Archive for the ‘Municipal Debt’ Category

Providence Superintendent Sends Dismissal Notices to All 1,926 Teachers; Providence is Officially Bankrupt

Thursday, February 24th, 2011

California, Michigan, and Illinois are not the only states with multiple towns heading for bankruptcy.  Rhode Island was recently added to the list, as the school district had a budget shortfall of $40 million dollars this year.   So, it is laying off all of its 1,926 teachers.  How did this happen?  Poor planning and a worsening local economy:

“Providence Rhode Island school district has a huge budget shortfall of $40 million. It does not know how many teachers it will need to layoff so instead, the city plans to fire all of them.

The school district plans to send out dismissal notices to every one of its 1,926 teachers, an unprecedented move that has union leaders up in arms.

In a letter sent to all teachers Tuesday, Supt. Tom Brady wrote that the Providence School Board on Thursday will vote on a resolution to dismiss every teacher, effective the last day of school.

In an e-mail sent to all teachers and School Department staff, Brady said, “We are forced to take this precautionary action by the March 1 deadline given the dire budget outline for the 2011-2012 school year in which we are projecting a near $40 million deficit for the district,” Brady wrote. “Since the full extent of the potential cuts to the school budget have yet to be determined, issuing a dismissal letter to all teachers was necessary to give the mayor, the School Board and the district maximum flexibility to consider every cost savings option, including reductions in staff.” State law requires that teachers be notified about potential changes to their employment status by March 1.

“To be clear about what this means,” Brady wrote, “this action gives the School Board the right to dismiss teachers as necessary, but not all teachers will actually be dismissed at the end of the school year.”

“This is beyond insane,” Providence Teachers Union President Steve Smith said Tuesday night. “Let’s create the most chaos and the highest level of anxiety in a district where teachers are already under unbelievable stress. Now I know how the United States State Department felt on Dec. 7 , 1941.” That was the day the Japanese government bombed Pearl Harbor.

Smith, who has forged a groundbreaking collaboration with Brady that has received national recognition, said he believes this move comes directly from Mayor Angel Taveras, not the School Department. In a conversation with Taveras earlier Tuesday, Smith said the mayor also hinted at school closings but didn’t elaborate.

Providence is facing a daunting budget crisis. The city had a $57-million deficit last year and expects a higher figure for the year ending June 30. In addition, the city, under then-Mayor David N. Cicilline, nearly depleted its reserves to cover day-to-day expenses. Taveras is currently awaiting completion of a report by an independent panel, which he commissioned to get a better handle on the city’s financial situation.

Commendable Action

Sending out notices to all teachers is exactly the correct approach. Until contracts are negotiated, no one knows the exact number.

In reality, no teachers have to be let go. All the teachers have to do is agree to wage and benefit concessions that will save every job. They will not do that, so the mayor has no choice.

Hopefully the mayor will play similar hardball with police and fire unions as well. However, the best approach is for the city to declare bankruptcy and get it done with. Then the city could set, not negotiate, haircuts on benefits and salaries.

The problem is Rhode Island does not have a statute authorizing towns to use federal bankruptcy court.

Central Falls

Central Falls is another Rhode Island bankrupt city.  The city’s financial problems are so profound that the only way to solve them is through a merger with Pawtucket or a regionalization of city services, the state-appointed receiver said in a report Thursday to the Carcieri administration.

“Central Falls, in my judgment, cannot remain a stand-alone community as it presently is, unless the state wants to subsidize this into the future,” said retired Superior Court judge Mark A. Pfeiffer, the man appointed by the state Department of Administration in July to run the city, with elected government officials in advisory roles, after those officials had earlier declared the city insolvent. …

At Central Falls high school, since the school year started Sept. 1, there has not been a single day when all of the 88 teachers at Central Falls High School have shown up for work.

On that first day, two teachers called in sick and a third took a personal day.

And there have been only five days — all in September — when administrators were able to replace all the missing teachers with substitutes.

Last week alone, there were at least 19 teachers out every day, 10 to 13 of whom called in sick each day.

The severity of the problem came to light last week when The Journal reported that more than half of the high school’s 840 students didn’t receive a grade in one or more classes for the first quarter.

The school’s leaders, Deputy Supt. Victor Capellan and co-principals Evelyn Cosme-Jones and Sonn Sam, said 453 students did not receive solid instruction in several classes, and therefore no grade could be given.

Since Nov. 12, there have been at least 20 teachers missing or absent at the high school each Friday. Starting Oct. 21, there were 14 to 19 teachers absent daily for seven straight days. And 453 of the 840 students at Central Falls High School didn’t receive enough instruction this fall to earn a grade in at least one class.

A former Rhode Island Supreme Court judge has been named as receiver for the tiny, financially distressed city of Central Falls, Rhode Island.  Robert Flanders will replace Mark Pfeiffer, who has served as receiver since the city was taken under state government control last July. The exact date of the transition has not yet been decided, a Chafee spokesman said.

Central Falls, a city of 1.5 square miles with a population of 19,000 and an annual budget of $16.8 million, has an unfunded liability for its pension plans and retiree health care benefits totaling $80 million, Pfeiffer said in a report last month.

He warned the city might need to turn to a rarely used Chapter 9 municipal bankruptcy if major fiscal reforms are not implemented. Notwithstanding this comment, it is not clear whether the city is eligible to file for Chapter 9 as Rhode Island is one of about 25 states that do not have a statute authorizing its towns to use federal bankruptcy court.

In California, which has such a statute, several entities have filed for bankruptcy in the past two decades, including the city of Vallejo in 2008 and Orange County in 1994.

The first step in fixing any problem is admitting what the problem is. This problem is plain to see whether anyone admits it or not. Providence and Central Fall are bankrupt.

Wages and pension benefits have been promised that cannot be met. The only way out for those cities is bankruptcy.

For a second time I make my plea for governor Lincoln D. Chaffee, an independent, to ask the legislature to allow bankruptcies. It is the only hope for Central Falls and more importantly, Providence.”

Mike “Mish” Shedlock

http://globaleconomicanalysis.blogspot.com

Detroit is Bankrupt, Allen Park, Michigan Sends Layoff Notices to Entire Fire Department

Thursday, February 24th, 2011


For those that saw the bankruptcy of Detroit and Hamtramck, Michigan as a isolated events, guess again.  Allen Park, Michigan has also filed for bankruptcy, sending lay off notices to its entire fire department.  Police officers may be forced to resign as well.  Many other towns in the greater Detroit area may go bankrupt by 2013.

“Allen Park, Michigan, a town of about 28,000, sent layoff notices to its entire fire department. This is a procedural move because the town is unsure how many it will need to lay off. However, the situation looks grim.

The city’s finance director said today that Allen Park must lay off 25 to 30 employees by June to avoid a $600,000 deficit for the current fiscal year.

Tim McCurley said in an interview that the city sent layoff notices to everyone in the fire department to comply with a clause in the firefighters’ union contract requiring a 30-day notice. He said some or all of the firefighters could lose their jobs, and that the police department faces layoffs too.

“It’s not easy to lay people off,” McCurley said. “No one wants to do that. It’s never easy, but we are trying to work through it.”

The finance director said the layoffs would only keep the city’s books balanced for this year and have nothing to do with any funding cuts in Gov. Rick Snyder’s proposed budget for fiscal 2012.

According to McCurley, the city faces a fiscal crunch because revenue in several areas has fallen short of projections. Collections from traffic tickets are $819,000 below what was budgeted, and ambulance billing collections are $200,000 under budget, he said.

McCurley said the city also had to refund $80,000 under order of the Michigan Tax Tribunal.

In other areas, spending has exceeded projections, including $130,000 in parks and recreation. McCurley said the city failed to budget for $150,000 for unused sick and vacation time for employees who have retired.

Overtime in the fire department is $150,000 over budget, even after firefighters agreed to limit overtime pay as part of concessions negotiated last year, McCurley said.

City Council members approved laying off the 25-person fire department Tuesday night.

Fire Chief Doug LaFond said he would be laid off as well.

The fire chief said he did not believe the entire police department was being threatened with layoff, but said the police force is about double the size of his department and could see significant cuts.

This is the second such maneuver we have seen recently where a town sent layoffs to an entire department.

Earlier in the year,  leaders of this Hamtramck met for more than seven hours on a Saturday not long ago, searching for something to cut from a budget that has already been cut, over and over.

They slashed money for boarding up abandoned houses — aside from circumstances like vagrants or obvious rats, said William J. Cooper, the city manager. They shrank money for trimming trees and cutting grass on hundreds of lots that have been left to the city.”

Here is a story that was published before its pending bankruptcy:

“We can make it until March 1 — maybe,” Mr. Cooper said of Hamtramck’s ability to pay its bills. Beyond that? The political leaders of this old working-class city almost surrounded by Detroit are pleading with the state to let them declare bankruptcy, a desperate move the state is not even willing to admit as an option under the current circumstances.

“The state is concerned that if they say yes to one, if that door is opened, they’ll have 30 more cities right behind us,” Mr. Cooper said, as flurries fell outside his City Hall window. “But anything else is just a stopgap. We’re going to continue to pursue bankruptcy until the door is shut, locked, barricaded, bolted.”

Bankruptcy, increasingly common among corporations and individuals, remains rare for municipalities. Local leaders who want to win elections find it unappealing and often have other choices for solving financial woes. Besides, states have a say in whether a municipality may pursue bankruptcy at all, and they have every reason to avoid such an outcome, not least of all for fear of a creating a ripple effect that could cripple the muni bond market and drive up the cost of borrowing.

Yet with anemic property tax revenues and forecasts of more dire financial times ahead, some experts and elected leaders fear that more localities may have to at least consider bankruptcy.

“There could be many cities in this position next year,” said Summer Hallwood Minnick, director of state affairs for the Michigan Municipal League, who added that in this state, cities had already struggled with billions less than expected in state revenue sharing. “All our communities have done is cut, cut, cut. They’re down to four-day workweeks and the elimination of parks, senior centers, all of that. So if there’s anything else that happens, they will be over the edge.”

This month, the authorities in Rhode Island said the city of Central Falls, RI could face bankruptcy if immediate, drastic changes — perhaps the city’s annexation into a neighboring municipality — failed. Some leaders in Harrisburg, Pa., which owes millions in debt payments tied to an incinerator project, say bankruptcy may eventually be the only choice.

Prichard, Ala., which stopped paying monthly checks to retired city workers when its pension fund ran out last year, is appealing a bankruptcy judge’s ruling that it did not qualify for Chapter 9 under Alabama law.

Only about 600 cities, counties, towns and special taxation districts have filed for bankruptcy (known as Chapter 9 for these sorts of entities) since 1937, said James E. Spiotto, a municipal bankruptcy expert at Chapman & Cutler, a law firm in Chicago, and fewer than 250 in the last three decades. In part, it can be hard — even impossible — to do: about half the states have statutes authorizing such filings, but some of them set limits or require elaborate approval processes. Other states have no specific provision allowing cities to pursue bankruptcy, and at least one, Georgia, bans such moves.

So far, the financial misery of the past two years has not caused a surge in bankruptcy applications; about 15 municipalities pursued bankruptcy in the last two years. But if revenue forecasts continue as predicted, 2011 might bring a rise in cities faced with such a fate.

Hamtramck (pronounced ham-TRAM-eck) did not anticipate its current circumstances. Officials in Detroit announced this year that they had for years overpaid Hamtramck in a revenue-sharing deal related to a General Motors plant that sits smack on the border of the two cities. The dispute is likely to be resolved, eventually, in court, but meanwhile, Detroit has stopped paying $2 million a year, and Hamtramck is watching a growing gap in its $18 million budget.

Here, the urgent search for services to cut has turned all attention to a realm that is also emerging at the center of budget debates in cities and states around the country: the costs of salaries, benefits and pensions of public workers.

Mr. Cooper, the city manager, says that everything else that could be cut already has been, while the city goes on spending 60 percent of its total general fund to pay for its police and firefighting forces — 75 current police officers and firefighters and about 240 former workers and spouses now on pensions. Mr. Cooper said that an entry-level police officer costs the city about $75,000 a year in salary and benefits, and yet repeated efforts to renegotiate contracts have failed.

“They kind of have the Cadillac plan,” Mr. Cooper said, “and we’d kind of like the Chevy.”

The police and firefighters question whether the city’s bankruptcy talk is really just a scare tactic for negotiation. Earlier discussions with city officials, they say, have urged them to accept pay cuts, layoffs, increased worker payments to pensions and even a suggestion that officers might pay for part of their own bulletproof vests — all this while the city has opted not to increase taxes.

“Nobody likes the police until you need them,” said Jon Bondra, the incoming president of Hamtramck’s police union.

(Found, Mr. Cooper says, posted on the wall of the firefighters’ barracks was his name — crossed out — on a list of former city managers and the word “Next?”)

Hamtramck, all 2.1 square miles of it, is a gritty city, a proud one and a place “that can do more with less than anywhere on earth,” in the view of Greg Kowalski, 60, who has lived here since childhood. Immigrants have arrived in waves over time, leaving layers like sedimentary rock — from Germany, Poland, Bosnia, Albania, Bangladesh, Yemen and more. Along Joseph Campau Street on a recent morning, a woman in a burqa strolled past Stan’s Grocery, which boasts about its Polish pierogi and kielbasa.

Hamtramck — once a community of more than 50,000 people but now fewer than half of that — grew up around an enormous auto factory that John and Horace Dodge built here a century ago. It remains a city woven together by union history, a fact that makes the turmoil filtering out from City Hall all the more pronounced.

“Look, if I was king of the world, I’d give them all a million dollars,” Charles Sercombe, the editor of The Hamtramck Review, the local newspaper, said of police officers and firefighters. “But this is the new economy, welcome to it.” He noted that his own job was now part time and that he received no health benefits.

Although Mr. Cooper says he believes bankruptcy, which could allow the city to “start over” with its labor contracts, is the only solution, the authorities in the State of Michigan have so far rejected the city’s request that the governor issue an executive order allowing Hamtramck to file for bankruptcy. An official from the state’s Treasury Department said that no city in Michigan had gone through bankruptcy, and that the governor had no such authority; the state has specific provisions for authorizing a bankruptcy filing, including intervention from an emergency financial manager and an emergency loan board. The current administration, which will be departing later this week, has urged Hamtramck to seek state assistance, including a possible emergency loan.

Rick Snyder, a Republican who is to be sworn in as governor of Michigan on Saturday, said the circumstances in Hamtramck concerned him, particularly for what it might bode elsewhere.

“We could have a large number of jurisdictions facing insolvency,” Mr. Snyder said. “Major reinvention” will be a necessity, he added, including taking a serious look at the structure of local governments and the possibility, in some places, of consolidation of services.

A new fear is bubbling up along the streets here: that Hamtramck, in so much fiscal distress, may ultimately disappear (either through bankruptcy or, simply, default), and wind up sharing services with or becoming a part of Detroit, a place many here describe as painfully rundown and unsafe.

“I’m not going to wait for two hours for a cop to show up,” said Shannon Lowell, the co-owner of a coffee shop. “We’ve trimmed every bit of fat. What else are we going to do? Borrow money from our dying grandmother?”

Senator Grassley’s Letter to Goldman Sachs: Why Are You Charging 37% More in Fees for “Build America” Bonds?

Sunday, February 28th, 2010

This is a must read! Senator Grassley is chastising the firm for taking 37% more in underwriting fees for the Build America bonds than plain vanilla municipal bonds.  You be the judge! (Click full-screen)

Senator Charles E. Grassley’s Letter to Lloyd C. Blankfein