Monday, June 02, 2008

Why Vallejo Matters, part II

More info on the bankruptcy filing in Vallejo California from Bond Buyer. But why does this matter here at all? I had one version of my big picture explanation in Why Vallejo Matters. But here is more straightforward reason of why it may matter here more than most anywhere else. Let's compare the public debt situation in Vallejo and Pittsburgh:

City of Vallejo:

~$80 million in outstanding general obligation debt (Note 3)
$83 in unfunded pension liabilities.(Note 1)
Population: 117 thousand.

City of Pittsburgh:
Outstanding Debt: $768 million
Unfunded Pension Liability: $470 million (Note 2)
Population: 312 thousand

So if you work it out in per capita terms:

Debt per capita: ~$700
unfunded pension liability per capita: ~$700

City of Pittsburgh:
Debt per capita: $2,500
unfunded pension liability per capita: $1,506

Now I really doubt that Vallejo's bankruptcy filing will stand up in bankruptcy court and it could all just be tossed out by the judge there. It just isn't the poster child others may call it. In fact, if I were one of the many parties that will certainly be arguing against allowing Vallejo to enter bankruptcy I would use Pittsburgh as evidence of a big city far worse off yet still not in Chapter 9. No matter their outcome, the situation here has to be worse. The debt per capita metrics are all far worse in Pittsburgh on their surface and when you add in the additional fact that Pittsburgh's population has been continuing to go down, and that the city's tax structure is highly dependent on it's resident population, the prognosis is even worse compared to Vallejo which has at least a relatively stable population. I could parse that even further if I compared the working age population (and thus the bulk of the tax revenue generating population) in the two cities and the comparison would be even bleaker for Pittsburgh. Of Pittsburgh's population it is a safe bet that a much larger percentage of it includes transient or otherwise minimal tax-revenue-generating students and senior citizens compared to Vallejo. When you add it all up I would bet the debt per household in the city of Pittsburgh is well over $10K before you begin to include school district debt, the unfunded health liability, or anything else.

So again, my prognostication is that the Vallejo bankruptcy is not going anywhere... but what if a judge out there does indeed let a Vallejo bankruptcy filing to go forward... what does that say about whether the City of Pittsburgh could/would/should do the same now or at some point down the road. What does it say about dozens (hundreds?) of other PA municipalities that would compare unfavorably to Vallejo in financial metrics.

and what does it say if the Vallejo case does get tossed, I suspect many will infer too much about what it says about Pittsburgh despite it being in a far more precarious financial state looking into the future.

So will you all forget about the banners will you. please.

1. the $220 million cited in that article includes $136 million in retiree health benefits which I will leave out for the moment. Not mentioned here is Pittsburgh's own health care liability which is probably on the order of another $250-300 million.
2. The unfunded pension liability is as of January 1, 2005. I bet if we knew the current pension status and not numbers 3.5 years out of date, the unfunded pension liability per capita would look even more unfavorable compared to Vallejo.
3. The 80 million debt for Vallejo may be too high or too low for comparison with Pittsburgh. There is another 80 million in debt listed in their bankruptcy filing but I think it is revenue backed bonds with a claim on water revenues. Thus it's not general obligation debt and would be more comparable to the debt the PWSA has that I am not including in these numbers for Pittsburgh. But even doubling Vallejo's debt becnkmarked to Pittsburgh is still low in absolute or per capita measurement. Also, it's unclear to me if the $80 million I used here is strictly a general obligation claim on the city there.


Anonymous Anonymous said...

You don't need to convince me that this is vital, but I don't know I can do about it. I vote against every incumbent I can, but that doesn't seem to matter. It is rare to even have two names on the ballot. I'm too old to riot. Watching the local Democrats (i.e. the people who created this mess) beat-up on each other is at least entertaining.
Based on what I can tell, the local officials are very nearly irrelevant when it comes to fiscal issues and the state officials who do matter seem mainly interested in spending as little as possible on Pittsburgh. Which is hard to argue with as that is my strategy whenever I have the opportunity.
Anyway, if anybody wants to default on Pittsburgh's debt, they have my blessing. Especially if they stop paying Murphy's pension first.

Wednesday, June 04, 2008 10:17:00 AM  
Blogger The Urbanophile said...

What's the real downside of filing BK for a municipality? That's a serious question. Other than the stigma, why not do it? Orange County doesn't seem to have suffered for it. The creditors can't repo city hall. It seems to me that BK is pretty much a get out of jail free for municipalities.

Tuesday, June 10, 2008 4:16:00 PM  

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