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City Finance Crisis Study Recommends Considering Bankruptcy, Leasing Out Parks and Charging for Library Books

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June 09, 2010 – Comments (15)

Wow. Many of us have been talking about a debt crisis in Cities and Muncipalities and then States in the US, but steps proposed this way are always a little shocking. So we are now at a crossroads. Trends like this will continue (more municipalities / cities / states will considere defaulting on debt) which will force the Federal Government to either bail them out or to let the wildfire spread. If they get bailed out, it will almost certainly be a large bailout by the Treasury, and then monetized by the Fed (will China and Japan subsidize continued free library books in San Diego?). Which will call into question the "safety" (used very loosely) and sustainability of US Sovereign Debt.

When everything gets transferred on to the balance sheet of the Fed, and the Fed thinks it can monetize that debt with impunity because the Dollar is still the reserve currency, then the market will start teaching some macroecnomic lessons to Geithener and Bernanke.

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City Finance Crisis Study Recommends Considering Bankruptcy, Leasing Out Parks and Charging for Library Books
Last Update: 6/08 1:47 pm

http://fwix.com/sd/share/8dbc270072/city_finance_crisis_study_recommends_considering_bankruptcy_leasing_out_parks_and_charging_for_library_books

[excerpt]

SAN DIEGO - The San Diego County grand jury recommended Tuesday that portions of Mission Bay, Torrey Pines and Balboa parks be leased out to help bail out a $7 billion pension and debt liability crisis that plagues the City of San Diego.

A municipal bankruptcy should also be examined, the grand jury said. But the citizens commission said it did not know if such a filing would mean a federal judge could reduce the city's pension obligations.

The citizens commission recommended charging library patrons to check out books, studying outsourcing the city's public libraries, asking voters to junk the "people's ordinance" that prevents the city from charging for residential garbage collection and merging some city agencies with similar county departments.

The grand jury recommended eliminating city-operated garbage collection and hiring private contractors instead, a practice that the report said cut costs 38 percent recently in Phoenix.

The grand jury issued "San Diego City's Financial Crisis, The Past, Present, and Future" to examine what brought San Diego to its current financial condition, and propose plans on how the municipality should dig out.

The report recommended ending a program designed including to benefit the city by retaining experienced workers on the payroll who are eligible for retirement, unless the financial arrangements do not cost the cost extra money.

The grand jury urged each major city department to determine potential cost savings, operational efficiency and revenue sources.

The report also advocates restoration of recent public safety cuts that led to rolling closures of fire stations and elimination of mounted police patrols in Balboa Park and canine units at multiple locations.

And the city's hole is getting deeper, the report warned. Revenues this year will fall $11 million short of expectations because of recession-related drops in the city's hotel bed tax and other shortfalls in sales an property tax flows, it said.

The grand jury recommends that the city hold a public forum with a panel of bankruptcy experts discuss the legal and financial consequences of a Chapter 9 declaration of bankruptcy, by the city if such an action becomes necessary.

But the grand jury said it was "untested" in federal courts if filing for reorganization of the city under federal bankruptcy laws would allow the city to evade its $7 billion pension obligation.

Implementation of a fee for garbage collection would require a ballot measure calling for the repeal of the "People's Ordinance," which prevents the city from charging for most residential trash pickup, the grand jury report said.

15 Comments – Post Your Own

#1) On June 09, 2010 at 1:15 PM, davejh23 (< 20) wrote:

Check out Mish's blog.  He recently discussed Arizona's 20 year leaseback deal on their Supreme Court building in order to cover 3 months of operating expenses.  Other similar deals were in the news not too long ago.  These kinds of stories lead me to believe that things are far worse than even most pessimists ever expected.

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#2) On June 09, 2010 at 1:20 PM, binve (< 20) wrote:

davejh23 ,

Yeah, there are quite a lot of AZ government buildings that have been leased back. Definitely most troubling.

>> These kinds of stories lead me to believe that things are far worse than even most pessimists ever expected.

I agree :(

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#3) On June 09, 2010 at 8:10 PM, 100ozRound (29.48) wrote:

I work in Mission Bay - I hope they don't lease it out.  It's a beautiful park and it's well maintained by the city (at least for now)

I think a better way to deal with it is to charge for parking because they would make a killing - especially in the warmer months

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#4) On June 09, 2010 at 8:29 PM, binve (< 20) wrote:

100ozRound ,

>>I think a better way to deal with it is to charge for parking because they would make a killing - especially in the warmer months

See, ideas like that are much more reasonable than the city just giving away its resources for some short term bucks..

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#5) On June 09, 2010 at 10:23 PM, 100ozRound (29.48) wrote:

Word!

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#6) On June 09, 2010 at 10:30 PM, Superdrol (97.40) wrote:

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=387526&t=01001545002054304245

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#7) On June 09, 2010 at 11:11 PM, binve (< 20) wrote:

Superdrol,

Indeed!.

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#8) On June 10, 2010 at 1:11 AM, Tastylunch (29.40) wrote:

This is truly a bigger mess than people know. and it's going to get Ugly with a capital U.

There has never been muni bond default in the US

Ever

but the first one is almost certianly going to happen in July. I believe I heard on Bloomberg that it is the bond in question  from Las Vegas's Monorail project.

Talk about your Black swans, You have to wonder if this could cascade as no one I'm aware of is actually prepared for muni defaults...

In any event state laws will make thsi relaly complicated. States by their charters I believe are unallowed to declare bankruptcy but cities and counties can in 28 states (chapter 9 I want to say?)?

the lawyer fees/research alone will be staggering. There is literally no precedent for this in the US.

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#9) On June 10, 2010 at 2:16 AM, SamTheHobbit (30.01) wrote:

Vallejo's Painful Lessons in Municipal Bankruptcy

 

Two years after going broke, the California city still isn't free of its crushing pension obligations.

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#10) On June 10, 2010 at 2:38 AM, TMFUltraLong (99.95) wrote:

And people always ask me why I moved away from San Diego to Seattle.....

UltraLong

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#11) On June 10, 2010 at 3:13 AM, DarthMaul09 (29.80) wrote:

UltraLong

You mean besides the fact that WA state income tax is Zero percent, while CA state income tax may exceed 10% for the "rich", which in CA mean you have a job.

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#12) On June 10, 2010 at 9:15 AM, binve (< 20) wrote:

Tastylunch ,

>>This is truly a bigger mess than people know. and it's going to get Ugly with a capital U. There has never been muni bond default in the US. Ever

Hey Tasty! Exactly man. I am not trying to be Mr. Gloom and Doom here, but this is such a big deal. And with large cities (like San Diego) teetering and seriously considering bankruptcy, nobody can ignore this. Like Sam points out below, there was Vallejo, but they never got around the pension issue, which is at the core of the San Diego case.

>>but the first one is almost certianly going to happen in July. I believe I heard on Bloomberg that it is the bond in question  from Las Vegas's Monorail project.

Yeah, I heard about that but I haven't researched it much

>>Talk about your Black swans, You have to wonder if this could cascade as no one I'm aware of is actually prepared for muni defaults...

I agree. I think very few people have given this a second thought, much less a first one

>>In any event state laws will make thsi relaly complicated. States by their charters I believe are unallowed to declare bankruptcy but cities and counties can in 28 states (chapter 9 I want to say?)?

Exactly. Can you imagine this. Muni tied up in courts for years trying to litigate this meanwhile they are bankrupt. So they can't pay payroll. Then there will be massive work slowdowns or strikes. This could really snowball. Which is why I talked about the Fed and Treasury above. This is exactly the type of thing that they are going to want to avoid (bankruptcies and strikes) but in avoiding that (through debt monetization) will likely be a primary factor in the US sovereign debt crisis.

This is quite bad :(

SamTheHobbit ,

Thanks Sam! I do recall and somewhat follow the Vallejo, but like you point out, they were not able to do anything about the pension obligations. And per this article, this is a big part of the San Diego plan. If they somehow get that restructured, that will be a huge precedent.

UltraLong ,  

Gotcha man. :)

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#13) On June 10, 2010 at 10:07 AM, eldemonio (98.57) wrote:

Contracting out city jobs is a step in the right direction.  Not only do you save on salary in the short term, but you save on pension obligations in the long term. 

This may sound silly, but I'll say it anyway....free trash service is the root of all evil. 

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#14) On June 10, 2010 at 10:16 AM, binve (< 20) wrote:

eldemonio,

>>Contracting out city jobs is a step in the right direction.  Not only do you save on salary in the short term, but you save on pension obligations in the long term. 

I agree man. That is an excellent point. The size of governments are too large and have to be supported by the taxes on the private sector. This is precisely why many service should be private sector jobs, because they create (usually) more efficiency (it depends on how flawed the bidding process is) but definitely less high paying / high benefit / perpetual benefit governement jobs.

>>This may sound silly, but I'll say it anyway....free trash service is the root of all evil. 

LOL! It does sound silly but I agree with it 100%. Phoenix municipalites charge customers for waste disposal and Waste Management is hired to do all the collection. Seems like a logical recipe to me.

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#15) On June 12, 2010 at 2:09 PM, rofgile (99.25) wrote:

That's horrible.  Who's running this city panel - Barnes and Noble and Books a Million??

If my library started charging, I'd stop paying taxes.  Libraries, schools, roads, and fire houses are the only real benefits I see in my tax dollars.

 

 -Rof

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