Municipal Bankruptcy Seen as a Strategy, Rather Than a Failure

Looking to get out from under one of the primary factors for financial distress - pension obligations - city leaders across the United States are viewing bankruptcy as "a valuable tool in a city’s financial toolbox," reports Liz Farmer.

According to Farmer, "A handful of California cities are now using bankruptcy to take on that state’s goliath pension system; the outcomes of those cases could spread far beyond California, changing the way other municipalities view bankruptcy. Filing for Chapter 9 will almost certainly remain a decision of last resort, but the stigma may not be what it once was. There’s a growing sense among some leaders that municipal bankruptcy -- unthinkable just a few years ago -- may be a valuable tool in a city’s financial toolbox."

The bankruptcy of Central Falls, R.I., which allowed the town of 20,000 people to make cuts to its labor and retiree agreements it had long fought for, is seen as an important precedent for cities pushing for pension reform.

“Up until Central Falls, there was never what we call an ‘or else,’” says Ted Orson, the attorney for the city’s receiver. “There wasn’t any leverage to make concessions. However, after Central Falls, when [the labor unions] saw what happened, they understood it’s better to negotiate a better agreement than to be in a position where something can be forced on you and you might not like what it is.”

"Central Falls showed cities that pensions were touchable," says Farmer. "Now, two cases in California could cement that idea into law."

"If a judge rules that pension systems can indeed be treated like other creditors -- many expect the case to make its way to the U.S. Supreme Court -- it could forever change the notion of municipal bankruptcy and fiscal restructuring."

Full Story: The 'B' Word: Is Municipal Bankruptcy's Stigma Fading?

Comments

building block set

NEW! Build the world you want to see

Irresistible block set for adults when placed on a coffee table or desk, and great fun for kids.
$25
Red necktie with map of Boston

For dads and grads: tie one on to celebrate your city!

Choose from over 20 styles imprinted with detailed city or transit maps.
$44.95
Woman wearing city map tote bag

City Shoulder Totes - New Cities Added!

Durable CityFabric© shoulder tote bags available from 9 different cities.
$22.00
Book cover of Contemporary Debates in Urban Planning

Contemporary Debates in Urban Planning

Featuring thought-provoking commentary and insights from some of the leading thinkers and practitioners in the field.
$18.95