Last year, muniland watched as the mayor, city council members and state legislature went through a tortuous period of fighting over filing municipal bankruptcy for Harrisburg, Pennsylvania. The city council filed a bankruptcy petition, but the mayor objected. Then the legislature passed a law that denied Harrisburg the right to file until November 30, 2012. The bankruptcy judge threw out the bankruptcy petition and the governor appointed a receiver to take control of the city’s finances.
Reuter’s reporters Tim Reid, Cezary Podkul and Ryan McNeill wrote a great analysis of the fiscal and political troubles of bankrupt San Bernardino, California. They zeroed in on the high cost of wages and pension benefits for fire and police safety workers:
The bankrupt cities San Bernardino and Stockton, California share similar fiscal woes. Both include very high employee pay and benefits. Both have sought the protection of Chapter 9 municipal bankruptcy and are shielded by the courts from any new litigation. The court protection gives the cities time and fiscal space to negotiate with employees and creditors, and to organize their financial affairs. It’s hard to imagine the difficulty of running a city in bankruptcy with dwindling cash reserves.
Atwater, California voted at a special meeting on Wednesday to declare a common-law fiscal emergency. This is the first step toward filing for municipal bankruptcy. It makes Atwater the fourth city in California to publicly declare fiscal distress. The city must now go through a 90-day mediation period with its creditors, public employees, bondholders, trade vendors and CalPERS, the statewide pension provider.
Bloomberg View’s Josh Barro wrote an interesting piece Thursday urging Scranton, Pennsylvania to declare Chapter 9 bankruptcy. Scranton has achieved national attention after the mayor reduced all city workers’ pay to minimum wage last week because the city could no longer afford paying their full salaries, a powerful image of how little cash Scranton has left.
Some residents of Stockton, California are upset over the city’s decision to eliminate free healthcare benefits for public retirees. Michael Fitzgerald, a columnist for the Record, Stockton’s newspaper, wrote last week about the policy change:
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.
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.