In the past month, I have written about financial troubles at municipalities and how it could mean some serious pain for cities across the USA. On August 4, I touched on Stockton, CA’s trouble of city unions demanding promised raises at the same time real estate values are plummeting (causing tax revenue to plummet as well), and before that on July 31 I wrote an article (“When City Hall Forecloses”) explaining various municipalities across the US and their current fiscal problems. I particularly mentioned Vallejo, CA in a post then added a correction/follow up on the same day (“Pardon Me, Vallejo…”).
On July 31, I also discussed Jefferson County, Alabama. You might remember them as the place where they listened to snazzy financiers about using fancy variable rate municipal bonds and even fancier interest rate swaps (Go HERE for a definition of a “Swap”) to finance some projects and how this came back to BITE them. They needed to find some way out or face bankruptcy; unfortunately, it looks like Jefferson County is preparing to file for bankruptcy. The problem is apparently $3.2 Billion of bonds that they issued to UPGRADE THE SEWER SYSTEM!!!
(GEE haven’t we talked about the impending infrastructure crisis in the USA and how much we as a nation will have to spend on this? AND how it will BOOST the cost of commodities as we purchase all of this steel, copper, cement, etc? Use the search feature to read past articles on “infrastructure” since I wrote about it too many times to quote them all here).
County officials have proposed refinancing the debt at lower fixed rates to get out of this mess. It is up to their creditors to respond to this offer. Perhaps they will take the offer since I’m not sure what a creditor’s recourse is with a municipality (I am not an expert on municipal bankruptcy though I did link to a definition in the articles linked above). Perhaps they can seize the water pipes? Actually the Wall Street Journal article explains the recourse – the bond insurers pay the creditors (and we know how solvent bond insurers have been) and then the insurers seek recourse from the County. However, since this is such a big filing, let’s see how this plays out. Here is more reading on the topic if you are interested:
Enjoy your Labor Day AND KEEP AN EYE on your city’s finances…
Chris Grande
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