Wow... Vallejo Bankrupt

Wow.... I am shocked and my prediction that a Federal court would not allow this to go forward has been proven wrong. Read from the SF Chron:

Judge approves Vallejo's bankruptcy filing

My own blog thoughts on what Vallejo's bankruptcy means to Pittsburgh are repeated in:

• Why Vallejo Matters
• Why Valley Matters II
• Vallejo Ruling Imminent

Before Vallejo, some of my general thoughts on the potential of a formal Pittsburgh bankruptcy include:

• Bankruptcy should not be seen as answer to city's woes
• Forum: Candidates, be careful what you wish for
• The City's Stealth Crisis

Does this mean the City of Pittsburgh could file for bankruptcy tomorrow? Not really. One problem is the Act 47 process and state law on the subject.... That and municipal bankruptcy is judged more on cash flow issues than assets and liabilities. So since there is some money in the city's bank account at the moment, it isn't about to happen this week.

But it does raise a big big question. City officials believed that the City of Pittsburgh would have been precluded from filing bankruptcy in the early 1990's. As I think I have shown pretty clearly, whatever financial state Vallejo is in now, Pittsburgh has been in a far more precarious situation for a long long time. In 1994 right as Tom Murphy took office he learned that city finances were in far far worse shape than anyone outside a few really knew, certainly far worse than the public had been lead to believe. Within his first year and without any doubt, there could have been a very fundamental cash crunch that would have forced either into a technical default or formal bankruptcy.

What happened at the time was that the city 'sold' (sort of sold, its a long story unto itself) its waterworks to raise cash to make it through the next several years of operating deficits. The sad thing is that in a Chapter 9 bankruptcy, no public entity would really be forced to sell any assets. It means to me that a major city asset was liquidated for almost no gain when it didn't have to be. There may have been good reasons to privatize the water authority. In fact the Allegheny Conference had been advocating for that for decades. But if done so in anything other than duress it would have produced some significant cash that could have been invested or used wisely. Not just used to eek through a few more years. It was just a waste, but the folks in office at the time really knew of no other solution at the time if bankruptcy was not an option.

Why was bankruptcy not pursued more than it was? Realize that at the time the Bridgeport ruling was in closer memory. Bridgeport was and remains a major case in which the City of Bridgeport, CT tried to file for bankruptcy, but was not allowed to by the Federal court. Basically they were deemed to not be in enough financial collapse to warrant the remedy of bankruptcy. The judge in that ruling pretty much said that Bridgeport had in its power the taxing capacity or debt capacity to continue on without defaulting on any debt or liability. I bet publicly that the same answer was going to be given to Vallejo, but apparently not!

Think I am just a loon even talking about this? I know that the original Intergovernmental Cooperation Authority seriously considered whether the city of Pittsburgh could or should be taken into a bankruptcy proceeding. They have never been terribly clear in public on why they didn't pursue that path. Given the Vallejo ruling, I would say that if the ICA has any formal opinion from its past solicitor on the matter of a potential Pittsburgh bankruptcy it should make such an opinion public now. It really matters.

One way or the other, there is a real question as to why Vallejo is allowed to file for bankruptcy and many other government entities in far far worse financial shape feel they can't. What would it mean if all the places in similar circumstances headed to Federal court.