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| Economy |
| Muni Threat: Cities Weigh Chapter 9 |
| 2010-02-20 |
| Just days after becoming controller of financially strapped Harrisburg, Pa., in January, Daniel Miller began uttering an obscure term that baffled most people who had never heard it and chilled those who had: Chapter 9. The seldom-used part of U.S. bankruptcy law gives municipalities protection from creditors while developing a plan to pay off debts. Created in the wake of the Great Depression, Chapter 9 is widely considered a last resort and filings under it are more taboo than other parts of bankruptcy code because of the resulting uncertainty for everyone from municipal employees to bondholders. The economic slump, however, is forcing debt-laden cities, towns and smaller taxing districts throughout the U.S. to consider using Chapter 9. As their revenue declines faster than expenses, some public entities are scrambling to keep making payments on municipal bonds. And that is causing experts to worry about the safety of securities traditionally considered low risk. |
| Posted by:Fred |
| #2 .....uncertainty for everyone from municipal employees to bondholders. Let me quickly dispel the... "uncertainly." You will get less! Possibly nothing at all. |
| Posted by: Besoeker 2010-02-20 09:07 |
| #1 Though it will have some impact on munis, I question how much. Most muni bonds are both opaque and at “non-command” levels of government, such as transit and turnpike authorities, water districts, medical centers, counties and utilities, and school districts. And while granted these have some level of interactivity with large cities and State government, they often have considerable insulation as well. Often, the difference is between muni bonds that are voluntary or involuntary. That is, if an organization cannot function without bond issues, they are very dependent on State credibility; but if they have a choice to issue bonds for future improvements or not, during an economic downturn they won’t. Some bond issues can just be made, but others require a public vote. So what happens to the muni bond market as a whole if say, California goes Zimbabwe? While it will unsettle the market, certainly, in the mid term, it might actually help the bond market, by eliminating a dead weight competitor. More money for everyone else. |
| Posted by: Anonymoose 2010-02-20 08:44 |