I do not have all the answers but have been studying the Stockton Bankruptcy. Here are some things relevant to California - Detroit could be different.
The only losers in Stockton are those who bought bonds / debt for public facilities. They will lose big time. The pensions will be 100% paid. The city
basically can take the money it was paying debt on for public facilities and role that into pay raises, new employees and more government - yes I'm a
little down on the process.
There will be no auctions of property in stockton. No water lines auctioned off to a higher bidder, no forced higher rates to pay creditors back. I'm
bothered by this because in Stockton its not all roads, water lines and storm drainage systems. Its a hockey rink, baseball stadium, civic center and
a marina for large boats. (in part - to me those should be auctioned off for the benefit of the creditors). Some creditors are sueing for that, it will be
in court for some time.
I think the system is really bad becauase when someone buys a government backed bond its done with the full faith and credit of the community;
and these communities are unwilling to raise their rates to pay for them. When I say rates I mean sewer, water and storm drain costs. Cities in
California have a hard time raising these rates as people view them as taxes. They forget they get something for the "taxes" and the idea of
paying back someone who leant them money is also unappealing. I find their willingness to let these debts get wiped out disgusting. To me the
city's / its people / should be forced to pay. They got the benefit - now pay up.
The next obligation made hole right now in CA (though still being challenged) is the pensions to retired city employees. Stockton at one point
granted life long health insurance to any employee of more than 30 days of service. There is a small group that got that and they will forever
get it if the unions and their lawyers have their way - the creditors are challenging that still. The bigger part is the defined benefit retirement
scheme. And I say scheme because its been manipulated badly for a few people and its costing tax payers too much money.
Here is how the scheme goes. An employee of the city works for $60,000 a year and a contribution is made into a defined benefit plan to
give them - lets say - 50% of that in retirement. The actuarial says the city needs to set aside $7,500 a year so that the employee can get
$30,000 a year in retirement for as long as they live plus COLA. I am making these numbers up but there are real numbers out there.
The city employee goes along for 15 years and his or her wages increase to $90,000 and the city increases the contribution by $3,750 too
so its $11,250 a year - all is good - right? Then the soon to retire employee takes an "in house" promotion and suddenly makes $120,000.
The city puts in $15,000 for one year. The next year they get $150,000 after a second promotion and the city puts in $18,750 - all
math. The problem is the city employee then retires with the last two years of income being $135,000 in avereage. They now get
$67,500 a year in retirement - not $30,000 as the city planned for. The city is now short almost 50% of the retirees' benefit. And the
bankruptcy is not likely to let the city out of this one.
What does that actually mean? Does a bank auction off everything in the city till debts are paid? Do share holders (tax payers) have a say in the haggling, or in what gets sold? Does the city get to open another credit card in 7 years?
Or is it just a big middle finger to anyone who is owed money by the city government, and that's that?
Why don't all cities file, then? Easy way out of bills, yea?
