Wes wrote:
"John R. Carroll" wrote:

Wes wrote:
F. George McDuffee wrote:

General Motors Corp. may no longer be the world's biggest
automaker, but it still operates the country's largest pension
fund. The threat to its pension plans has always been an issue,
butit took on a new urgency when GM disclosed April 7 that its
plans were underfunded by more than $27 billion, with more than
half of that being owed to U.S. workers and retirees. Across
town, a post- bankrupt Chrysler faces its own pension shortfall.
Moreover, a report last week from the Government Accounting
Office (GAO) says the pension crisis in the auto industry could
create an unprecedented crisis for the federal Pension Benefit
Guarantee Corp., a government-sponsored organization to backstop
company pensions.
snip

It is clear the "fall-out" from the economic implosion is far
from over.

Those retires better husband their money. Reality is going to come
home in the next few years or next administration.

What reality is that Wes?

When GM can't make its obligations and turns over the pension to PBGC
they (workers) will learn how that guarantee works, just like many
that worked for the airlines. Their benefits they *thought* they
secured in the easy days will get trimmed.

I don't think that will come as any surprise to anyone, including retirees.



What I'm really interested in is can a state or city declare
bankruptcy?

Municipalities have been going tits up all over the country for the
last three years or so.

So what happened? Did creditors take over municipal property?

It depends.
Sometimes that's exactly what happens and sometimes not.
There was an interesting piece recently about some podunk town and their new
waste treatment plant.
I can't remember where I saw it but it had to do with the scams (all legal)
that were run on local governments.
In the instance I viewed, several city council members might end up in jail.

Anyway, here is a decent answer to your question. The number of BK's cited
is much, much larger today than in 2008 when this was written.

We know that individuals and corporations can declare bankruptcy, but entire
cities?

That is exactly what officials in Vallejo, Calif., are contemplating. And
they are not alone. There's a long and sad history of municipalities
declaring bankruptcy. Here's a look at how these places got into hot water -
and what life is like for residents of a bankrupt town.

Why do cities and towns declare bankruptcy?

For the same reason that individuals and corporations do. They're broke and
can't pay their debts. This might be because of an unexpected expense - say,
a costly lawsuit - or a sudden shortfall in revenue, due to falling property
values, for instance. Either way, declaring bankruptcy protects cities and
towns from their creditors, just as it does for individuals and
corporations. (In Vallejo's case, bankruptcy offers another benefit: It
would allow the city to renegotiate costly labor contracts with
public-safety employees, which reportedly account for about 80 percent of
the city's general fund budget.)

The one main difference: Municipalities can't liquidate assets to pay off
their creditors - the mayor can't sell the town fire engine to pay the bank.

Have municipalities always been able to declare bankruptcy?

No. For most of U.S. history, cities and towns were not eligible for
bankruptcy protection. But during the Great Depression, more than 2,000
municipalities defaulted on their debt, and they pleaded with President
Roosevelt for a federal bailout. "All they got was sympathy," reported Time
magazine in 1933. Instead, Roosevelt pushed through changes to the
bankruptcy laws that allow towns and cities to file for bankruptcy. They
even got their own section of the bankruptcy code: Chapter Nine.

How many municipalities have sought bankruptcy protection?

Since 1980, 32 cities and towns have declared bankruptcy, according to James
Spiotta, a leading municipal bankruptcy lawyer. Most notable of these were
Bridgeport, Conn., population 140,000, which declared bankruptcy in 1991.
And, in the nation's biggest municipal bankruptcy, Orange County, Calif.,
sought protection from its creditors in 1994 after city officials made a
series of bad investments.

What is life like in a "bankrupt" city or town?

In one sense, life goes on as usual. Police and fire departments still
respond to 911 calls; the garbage is still collected. But don't expect that
new bridge or school to be built. For a bankrupt city, all new projects must
be approved by a majority of creditors. The biggest hit, though, is to the
city's image. Bankruptcy carries a much greater stigma for a city than for a
corporation, which is why officials go to great lengths to avoid Chapter
Nine.

If a city or town declares bankruptcy, does it affect others nearby?

Yes. Surrounding cities and towns can find it harder to borrow money for new
projects because investors - who buy and sell bonds - will question their
financial viability. That's why states often intervene to prop up a
faltering municipality and avoid the sting of bankruptcy. Sometimes all it
takes for a town or city to get help from the state capital is the mere
threat of bankruptcy. "It's an instrument of getting attention and getting
others to help you," Spiotta says.

What about New York City? Didn't it declare bankruptcy in the 1970s?

No, but it came close. The city was teetering on the edge of bankruptcy in
1975 when it appealed to Washington for a bailout. President Ford balked,
prompting the famous Daily News headline "Ford to City: Drop Dead." (Ford
never actually uttered those exact words.) In the end, Congress did pony up
some money for New York, and the city formed the Municipal Assistance
Corp. - a quasi-government body that, in effect, allowed New York to lend
money to itself. Other big cities - Philadelphia, Pittsburg, Miami - have
flirted with bankruptcy in recent decades but not actually declared it.

Are we likely to see more towns and cities declare bankruptcy in the future?

That's difficult to say, but some experts believe the warning signs are
clear: unfunded pension liabilities, an anemic economy, costly
infrastructure repairs and falling property values. "All of the ingredients
are there," Spiotta says. "I wouldn't be surprised if we start to see more
bankruptcies."

http://www.npr.org/templates/story/s...oryId=60740288



Government pension obligations are another ticking
timebomb.

How's that?

If congress can think about changing the deal on social security they
sure can change the deal on pensions.

I'm not sure Congress has considered "changing the deal" on SS.
I'm not aware of such an effort anyway. AFAIK, there has never been a real,
serious or considered effort to do anything but collect more money.

"The Deal" is that benefit payments can't be greater than the sum of cash on
hand and revenues, something that hasn't changed - ever.

We just saw raw power exerted
from one side of the aisle on health care. Imagine if it was
bipartisan.

People with defined benefits that are not fully funded are in for a
suprise.

Again, I don't think they will be surprised at all. They certainly shouldn't
be.
The people getting the surprise will be their family members who will have
to step up and make ends meet.

--
John R. Carroll