Couldn't happen here ... could it?

Chris Briem posted about the potential bankruptcy of Vallejo, Ca and how it relates to a possible Pittsburgh bankruptcy. Like Chris, I myself wonder if the state would step in and prevent the city from declaring bankruptcy. And the question of how bond debt versus the pension obligations would be viewed is also quite interesting.

What also interests me is how Our Mayor does not admit that the city is vulnerable. He admits the city has financial issues, but talks about them as if they are a thing of the past. The city has no capital budget, instead having a $99 million savings account from which to spend for everything discretionary for the indefinite future. The Mayor states that he will not borrow for the next five years, to avoid taking on any new debt. Yet the Mayor see no problems worth discussing in this situation, much as the President see no problems, just something “interesting”, in the idea of $4 a gallon gasoline.

My memory is that while the Mayor has not talked extensively on this, he has stated that he is in favor of exiting Act 47 status. There is a hearing coming up on the city’s status in about a month, and I expect the Mayor will talk more about it then. I believe we are in the last year of the Act 47 five year plan.

The city’s current financial situation is stable but dangerous. If all the city had to do was make the minimum payments on debt indefinitely, we might be all right. But apparently there are health insurance concerns down the road, and probably a balloon (large) payment on debt. And the credit market is drying up, making borrowing to refinance or even just meet large payments much more difficult. And that is without talking about the issue of the under-funded pension.

If the city did go into bankruptcy, whatever federal administrator would examine what the city tried to do to avoid it. (S)He will see that the city tried to exit Act 47 status, which would eliminate a number of taxing powers granted to the city through Act 47. (S)He may see a firefighters contract negotiated early, ostensibly to help the city leave Act 47 status. The firefighters say they will not take advantage if the city returns to normal status, but I find that really hard to believe

For that matter, federal bankruptcy people would see a Mayor who has repeatedly made questionable ethical decisions and appears willing to spend fairly freely to appear to be responsive to the people (on paving software, new salt trucks and a Ford Explorer for himself, for example). The only time recently the Mayor has mention belt-tightening was in response to the question of whether the Housing Authority is overspending on itself. The Mayor does not give the impression of someone looking for ways for the city to save money, except perhaps in the sweetheart deals being made with campaign contributors (to quote Bill Murray “Well that’s what I heard, anyway”).