average total wage paid to a city police worker was $93,111. For employees of the fire department, it was $110,303. Admittedly, these are dangerous professions, but surely they are not so dangerous as to require pay of double the median household income of the entire community.

The Tax Foundation put together this chart on changes in property tax rates.

Good Links

Bond Buyer: Obama’s tax extension proposal for high earners would boost muni demand

CSM: Got student debt? Move fast, and some cities will help you pay it off

Comptroller of California: The state ended the fiscal year with a cash deficit of $9.6 billion

AP: San Bernardino votes to declare bankruptcy

Roanoke Times: Editorial: Putting the squeeze on Virginia’s localities

GovTech: Report: Chicago might try again for municipal wireless

GovTech: Free community Wi-Fi coming to an end in Seattle

@Twitter Talk

Local governments need relief from unfunded mandates: bit.ly/LtSuK0 — Citizens Budget Comm (@cbcny) July 6, 2012

When I did a Google search earlier yesterday for “Louisville Arena Authority bonds,” which were recently downgraded to junk by Moody’s, I saw this paid ad from Goldman Sachs alongside the results: Goldman Sachs: Louisville www.goldmansachs.com/Louisville How Goldman Sachs helped Louisville build a home for college basketball

It’s part of a series of ads touting the investment bank’s underwriting of the $349 million bond deal from 2008 that financed the construction of a new basketball arena at the University of Louisville. The ad says:

The Kaiser Family Foundation provides a useful map of spending by state on Medicaid, and Reform+Medicaid spells out the reasons that some states are rejecting Obama’s Medicaid expansion.

Good Links

Jones Day: Constitutional limitations on the seizure of underwater mortgages

National Center for Education Statistics: 13.2 percent of public-school students are in disability programs

Governing: Public pensions and the value of honest numbers

Reuters: Texas joins Wisconsin, Louisiana and Florida in rejecting healthcare expansion