Cities get creative in finding ways to resolve bankruptcy

As more cities face dire financial straits, here is a quick overview of the means by which different American cities have escaped bankruptcy:

When Bridgeport, Connecticut filed for Chapter 9 in 1991, they received help from a state oversight board, and also convinced Chase Manhattan to keep its Connecticut headquarters in Bridgeport which helped. There were other approaches, too, one part of which was arranging for Donald Trump to buy out 100 acres of publicly owned property to develop an amusement park and motor race track, though that never came to pass. In 1992, The New York Times reported that there were also “measures including a plan to recover delinquent property taxes by selling tax liens to a private collection agency,” as well as acquisitions for aid from the state, and “concessions from the city’s unions.”

Among the more colorful approaches in recent years was Harrisburg, Pennsylvania’s. In 2011, having been huckstered by a corrupt company to build an up-to-code (and ultimately faulty) trash-to-energy incinerator, the Keystone State’s capital city petitioned for Chapter 9. They sold the incinerator for $130 million, as well as auctioned off a collection of Wild West artifacts owned by a former mayor which brought in nearly $4 million. It also monetized its parking assets, which included privatizing garages, in effect doubling the price of city parking which, for virtually the first time, they began enforcing…

[Jefferson County, Alabama’s] exit from bankruptcy? They cut their payroll, as well as almost a quarter of the workforce. They shut down many of their satellite courthouses in the suburbs, in addition to a number of “nonessential” services: A nursing home sold to a private operator (to the tune of $8.3 million), a public hospital shut down, and the closing of a massive county laundry facility. Patrick Darby, who represented Jefferson County in its bankruptcy filing, said “I have to say in all fairness, what we did here is easier than it would’ve been in California or up north because we don’t have unions… we don’t have public sector unions and so we don’t have to fight that if we want to lay people off.”

So what does this all mean? Every municipality comes up with its own unique solution, and in the case of Jefferson County that meant shutting down a “charity hospital;” in New York that meant laying off 6,000 school teachers who’d leveraged their pensions; and in Vallejo that meant making it possible for the courts to compel unions to break their collective bargaining agreements, a ruling which now extends to the rest of California, and, having some of the strongest labor unions in the country, seems plausible that it could extend to other states, too. And if we’re going to talk about rhetoric, unions are the group often identified as the primary problem behind fiscal insolvency—when, rather, it’s other underlying fiscal crises that make it impossible for those municipalities to fund the pensions they’d committed to long ago. As Marc Levinson says, “It’s just that we’ve made these promises to people who’ve given their lives in service based on this promise and now we can’t afford it!”

As the article notes, “the leniency of the U.S. bankruptcy code” helps allow this creativity. But, I wonder if this kind of creativity ever runs out – what if there is a bankruptcy that is simply too big (though it is hard to imagine one bigger than New York City in the 1970s) or there are too many at once (imagine three or four major cities going through bankruptcy at the same time or within a single state, like California) or creditors and local groups are simply unwilling to budge? What happens then? We haven’t reached that point yet…

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