Tag: municipal bankruptcy

PREPA bond parties make offer and file suits

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202311131617SM______BNDBUYER_0000018b-ca27-d799-afbf-dbf739470092_110.1

Excerpt:

Puerto Rico Electric Power Authority bond parties that oppose the Oversight Board’s proposed debt deal filed suits challenging part of the deal, asked for compensation for Puerto Rico central government’s actions since March 2022 and proposed an alternate bond deal.

The parties filed the suits this weekend in the U.S. District Court for Puerto Rico and filed an informative motion Friday in the bankruptcy telling U.S. District Judge Laura Taylor Swain about their bond deal offer.

GoldenTree Asset Management and Syncora Guarantee sued Puerto Rico’s central government for actions taken since March 2022 to interfere with PREPA’s ability to pay bondholders. The court has yet to appoint a judge in that case.

The bond parties allege the commonwealth government has manipulated PREPA’s fiscal plans and budgets to deprive the bondholders of their claim on the authority’s revenues and depress the value of the bonds.

The board rejected former Oversight Board member Justin Peterson’s suggestion to use commonwealth financial surpluses for PREPA because the commonwealth didn’t owe the authority money.

Author(s): Robert Slavin

Publication Date: 13 Nov 2023

Publication Site: Fidelity Fixed Income/Bond Buyer

Detroit police, fire pensioners push back on bankruptcy ruling to extend payments

Mary Pat Campbell

Link:https://www.detroitnews.com/story/news/local/detroit-city/2023/07/11/detroit-police-fire-pensioners-push-back-on-ruling-to-extend-payments/70401452007/

Graphic:

Excerpt:

The Police and Fire Retirement System of Detroit filed on Monday a motion for reconsideration, pushing back on a federal bankruptcy judge’s ruling in favor of the Duggan administration’s plan to extend the city’s pension payment obligations over 30 years rather than 20 years.

The city’s police and fire retirees are continuing litigation that has been ongoing since August when the city administration initially filed suit against the pension system to enforce a 30-year pay-out schedule. On June 26, Judge Thomas Tucker ruled in the city’s favor, stating that a 30-year amortization period is “indeed part of the (bankruptcy) Plan of Adjustment and that the Police Fire Retirement System cannot change it.”

The new motion seeks clarification of the court’s possible imposition of a 6.75% rate of return that was specifically set to expire after 10 years under the Plan of Adjustment, the bankruptcy exit plan. After June 30, the pension fund’s rate of return and its amortization funding policy are within the purview of the Police and Fire Retirement System’s Board of Trustees and Investment Committee, according to the pensioners’ filing.

At the 30-year determined rate, the city will complete its debt obligations in 2054. Police and fire retirees want their pension fund to be made whole sooner.

Author(s): Sarah Rahal

Publication Date: 11 July 2023

Publication Site: The Detroit News

Can States and Cities Dig Themselves Out?

Mary Pat Campbell

Link: https://www.city-journal.org/multimedia/can-states-and-cities-dig-themselves-out

Excerpt:

David Schleicher: Yeah, absolutely. There’s an old joke that says, “The federal government is an insurance company with an army.” But anything you actually touch, can physically touch, any infrastructure of any sort, or services you consume and need to care about in one way or another are almost all directly provided by the state and local governments. They’re often funded sometimes with money from the federal government, but they are directly private and partially funded by state and local governments. The fiscal health of state and local governments is extremely important to, say, the question of state capacity in America.

Allison Schrager: It seems like we don’t talk about it until you’re Illinois or if you’re a municipality, Detroit, but it seems like we’ve been talking about this big shoe to drop on state municipal bankruptcies for a while and it doesn’t come, but that doesn’t mean we should be complacent.

David Schleicher: Yeah, absolutely. Two things. One is that it definitely would’ve come in the last couple of years had the federal government not dropped a ton of money on state and local governments. The pandemic created huge fiscal problems for a number of jurisdictions. The federal government responded by providing a huge amount of aid. The effect of that is that has had benefits and costs, which I’m sure we’ll talk about, but you can’t just look through the defaults or absence of defaults, to ask the question of “Are states and cities in fiscal trouble?” State and fiscal budgets are very procyclical. We end up cutting really important things during recessions and spending too much during non-recessions. Then we have the question of federal bailouts.

Allison Schrager: Yeah, it’s a very complicated issue, so what to do about this. But you have a very sort of organized, clean way to think about it. You describe it as this trilemma.

David Schleicher: Yeah. When a state or city faces a fiscal problem, fiscal crisis, take New York City in the 1970s or Detroit, or Puerto Rico or whatever it is. We’ve had, over the course of American history from Hamilton’s assumption of state debts, we’ve had a series of state and local fiscal crises. We have a lot of governments and some of them are going to have crises. The question is, what should the federal government do? Well, the federal government has three things it would like to achieve, which are, it doesn’t want to have too severe cuts during recessions, because that creates even bigger recessions. It doesn’t want to encourage state and local governments to think that the federal government will always stand behind them, a problem we call moral hazard. It wants federal state and local governments to be able to continue to borrow because state and local governments need to borrow to build infrastructure.

Author(s): David N. Schleicher, Allison Schrager

Publication Date: 2 Jun 2023

Publication Site: City Journal

When States Take Over Financially Troubled Local Governments

Mary Pat Campbell

Link: https://www.route-fifty.com/finance/2023/02/state-takeover-city-government-chester-pennsylvania-bankruptcy/382677/

Excerpt:

A number of states have programs in which they actively monitor municipal finances and roughly 20 have emergency manager laws allowing for direct intervention. People have long debated how effective these oversight programs are at generating a real recovery and what the right level of intervention even is. Duly elected city officials don’t like being told what to do by state overseers. States on the other hand, typically want troubled cities to just buckle down and take their advice—even if it’s tough medicine.

So while the whole point of these programs is to avoid or mitigate extreme distress, they can also create or exacerbate tension between cities and states along the way. 

By all accounts, Chester’s approach to being placed in Pennsylvania’s municipal distress program in 1995 was to just ignore the state’s advice. Fred Reddig, a retired state official who has coordinated recovery plans for a number of distressed municipalities, worked on Chester’s case from 1995 to the early 2000s. He recalls that during that time, it was difficult to compel local officials to follow any of the state’s recommendations and that relations were tense. 

….

Rob DiAdamo, a lecturer at Boston University’s law school who teaches a class on state and local governance, noted many communities that end up under some form of state oversight had structural economic problems long before the state intervened.

“It may be more effective for the state to be looking at how to bring opportunities back to these communities than wait for the crisis and have people argue about the best way to address it,” he said. “It’s like waiting for the patient to have a heart attack and discussing treatment options when the crisis could have potentially been avoided by first encouraging healthier eating habits and exercise.”

Author(s): Liz Farmer

Publication Date: 7 Feb 2023

Publication Site: Route Fifty

As Pension Goes Broke, Bankruptcy Haunts City Near Philadelphia

Mary Pat Campbell

Link: https://news.bloomberglaw.com/bankruptcy-law/as-pension-goes-broke-bankruptcy-haunts-city-near-philadelphia

Excerpt:

Decade after decade, Chester, Pennsylvania, has fallen deeper and deeper into a downward financial spiral.

As the city’s population dwindled to half its mid-century peak, shuttered factories near the banks of the Delaware River were replaced by a prison and one of the nation’s largest trash incinerators. A Major League Soccer stadium and casino did little to turn around the predominantly Black city just outside Philadelphia, where 30% of its 33,000 residents live below the poverty line. Debt piled up. The government struggled to balance the books.

Now, with its police pension set to run out of cash in months, a state-appointed receiver is considering a last resort that cities rarely take: filing for bankruptcy.

…..

In the years after the housing-market crash, three California cities, Detroit and Puerto Rico all went bankrupt, in large part because of retirement-fund debts. Such pensions are now being tested again, with the S&P 500 Index tumbling over 20% this year and bonds pummeled by the worst losses in decades.

….

Michael Doweary, who was appointed receiver of the city in 2020, is exploring options such as eliminating retiree health care, cutting the city’s costs for active employees’ medical benefits and reducing the city’s pension and debt-service costs. 

But that’s virtually certain to draw resistance from employees, who would need to approve such changes. In February, Pennsylvania’s Department of Community and Economic Development gave Doweary the power to seek bankruptcy protection for Chester if such steps fall through. 

“The answer is not to go to people and say we promised you if you work here for 25 years we’re going to give you post-retirement medical benefits, and then take it back,” said Les Neri, a former president of the Pennsylvania Fraternal Order of Police who is currently working with Chester’s officers. “At least current officers can make a decision to accept it and stay, or reject it and leave.”

Author(s): Hadriana Lowenkron

Publication Date: 17 Oct 2022

Publication Site: Bloomberg Law

Puerto Rico Released From Bankruptcy as Economic Problems Persist

Mary Pat Campbell

Link:https://www.wsj.com/articles/puerto-rico-released-from-bankruptcy-as-economic-problems-persist-11642537090

Excerpt:

Puerto Rico received court approval to leave bankruptcy through the largest restructuring of U.S. municipal debt ever, ending years of conflict with creditors as the U.S. territory confronts other stubborn economic problems.

Tuesday’s court ruling approved a write-down of $30.5 billion in public debts built up during an economic decline marked by high joblessness, outward migration and unsustainable borrowing that tipped Puerto Rico into bankruptcy in 2017. The restructuring plan calms tension between Puerto Rico and its Wall Street creditors dating to its debt default, the largest ever on bonds backed by the full faith and credit of a U.S. municipality.

….

The territory entered bankruptcy with $74 billion in bond debt and a $55 billion gap between the pension benefits promised to employees and retirees and the funding set aside to pay for them. Public agencies were beset by cronyism and failed for years to draw up accurate budgets or account for expenses, according to a 2018 investigation commissioned by the board.

Sprawling bureaucracy and a high cost of doing business discouraged investment, especially after the expiration of some corporate tax breaks in 2006 pushed some pharmaceutical and other manufacturers to depart. To make up for a shrinking tax base, officials borrowed to paper over deficits and skimped on pension contributions.

Many residents of Puerto Rico, political leaders, and some investors have called for an independent audit of how the huge debt was built up, according to Judge Swain’s decision.

Author(s): Andrew Scurria and Soma Biswas

Publication Date: 18 Jan 2022

Publication Site: WSJ

Waking from Bankruptcy Shock, Stockton Comes Back to Life

Mary Pat Campbell

Link: https://www.governing.com/now/waking-from-bankruptcy-shock-stockton-comes-back-to-life

Graphic:

Excerpt:

The metrics on the OGSP give a high-level view of how progress can be measured, but they are just part of the data that Regan’s office collects. Hundreds of other data points are in a performance scorecard that includes factors that contribute to attainment of large targets such as reduced crime rate.

High-level goals may take time to achieve. The StocktonStat portal, scheduled for launch on June 30, will include data on the number of potholes and streetlights repaired, or square feet of graffiti removed, says Regan. “The stat process, and this shared data, are part of a continuous conversation and relentless follow up toward our performance targets.”

Author(s): Carl Smith

Publication Date: 16 June 2021

Publication Site: Governing