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Posts Tagged ‘municipal’
November 25th, 2013 at 5:52 pm
After Obamacare, Cities Want Pension Bailout Too

After decades of kicking the financial can down the road, some of America’s biggest cities now want to try throwing it up the ladder.

Starting January 1, Detroit will move its retirees to Michigan’s federally-run Obamacare exchange. Instead of the previous full coverage paid for by taxpayers, each retiree will get a $125 monthly stipend. The move is projected to save the city roughly $120 million.

Chicago and other cash-strapped cities are considering similar options.

But the move to offload state and local obligations onto federal taxpayers is just getting started. Writing for City Journal, Steven Malanga explains that municipal debt related to unfunded pensions far outweighs the amount owed to retiree health benefits.

To big city mayors the solutions, of course, are identical – Ask Uncle Sam for a bailout.

At some point, America’s entitlement culture – up and down the socio-economic ladder – has to take a back seat to fiscal reality. We’ll see if enough people are ready to have such a debate when the 2016 presidential election rolls around.

August 18th, 2012 at 9:33 pm
Moody’s Warns It May Downgrade California Municipal Debt

The Huffington Post summarizes a new Moody’s Investor Service report that could significantly alter municipal California’s fiscal future:

Moody’s reports that some cities are turning bankruptcy as a new strategy to take on budget deficits and avoid obligations to bondholders, an emerging dynamic that could have ripple effects throughout the investment community.

The municipal bond market has long been characterized by low default rates and relatively stable finances, Moody’s said, but that outlook is beginning to change as bankruptcy becomes a tool for cash-strapped cities.

Already three California cities – Stockton, San Bernardino, and Mammoth Lakes – have filed for bankruptcy.  HuffPo quotes Moody’s as saying that of California’s 482 cities, more than 10 percent have declared a fiscal crisis.

Historically, municipal bonds have been some of the safest investments on the market because cities are presumed by analysts to want to pay back their debt in order to maintain access to public bonds.  (Bonds pay for things like school buildings, roads, sewage systems, etc.)

Since California is responsible for 20 percent of the nationwide muni bonds in circulation, a downgrade by a ratings agency like Moody’s would have a significant negative effect on the value of heretofore safe investments.  If investors see California as an unsafe bet – and why wouldn’t they – expect to see the muni bond market dry up and even more cities opting for bankruptcy.

In other words, this is very bad.