03.14.14

Getting Down to Brass Tacks.  Mediation talks in San Bernardino over the chapter 9 city’s pension obligations—on the state constitutional issue pending before the U.S. 9th Circuit Court of Appeals—appear to be the linchpin for the city to exit bankruptcy, because until some resolution—either by the court or the two main parties is reached, it is nearly impossible for the thousands of the bankrupt city’s other creditors to reach any consensus.  In court yesterday before U.S. Bankruptcy Judge Meredith Jury, Michael Lubic, an attorney representing California’s public retirement system, Calpers, testified in a hearing that there has been significant progress with the City of San Bernardino in mediation talks, which are subject to a judicial gag order. Paul Glassman, an attorney representing San Bernardino, termed it “substantial progress.” Judge Jury instructed the parties that until an agreement between San Bernardino and Calpers has been reached, it is essentially impossible for other creditors to know how much of the city’s annual budget is left to haggle over. The city had halted its bimonthly employer payments to Calpers, the country’s largest public pension fund, for an entire year after filing for bankruptcy protection, before resuming payments last July. Calpers claims San Bernardino is more than $17 million in arrears to Calpers. The key federalism issue pending before the 9th circuit is whether the federal bankruptcy law, chapter 9, can trump the Golden State’s constitution, or here, whether San Bernardino will seek to reduce its monthly payments to Calpers as part of its final plan of adjustment.

Getting Ready to Rumble. The Detroit City Council in just over an hour is scheduled to consider a $120-million loan from Barclays in an effort to accelerate its investment in essential public services, such as police, fire and public lighting. Under the proposal, the Motor City would pledge its income tax revenue and the proceeds from the future sales of assets, except for Detroit Institute of Arts property. The proposal is subject to approval by U.S. Bankruptcy Court Judge Steven Rhodes. Under Michigan’s emergency manager law, city councils are provided with an opportunity to vote on such loans; however, were the Council this morning to reject the proposal, the state law would require the Council to submit an alternative plan to the state’s Emergency Loan Board within a week. The Board would then be charged with choosing either the Council’s or Emergency Manager’s proposal—all still subject to an ok from the federal bankruptcy court. Last October, the previous council unanimously rejected an earlier version of the loan; however that loan included $230 million to pay off swaps from a pension debt interest-rate transaction brokered in 2005 by former Mayor Kwame Kilpatrick’s administration.

 

Road to Recovery & a Sustainable Municipal Future. The City of Harrisburg marked its successful exit from near bankruptcy yesterday by making its first general obligation bond interest payment in two and a half years—just two weeks after the city celebrated its exit from Keystone state receivership, wiring some $4.7 million of a $5.14 million payment due March 15. The city reports that bond insurer Ambac Assurance Corp. will cover the balance, reporting that “All bondholders will be paid 100 percent of what they are owed, on time. The city will pay Ambac interest on amounts advanced by Ambac, so eventually, Ambac will be paid for missed payments by the city [in 2012 and 2013] and any advances it makes during the next nine years.” After Harrisburg opted out of filing for chapter 9 federal bankruptcy, under state receivership it adopted what was called the Harrisburg Strong Plan, under which it successfully addressed an accumulated $600 million of debt, in large part through the sale of its city-owned incinerator to the Lancaster County Solid Waste Management Authority and via a long-term lease of parking assets from the city and the Harrisburg Parking Authority to the Pennsylvania Economic Development Financing Authority. Pennsylvania’s capitol city had has missed its last four GO payments, beginning in March 2012. It only made the September 2011 payment after finalizing a deal with the Harrisburg Parking Authority for upfront money; thus the successful resumption yesterday was viewed as a critical step on its road to recovery.

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