Jump to content
House Price Crash Forum
Sign in to follow this  
AvidFan

San Diego Considers Bankruptcy To Restructure Pensions, Etc.

Recommended Posts

http://www.bloomberg.com/apps/news?pid=20601039&sid=aIpb23EbeGvM

San Diego May Use Bankruptcy to Roll Back Benefits

Commentary by Joe Mysak

June 16 (Bloomberg) -- The city of San Diego should consider Chapter 9 municipal bankruptcy to help it reduce fringe benefits, pension and health obligations.

That’s one of the suggestions made by the San Diego County Grand Jury, which does the normal duties of recommending indictments as well as reporting on local governments and special districts.

San Diego is the fifth major city in the U.S. this year, and the second in California, where people are talking about bankruptcy as a means to “restructure and reorganize their assets and debts while providing relief from current and future obligations,” in the words of the grand jury’s 22-page report, published on June 8.

San Diego has unfunded liabilities of $2.2 billion in its pension plan and $1.3 billion for health care, which the report calls “unsustainable.”

More than two years of cutting budgets and the mounting public pension crisis have made the unthinkable an option, maybe even an attractiveone.

“Municipalities are not required to raise taxes or cut costs to the bone before filing for reorganization under Chapter 9,” the grand jury report says, quoting from a presentation at an October 2009, San Diego County Taxpayers Association seminar.

Open Discussion

San Diego has been wrestling with pension and benefits costs for years. In 2006, the city settled fraud allegations by the Securities and Exchange Commission for failing to disclose to investors that its pension system was underfunded.

The recommendation that the mayor and city council convene a panel of municipal bankruptcy experts to talk about it is the last of 16 suggestions made by the grand jury. That it was made at all, in a wealthy city like San Diego, is disturbing.

“It will be difficult to make the case that the city is insolvent,” said Natalie Cohen of National Municipal Research Inc. in New York in an e-mail this week. “It seems the grand jury report is looking to bust open the discussion about the irrevocable nature of pension obligations -- which will continue to eat up the city’s budget.”

As the report says in its introduction: “One of the underlying causes of the current structural imbalance is the underfunding of the city’s pension obligation by previous city administrations.”

This is a familiar story, both in California and around the country. As of June 30, 2009, the San Diego City Employees Retirement System has only 66.5 percent of the money needed to pay for future pension obligations, according to the report.

Punish the Public

The report contains an extensive discussion of San Diego’s retirement system, and recommends that the city investigate replacing it with some sort of alternative.

Among the report’s other recommendations are having someone else run the libraries, selling portions of parks and charging for trash collection: a fairly standard grab bag.

There’s also a little discussion on how to reduce headcount.

Did you ever have a feeling that there’s a vindictive element to some of the cuts governments do manage to make? That is, when they are absolutely at the end of their tethers and are forced to fire people, did you ever think that the government somehow (and unbelievably, if you ask me) tries to punish the public? It’s almost as though those in charge say, “Fine, we’ll cut back, but you’ll never have clean streets again.”

In other words, if the city makes cuts as painful and obvious as possible, we’ll all learn our lesson. I’m not sure what the lesson is. I suspect it depends upon who you are. Don’t lose your job? Offer to pay more taxes? Don’t ask if government might run more efficiently ever again?

There’s a hint of this in the grand jury report.

Too Many Managers

The city, it says, acted “improvidently” in cutting the public safety workforce, such as mounted patrolmen and the canine unit. Meanwhile, “there are now anywhere from seven to nine layers of costly management between the mayor and a blue- collar worker in the field.”

The recommendations: “Eliminate redundant positions and extraneous levels of management and supervision as employees leave city service through attrition,” and “Restore the cuts to public safety personnel as a priority.”

There’s a startling level of clarity in the grand jury report on the city of San Diego’s financial crisis. I just hope it hasn’t come too late.

Share this post


Link to post
Share on other sites

Any idea who the other cities are?

Others on the brink are: Detroit (up to 90% property price drops), Miami, Harrisberg Penn, Jefferson County Alabama. Also California generally is in trouble. Las Vegas is down the chute just now because it's all about discretionary spending and the discretion is falling on food, water and fuel.

It won't be long until you hear of county councils and borough councils bleating they have NO MONEY LEFT in the UK.

Edited by plummet expert

Share this post


Link to post
Share on other sites

Here's 3:

http://money.cnn.com/2010/05/28/news/economy/american_cities_broke.fortune/index.htm

Edited:

http://www.ft.com/cms/s/0/e29d90ec-52f6-11df-813e-00144feab49a.html

Probably the most high-profile case came in 1994 with Orange County, California. Since the downturn hit, the city of Vallejo, California, went bankrupt in 2008. Last year, filings more than doubled from the previous year but still only came to 10. Among the larger cities, Harrisburg and Detroit have raised the idea, without formal plans.
Edited by AvidFan

Share this post


Link to post
Share on other sites

Thanks - fascinating.

We are living History people. History I tell you.

I think you'll find that all humans have participated in living history. :P

Interesting times, this is the first major collapse where news will travel instantaneously.

Share this post


Link to post
Share on other sites

In the roughly 1/3 of states that make up the so called non-recourse states, many borrowers have pursued strategic defaults which has left banks and ultimately taxpayers holding the bag.

Strategic defaults by cities, towns and counties in the US using Chapter 9 would be a further step towards the repudiation of contractual obligations including debt.

How long until the US government enters Chapter 9 and uses it to strategically default on its debt? I wonder whether the workout will include assymetrical treatment of onshore versus offshore lenders to the Treasury.

While this is an unlikely and extreme outcome, it is not impossible. It partially explains why gold is so expensive in both absolute terms and relative to the value of other comodities.

Share this post


Link to post
Share on other sites

We will be facing similar difficutlies before winter sets in. :(

CA and the UK had much in common--huge HPI which sucked the economy dry and drove jobs elsewhere because people could not afford to work.

They learned nothing from the Great Crash (1989-96) and this time they have taken everything down with houses. They are down 47% from the peak and they are seeing a second wave coming in which means houses may see 60-70% down from peak. We will be there as we followed them in the Great Crash--this time its a delay of a couple of years.

Share this post


Link to post
Share on other sites

Just going to stick this in here...

Wisconsin Film industry

On January 1, 2008, a new tax incentive for the film industry came into effect. The first major production to take advantage of the tax incentive was Michael Mann's Public Enemies. While the producers spent $18 million dollars on the film, it was reported that most of that went to out-of-state workers and for out-of-state services; Wisconsin taxpayers had provided $4.6 million in subsidies, and derived only $5 million in revenues from the film's making.

http://en.wikipedia.org/wiki/Wisconsin#Film_industry

Good use of public money :rolleyes:

Share this post


Link to post
Share on other sites
San Diego is the fifth major city in the U.S. this year, and the second in California, where people are talking about bankruptcy as a means to “restructure and reorganize their assets and debts while providing relief from current and future obligations,” in the words of the grand jury’s 22-page report, published on June 8.

This is a the magic bankrupcy, where all your debts get written off but you get to keep all you assets.

We used to call it fraud.

Share this post


Link to post
Share on other sites

This is a the magic bankrupcy, where all your debts get written off but you get to keep all you assets.

We used to call it fraud.

It's true. It's why I think we blow bubbles in the West. Even if the currency devalues (debts diminished) or we inflate, default or go bankrupt, we still end up with all the stuff. Genius.

Share this post


Link to post
Share on other sites

This is a the magic bankrupcy, where all your debts get written off but you get to keep all you assets.

We used to call it fraud.

There has been a lot of conversation here about the risk free rate and the nature of the flight to quality.

Lending to the people who set the rules for repayment who also have the ability to deny lenders access to the courts to sieze assets in the event of non-repayment is neither risk free nor a logical destination for investors fleeing risk.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.