Tuesday, August 19, 2008

Bankruptcy all around

Here is the first question of a referendum that residents of Jefferson County Alabama might be asked to answer in the fall.

"Jefferson County confronts a crisis involving a sewer debt of $3.25 billion that was incurred under court order pursuant to the federal Clean Water Act. Which of the following courses of action should be taken by the county? Select One:

  1. Attempt to implement a plan under Chapter 9 of the federal bankruptcy law that would repudiate all or a significant part of the sewer debt.

  2. Default on the payment of the sewer debt and accept the appointment of a receiver for the sewer system with power to raise sewer rates within the limits of the law to remedy such default.

  3. Pay the sewer debt in full by reducing the amount payable from sewer revenues and using various tax revenues to pay a portion of the debt. "

First off, which answer is the average taxpayer or sewer bill payer going to choose if that is the way the options are presented? What would local residents ask if some version of that was asked of City of Pittsburgh residents? I find the introductory sentence pretty amazing. I guess ranting about 'unfunded mandates' would come across as too esoteric for voters. And just what is someone voting for if they pick option #3? What exactly are 'various tax revenues' and what exactly does a 'portion' amount to.

It really is true that semantics matter in referenda, just ask the folks coming up with competing versions of how a drink tax referendum will be phrased. That's something I have been trying to avoid as a topic, but there is an odd odd thing in some of the proposed referenda wording that I will get to in the future.

Bankruptcy is a timely topic, not only because of last week's news on the Pittsburgh pension liability, but also check out the letter to the editor in the Post Gazette last Tuesday suggesting that the Port Authority just go bankrupt. So as not to repeat myself, I have touched the surface of the legal morass that would result if the City of Pittsburgh were to enter into a formal federal bankruptcy. That was in Why Vallejo Matters, and Why Vallejo Matters part II.

I saw the letter to the editor from KZ's new blog on the transit negotiations (http://nocommuterleftbehind.wordpress.com) where he also discussed the letter to the editor. BTW, I really wonder if there is any official ATU blog out there, I've seen a few ATU friendly blogs, but as best I can tell nothing on the web site of the local ATU (driver's union) web site has been updated in years. One thing that is indisputable in these Port Authority contract negotiations, one side has an extensive public relations strategy and a well funded strategy at that... the other side is MIA on the PR front.

But the legal issues over a potential bankruptcy are even more muddled for a public authority like PAT than for the City of Pittsburgh. Could PAT go bankrupt? It certainly isn't impossible. Would the buses have to be sold off to pay off the accumulated health care liability that PAT didn't fund? What it would mean in the end is just too hard to quite figure out and the precedents for letting a large transit agency go into a Chapter 9 Federal bankruptcy are hard to find. I would say the one example is one from my first public finance class long ago which is the case of the Washington Public Power Supply System (WPPSS). Who ever let that be name exist, and the acronym it engendered ought to be fired since it is forever sounded out as 'Whoops'. But it was one of the classic examples of bad forecasting in itself and resulted in one of the largest Chapter 9 bankruptcies then and since. There was a time not long before it happened when the concept of WPPSS going bankrupt was completely inconceivable.


Blogger Fifth / Forbes said...

We definitely can't just keep increasing the drink tax, so a better way forward is going to be needed sooner or later for sure. Great commentary. Pittsburgh has the largest debt burden for a city of its size. I believe I read it was $2 billion recently.

Tuesday, August 19, 2008 10:16:00 PM  
Blogger John Morris said...

The bad government of Burma leans on drugs and child porn. We need to keep our options open.

Wednesday, August 20, 2008 10:14:00 AM  
Anonymous Anonymous said...

I won't claim to have thought this through completely. BUT, the use of Chapter 11 by for-profit corporations to re-organize or sell assets (i.e., restructure and shed costly/unprofitable business contracts and labor agreements) is a relatively recent phenomenon. Maybe someone will figure out a way to use Chapter 9 in a similar manner for the public sector. Though, this is probably limited by circuit law to a degree--some circuits are more stringent about the rejection of contracts than others--as municipal entities are limited as to where (in what venue)they can file.

I bet there may be something in the Bankruptcy Code's legislative history about this. Section 303 of the Code makes it explicit that a Chapter 9 bankruptcy (or any bankruptcy against a nonprofit corporation) cannot be initiated by creditors involuntarily.

Wednesday, August 20, 2008 11:25:00 AM  
Blogger A Son of the Greatest Generation said...


Critics question nonprofit's focus, spending
By Ron DaParma and Mark Houser
Sunday, November 11, 2007

A shift for the worse

A 2003 reorganization turned the conference into an umbrella for the Greater Pittsburgh Chamber of Commerce, Pennsylvania Economy League and Pittsburgh Regional Alliance.

Former conference president Harold Miller, who resigned in 2005, now describes it as "much more like a business association ... and less like a civic-leadership group."

The conference's $10.1 million budget in 2005, the most recent year for which complete figures are available, included:

• $2.4 million for salaries and benefits, according to the nonprofit's federal tax return.

Of 63 employees of the conference and its affiliated groups, more than half are listed as vice presidents or senior directors. In 2005, eight earned at least $100,000, including Langley's salary of $364,519 plus $22,281 in benefits and $9,600 for expenses.

• Spending of $351,682 to raise money from private donors.

In 2004, those donors included 118 foundations, corporations and universities which gave $8.57 million. The nonprofit did not make public its 2005 donor list.

• Conference-awarded grants worth $4.57 million, including $222,720 for a French & Indian War historical group and $10,000 for a Bassmaster Classic fishing tournament.

In addition, the Pittsburgh Regional Alliance maintained a separate $3.06 million budget in 2005 that did not include salaries but did cover $196,117 for conferences, conventions and meetings, $147,948 for travel and $126,742 for fundraising.

Langley says most of the conference's spending "doesn't go to staff, most of it goes to programs." He also contends it has "created efficiencies. Collectively, if you added all the staff together we had in 2003, it was in the 80s, and now we have 60 to 65 people."

Still, some critics contend the conference is bloated.


Monday, August 25, 2008 11:48:00 PM  

Post a Comment

<< Home