Archive for the ‘Vertical: Government’ 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

The End of Mubarak

Thursday, February 3rd, 2011

Tunisia’s protests not only ousted their dictator president of 24 years, but spread protest movements throughout the region, to Egypt, Jordan, Yemen, Algeria, and Syria. After week long protests all throughout Egypt, Mubarak announced that he would not run for re-election, but would remain in office until September. Mubarak promises to make constitutional changes to limit presidential terms and broaden the field of candidates. However, Mubarak’s actions appear to be too little too late. Protestors and opposition leaders demand Mubarak’s immediate departure. The ongoing protests in Cairo have forced the government to close banks, trains, and schools, crippling the country’s economy. Furthermore, during his 30-year reign, Mubarak has remained the key US and Israeli ally in the region. His departure brings up issues of how a new regime will change the economic and political landscape of the region, thus affecting everything from the international wheat market, to peace in the Middle East.

SAN FRANCISCO (MarketWatch) — Egyptian President Hosni Mubarak said on Tuesday he would not run in upcoming presidential elections, agreeing to end his three decades of authoritarian rule after eight days of violent protests against poverty, deprivation and lack of opportunity spiraled beyond his control.

“I have spent enough time serving Egypt,” a somber and defiant looking Mubarak said in a televised address to the nation.

Mubarak is the second leader in the Arab world to be toppled by popular protest since the beginning of 2011. Last month Tunisia’s long-time dictator fled the country in the face of widespread demonstrations. Since then, protest movements have gathered pace in Jordan, Yemen, Algeria and Syria.

Mubarak’s speech marked an extraordinary turn of events for the Egyptian autocrat, who ruled the country for close to 30 years and was a key ally of the United States and Israel. His departure is likely to remake the region’s economic and political landscape with unpredictable effects on issues ranging from Middle East peace to the international market for wheat.

But even so, it was not clear that Mubarak’s offer to stand aside in the next election, currently scheduled for September, would appease protesters and opposition leaders who have been calling for his immediate departure and who greeted his speech with jeers and anger.

In a brief, televised address following Mubarak’s remarks, U.S. President Barack Obama said that as Mubarak steps aside, “An orderly transition must be meaningful, it must be peaceful, and it must begin now.”

Obama added, “I spoke directly to President Mubarak, he recognizes that the status quo is not sustainable.”

Peaceful transition

In his statement, Mubarak said he wanted a peaceful transition of power and pledged to spend the time ahead of the presidential election working for reforms, including constitutional change to limit presidential terms and widen the field of candidates.

“I have initiated the formation of a new government … which will respond to our young people’s demands and their anxieties,” he said.

Mubarak spoke after more than a week of protest wracked Egypt, killing as many as 300 people and paralyzing the country’s economy. Mubarak, who reacted initially by sending police into cities to battle with protesters, was eventually forced to accept that he could not control the situation.

A key moment came earlier this week, when the Egyptian Army said it would not fire on protesters who remained peaceful. Another appears to have come earlier on Tuesday when a U.S. diplomat informed Mubarak that the U.S. did not want him to run for re-election.

The speech was watched by thousands of protesters in Tahrir Square in central Cairo. Many of those people reacted angrily to the speech, shouting and repeating demands that Mubarak step down immediately, cable television channel CNN reported.

Mubarak’s opponents have been calling for political and constitutional reforms for years, and some protesters interviewed on CNN said they did not believe the president could be trusted to keep his word.

Saying that the protests had created a “a new Egyptian reality” Mubarak said the people had the right to peacefully protest and urged authorities to protect the Egyptian people. He also said authorities would seek out and punish looters

Carlyle Group Bids On Arinc, US Aviation & Defense Deal at $1 Billion

Friday, March 12th, 2010

Another private equity deal has been announced this week, as Carlyle Group was rumored to make a bid for an aviation and defense business in North America.

According to Mr. Mider and Mr. Kelly of Bloomberg, “Carlyle Group, the world’s second- largest private-equity firm, hired Goldman Sachs Group Inc. to seek buyers for its Arinc Inc. defense and aviation business, said people with knowledge of the matter.

Arinc may fetch about $1 billion and attract bids from other private-equity firms, said the people, who declined to be identified because the plan hasn’t been announced. The Annapolis, Maryland-based firm consults with the military and designs systems that help airline pilots communicate with the ground.

Private-equity firms, largely unable to buy companies or sell what they already own for more than two years, are beginning to make deals and reap profits from previous purchases. Carlyle and competitors Blackstone Group LP and KKR & Co. have distributed gains to their investors after pursuing sales and initial public offerings.

Spokesmen for Carlyle and Goldman declined to comment.

Carlyle, based in Washington, ranks behind New York-based Blackstone in size. Created in 1987 by William Conway, Daniel D’Aniello and David Rubenstein, the firm has $87.9 billion under management and runs 65 funds around the world.

Arinc, founded in 1929, helped develop systems used by aircraft to communicate with air-traffic controllers. Owned by six U.S. airlines including AMR Corp. and UAL Corp., it was sold to Carlyle for an undisclosed sum in October 2007.

The investment was made by Carlyle Partners IV LP, the firm’s fourth U.S. buyout fund, which was launched in 2005 and has $7.8 billion of equity commitments, according to Carlyle’s Web site. Carlyle Mezzanine Partners II, a $554 million fund, also is an investor.

Arinc had more than $1 billion of revenue last year and about 3,100 employees.

Rubenstein, 60, said in a Feb. 18 interview that an IPO market that’s been unfriendly to private-equity firms won’t prevent Carlyle and its rivals from exiting investments, as other buyout managers and companies remain willing buyers.”

General Atlantic & KKR Purchase TASC Advisory Services

Monday, November 30th, 2009

KKR

General Atlantic and Kohlberg Kravis Roberts have teamed up on the $1.65 billion acquisition of Northrup Grumman Corps.’s government advisory unit, banking on the government’s need for intelligence services.  A member of the Leverage Academy, LLC team actually worked on a preliminary pitch for this deal in August.

Barclays, Deutsche Bank, RBC Capital Markets, CPPIB Credit Investment, Inc., and KKR Capital Markets are financing the deal.  Highbridge Mezzanine Partners is investing in the sub-debt.  The current debt rating on Northrop is still Baa2 and Baa1 for its subsidiaries.

Northrup Grumman will be selling 100% of the division, which has 5,000 highly skilled employees, many with government clearances.  TASC provides computer systems engineering, consulting, and technical advice for defense agencies and intelligence agencies.  The company generates $1.6 billion in revenues annually, which are projected to grow at a 9-12% compound annual growth rate over the next five years.  Grumman realized $1.1 billion in net cash proceeds after taxes on the deal.

Prominent former employees who helped provide the necessary information to close the deal include Peter Marino, former director of technical services at the CIA, and R. Evans Hineman, a former president of TASC.

In 2002, Carlyle Group bought a 33.8% stake in the London defense technology company QinetiQ Group and took it public in 2006.  In 2007, officials at Booz Allen Hamilton Inc. were considering selling off the company’s lucrative government contracting business to concentrate on commercial consulting.  In March of 2008, Carlyle, the private equity group, agreed to buy part of Booz Allen Hamilton for $2.9 billion.  The leveraged buyout of Booz Allen Hamilton’s political consultancy business, was financed by Bank of America and Credit Suisse.

Since Nov. 1, there have been eight M&A deals with enterprise values over $1 billion.

~IS

For more information, please refer to the latest edition of IDD…