Wednesday, September 03, 2008

Vallejo Ruling Imminent

Here is financial news from last evening: Vallejo (California) Bankruptcy Ruling Imminent. Why do I keep mentioning this? I won't repeat myself, but here is a graphic I put together comparing the city's bond debt historically and where it compares to Vallejo today.

Should probably treat this as a work in progress. These are my own calculations of the real (2007 dollars) debt per household in the City of Pittsburgh since 1970. I have appended to that where the bond+unfunded pension liability is per household for Pittsburgh and also the current comparable data (as comparable as I could deduce) data for Vallejo.

There are several caveats to the the comparability of the numbers for the two cities, most not worth getting into. The numbers I used did not include any health liabilities for either of the two cities and I'm not sure all of the long term debt for Vallejo is bond debt, some of it having been called. but from media reports I infer Vallejo has ~$80 mil in bond debt and ~$83 million in unfunded pension (again, excluding OPEB) liability and around 40 thousand households currently. Those numbers drive what I plotted for the Vallejo Data. For the city of Pittsburgh current bond debt is say $764 million + $569 million in unfunded pension liability and the number of households these days is around 130 thousand.

So does the Vallejo ruling matter? You decide. Honestly, I predict the Vallejo judge is going to throw out the petition by the city there to enter a formal Chapter 9 bankruptcy. Their financial condition just does not justify it. If debt levels mattered and Vallejo is declared bankrupt, then Pittsburgh should have declared bankruptcy years, if not decades, ago. One legalism is that technically debt levels do not matter the way they do in say a commercial bankruptcy, municipal bankruptcy, it's more about cash flow. So since there is money in the bank, the city is probably not about to declare bankruptcy right now, but there have been points in the past (say around 1993 when they decided to essentially sell off the water authority to raise cash to pay bills) when a bankruptcy filing would have been mostly undeniable.

It's kind of an aside, but possibly a more important story coming out of the Vallejo situation. Vallejo city government is not simply city workers' access to blogs and or the internet, but selectively blocking sites they can read.


Blogger Burgher Jon said...

That chart gives me more nightmares then Silence of the Lambs in HD.

Wednesday, September 03, 2008 9:05:00 AM  
Anonymous Anonymous said...

Chris, a question: At what point does Chapter 9 address the cash flow/debt level nexus? I would think that eventually excessive debt levels would create massive cash flow problems, infrastructure deterioration, etc. that might be difficult to quantify in a bankruptcy context. Is that being addressed in the Vallejo case?


Wednesday, September 03, 2008 9:43:00 PM  
Blogger C. Briem said...

Thus the key question that is unanswered. Since Bridgeport I don't think there is any clear idea of what the criteria is to apply Chap 9 in any situation as is facing a Vallejo or a Pittsburgh. Events like Orange County just don't compare in any way. I've asked lots of lawyers on this and I just have never heard an answer. Either the precedent does not exist to answer it, or precedent is irrelevant in such one-off situations as municipal bankruptcy. What happens when these situations are not so unique and a standard needs to be set? That's why we pay the lawyers.

Wednesday, September 03, 2008 11:42:00 PM  

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