Californian Cities L.A., Antioch Going Bankrupt
Politics / US Debt May 28, 2010 - 03:35 AM GMTBy: Mike_Shedlock
Bankruptcy talk is heating up in California with the city of Antioch on the front burner. Please consider Bankruptcy talk spreads among California municipal officials.
Two years after Vallejo, California, filed for bankruptcy protection, officials in nearby Antioch are also tossing around the 'B' word.
Antioch's leaders earlier this month said bankruptcy could be an option for the cash-strapped city of roughly 100,000 on the eastern fringe of the San Francisco Bay area.
"We just want to alert people to the possibility," Antioch Mayor Pro Tem Mary Helen Rocha said.
Orange County Treasurer Chriss Street would not be surprised if more local governments across the Golden State sound a similar alarm.
Street expects more talk of municipal bankruptcy across California because local government finances are in such dire shape -- a situation underscored on Wednesday when a top finance officer for Sacramento County projected a worse-than-expected shortfall for the county of $181 million, which could force more than 1,000 layoffs from the county's payroll.
Marc Levinson, a lawyer with Orrick, Herrington & Sutcliffe LLP who is representing Vallejo in its bankruptcy proceeding, agrees that California's hard times and lean local budgets are forcing local leaders to weigh bankruptcy.
"It's a topic on everyone's lips because cities and counties and local governments are hurting," Levinson said.
Like Vallejo, Los Angeles is suffering from weak revenue at the same time the cost of its pensions and other retirement benefits are rising. Former Mayor Richard Riordan said those factors put the government of the second largest U.S. city on track to declare bankruptcy between now and 2014.
Riordan sees bankruptcy as a necessary tactic for squeezing concessions from the city's public employee unions. It could also pave the way for 401(k) retirement accounts for new city workers instead of defined pension benefit plans with escalating costs, he said.
"The threat of bankruptcy is really the only way you're going to get them to make major changes," Riordan recently told Reuters.
Talk of municipal bankruptcy has not escaped California's politically powerful public employee unions. A number of them are pressing the legislature to pass a bill that would require local governments to get the approval of a state board before filing for bankruptcy. Since the board could be stacked with union-friendly appointees, bankruptcy pleas could be rejected or delayed.
"It's a horrible bill," Levinson said. "If you don't have the bankruptcy outlet, what do you do? If you can't pay your bills what do you do?"
Major cities declaring bankruptcy is a given. The only questions are "What city is first and how long will it take?" Miami is one possible choice given that a Miami Commissioner says Bankruptcy is Miami's Best Hope.
Bankruptcy is exactly what public unions deserve. It's too bad the politicians that granted those ridiculous benefits in the first place will not receive the same fate.
By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
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