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Facts You Should Know: 2012 Fact Sheet — State and Municipal Bankruptcy, Municipal Bonds, and State and Local Pensions

February 24, 2012 Comments off
Unintended Consequences.

The mere suggestion that Congress should enact preemptive authority for states to file for bankruptcy is pernicious because of its predictable consequences. Any federal law allowing states to declare bankruptcy would only serve to increase interest rates, rattle investors and markets, raise the costs for state government, create more volatility and uncertainty in financial markets, and erode state sovereignty under the 10th Amendment to the U.S. Constitution.

States Versus Municipalities.

The bankruptcy conversation further demonstrates a basic misunderstanding about the function and operation of state and local governments. The mechanics of bankruptcy are inapplicable to a sovereign entity. Bankruptcy is not a legal option for states, as constitutionally recognized sovereigns, because states have taxing authority and constitutional or statutory requirements to balance budgets. Alternatively, bankruptcy may be an option for some municipalities under Title IX of the federal Bankruptcy Code because municipalities are legal corporations, not sovereign entities. Eligibility for Chapter IX relief is narrowly tailored by several factors. States determine whether their municipalities, as “political subdivisions, public agencies, or instrumentalities of the state,” may pursue this option. One key eligibility factor is that a municipality must be insolvent and unable to meet its obligations when they fall due. According to Moody’s Investor Service, 21 states and the District of Columbia have not passed laws on municipal bankruptcy while 28 states either authorize or provide conditional or limited Chapter IX filings. Currently, only Georgia and Puerto Rico legally prohibit municipalities from filing under Chapter IX.

Categories: business and economics, government and politics, International City/County Management Association, legal and law enforcement

Coping with Crisis: How are Local Governments Reinventing Themselves in the Wake of the Great Recession?

February 24, 2012 Comments off
As the economic recession deepens, the nation’s local governments have moved beyond a “business as usual” approach to cutting costs and improving efficiency. The premise for this paper is that America’s cities, towns, and counties are currently in the process of reinventing themselves now that the easy measures have been adopted. This paper examines the scope of strategies considered by local governments using keywords from daily ICMA News Briefings from April 15, 2009 to April 15, 2011. According to the results of the research:
  • The majority of proposals were aimed at cutting expenditures rather than raising revenue.
  • Elected officials are examining the provision of core local services, but remain reluctant to enter into collaborative arrangements with other jurisdictions or private service providers.
  • Most of the responses collected were conventional and incremental as opposed to bolder, innovative strategies, though this could change in the coming years.
+ Full Paper (PDF)
Categories: business and economics, government and politics, International City/County Management Association
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