Stockton Says it Revealed Bondholder Offers – Businessweek

Stockton, one of a growing number of California cities in financial collapse, said it asked bondholders and other lenders owed more than $300 million to take less than full repayment as part of an unsuccessful bid to avert the biggest ever bankruptcy filing by a U.S. city.

Under a proposal made public yesterday, Stockton told unsecured bondholders owed about $124.3 million they would no longer receive any debt payments from the general fund, the main account used to pay for services like police and fire protection. Secured bondholders, who hold debt guaranteed by assets, were asked to accept smaller interest payments and a longer, 40-year repayment term.

The city said in a statement that it filed an almost 800- page court document laying out cuts it asked of bondholders, retirees and employees to avoid court protection. The filing couldn’t be immediately confirmed in records of the U.S. Bankruptcy Court in Sacramento.

Stockton said it made a “good faith” effort to negotiate a restructuring plan that would adjust its debt to a level it could afford to pay, City Manager Bob Deis said in the statement. He blamed the bankruptcy on the city’s inability to convince bondholders and retirees to accept the requested cuts.

Stockton is trying to become the first American city since the Great Depression to use bankruptcy to successfully force bondholders to take less than the principal they’re owed. Stockton sought court protection on June 28, listing assets of more than $1 billion and debt of more than $500 million. The filing was followed by that of Mammoth Lakes, California, and San Bernardino last week voted to file a bankruptcy petition.

‘Restructuring Plan’

“As our restructuring plan makes clear, a city is not an entity whose assets can be divided up among creditors and then dissolved,” Deis said. “This city must remain a viable entity, capable of supplying an appropriate level of public services to the community on an ongoing basis.”

Earlier this month, U.S. Bankruptcy Judge Christopher Klein authorized the city to file the so-called Ask document, and other files related to the state-mandated mediation, along with details about its meetings with creditors. Klein denied the city’s request to release creditors’ counteroffers, saying that might disrupt future mediation efforts.

‘Successful Case‘

“A successful case will result in what is basically a consensual plan of adjustment,” Klein said at a July 6 court hearing. Under federal law, to cut debt and exit bankruptcy, a city must win court approval for such a plan.

Details about mediation typically aren’t made public in federal court cases, Klein said. The city sought to make the information public to help show it negotiated in good faith with creditors before filing for bankruptcy, a requirement of the U.S. Bankruptcy Code.

At least 18 creditors were involved in the failed talks, which began March 27 and were extended to June 25. They included the California Public Employees’ Retirement System, the largest U.S. pension fund, owed $147.5 million, bond insurer Assured Guaranty Ltd. (AGO) (AGO) and Wells Fargo & Co. (WFC) (WFC), acting as trustee for different group of bondholders owed $231.3 million.

Scott Emblidge, a San Francisco-based attorney for retirees, and Elise Wilkinson, a spokeswoman for San Francisco-based Wells Fargo, didn’t immediately return e-mails requesting comment on the city statement sent outside normal business hours.

The bank is acting as trustee for bondholders and didn’t lend any money to the city.

The case is In re Stockton, 12-32118, U.S. Bankruptcy Court, Eastern District of California (Sacramento).

via Stockton Says it Revealed Bondholder Offers – Businessweek.

Statehouse Insider: A glacial pace for pension fix – Springfield, IL – The State Journal-Register

A couple of weeks ago, Rep. ELAINE NEKRITZ, D-Northbrook, told the Arlington Heights Daily Herald editorial board that she doubted pension reforms would be taken up in the General Assembly before the November election.

Nekritz certainly isn’t alone in that belief. You’ll find a number of lawmakers who have felt that way since the end of May, when the General Assembly finished the spring session without addressing pension reform. Those numbers are increasing as the summer chugs along with no resolution in sight. Truth be told, a lot of them would probably prefer to put off pension reform until after the election.

Nekritz was the House Democrats’ representative in a group of lawmakers who spent weeks last spring working on a pension reform compromise. So when she said don’t be surprised if nothing happens until after the election, people paid a little more attention.

Then there was Gov. PAT QUINN last week. Just about every time he holds a public appearance, he’s asked what is going on with pension reforms. Usually, he makes some non-specific comment about the need to do something and sooner rather than later, then moves on.  Last week, though, he got a little more specific.

“At the end of this month, I think the time for study is complete,” Quinn said. “I don’t think any legislator should plan to not be around in the month of August. I don’t want our legislators or anyone else to think we are just going to drift through the summer and not do anything about it. It must be done before Nov. 6.”

Outside of the fact the General Assembly has drifted through most of the summer without doing pension reform, Quinn clearly appeared to threaten to call lawmakers back to Springfield in August for pension reform.

That’s fine, but as Quinn or any governor knows, calling lawmakers into special session is one thing.  Getting them to do anything in special session is another. Quinn isn’t exactly considered a master of the office’s bully pulpit when it comes to persuading lawmakers.

There’s also still no indication of a resolution to the main sticking point about pension reform — getting local school districts to pay more of the costs, and the state less, of downstate teacher pension costs. As long as some of the legislative leaders insist it be done now and others want it postponed, there won’t be pension reform.  read more…

via Statehouse Insider: A glacial pace for pension fix – Springfield, IL – The State Journal-Register.

Quinn, Assembly must get to work on pension reform

Gov. Pat Quinn seems to be losing his patience with the General Assembly on the issue of pension reform.

It’s about time.

Quinn hinted last week that he will call the legislature into special session in August to deal with the pension issue, pointing out it has been studied to the point where “the time for study is complete, and now it’ll be time for action.”

But legislative leaders, many Democrats like Quinn, seem perfectly happy to spend their summer campaigning, vacationing and playing golf and don’t seem in any hurry to resolve this key issue in the state’s financial crisis.

Andy Manar, who was Senate President John Cullerton’s chief of staff before deciding to run for Senate in the Decatur/Springfield area, said last week he doesn’t believe senators realize the severity of the state’s financial crisis. Even if you discount that comment as a political strategy to distance himself from his former boss, it’s an incredible statement about our elected leaders.

But it appears to be true. The General Assembly adjourned in May without solving the pension issues — and there is no solution to the state’s financial woes that doesn’t involve solving them. Leaders in the debate said they needed more information, which is pretty incredible given the years the crisis has been apparent.

A subsequent meeting included a request for even more information. The tactic seems to be to study the issue all summer and then delay a decision until after the November election. Once again, legislators are putting their own self interests ahead of Illinois.

One of the main sticking points is the question of shifting funding for pensions from the state to individual school districts. Suburban and downstate school districts do not pay pension costs, which has resulted in all sorts of questionable practices such as end-of-career pay escalations. In other words, districts have been happy to shift costs to the state.

Republicans, who generally oppose the shift, say it will financially cripple some school districts and lead to property tax increases. That may be true in some case, but many districts have ample reserves to handle the pension cost shift. Other districts could pay for the shift by giving away fewer pension goodies. Ultimately, it makes sense for local school districts to pay for their own pension decisions. And if the pension issue isn’t addressed, tax increases are inevitable. Taxpayers would have much more control over what’s done by local school boards than what happens in the General Assembly late at night during a lame duck session.

It’s also enlightening to look at when Quinn might call a special session, as outlined in the political newsletter, Capital Fax. The National Conference of State Legislatures meets Aug. 6-9 in Chicago, the Illinois State Fair runs Aug. 9-19 with Governor’s Day on Aug. 15 and Republican Day the next day, and the Republican National Convention runs Aug. 27-30.

That’s a pretty full agenda, but is it too much to ask our elected representatives to take a couple of days and deal with the one issue that is crippling the state financially?

Whether Quinn calls the General Assembly into special session remains to be seen. He’s offered empty threats before, at one time saying he’d have the General Assembly in session all summer if the issue wasn’t addressed.

But the pension issue won’t go away. It won’t be washed away by a rain storm and it can’t be solved while campaigning during a parade, attending a convention or playing golf. The General Assembly needs to do its job and Quinn should do whatever is necessary to make sure that happens.

via Quinn, Assembly must get to work on pension reform.

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Joe Soucheray: Face it, school district is addicted to our money

Valeria Silva and her merry band of parallel universe followers have decided to ask the taxpayer to bump the current $646-per-student levy to $821.55. That’s a nice precise touch, getting that 55 cents in there. The $646 expires next year, and rather than live within their means, the Super and her board will come asking for more, even as your house value declines, to raise $9 million a year for what they call a technology plan, as vague and as whimsical and as unknowable as that might be.

Well, it has to be something. Every year it has to be something, all-day this or class size that, and they have settled on technology this time around.

Here is what I can only conclude is the official boilerplate language: “harnessing technology to engage students and allow them to learn more independently in the classroom and at home.”

Never mind that that is essentially meaningless. At home? It sounds like a plan to buy iPads, but doesn’t something tickle at your innards when you hear them blathering about getting the kids more technologically savvy?

Every property owner in St. Paul — everyone votes, but only the property owners do the paying — needs to get out a pencil and a piece of scratch paper. Or, what the heck, use the calculator on your smartphone. The school district wants more of your money. You have to ask yourself if it is reasonable that a district with 39,000 students and a $655.8 million budget next year really needs an additional $9 million a year. That

budget works out to close to $17,000 a student a year.

Now, if they really are spending close to $17,000 a student, what could possibly be lacking? Nothing. Because if something is lacking at $17,000 per student, then something will always be lacking, which, I suppose, is their modus operandi, believing, as they do, that they have us over the barrel when what they ask for is for the children. Really?

It might be just as true that they are impossibly top-heavy in bureaucracy, have too many mid-level clipboard carriers following the Super around and have, in this year’s begging, fallen for the spiel of a door-to-door salesman in a plaid sportcoat who is tantalizing them with the wizardry of technology, for you never know where the next Bill Gates is coming from.

That’s where the tickled innards might come in on the off chance of calling their bluff and actually voting “No” for a change.

Maybe the modern kid struggles to write a book report on “To Kill a Mockingbird” and can’t quite get the multiplication tables down, but when it comes to technology, that same kid might as well be a rocket scientist compared to my generation. These kids are born into technology. They can use computers and cellphones in ways that are unimaginable to those of us who still remember the Yellow Pages and pay phones.

Harnessing technology? These kids have been in the reins since birth. They text, they Facebook, they tweet, they email, they Google. There isn’t a piece of modern technology that baffles them. And if some of them don’t yet have their own iPad, that’s too bad. We used to save up to buy a bicycle. Maybe they should save up to buy whatever new hardware they are pining for. I have no obligation to buy my neighbor’s child a gizmo any more than my neighbor owes my child a gizmo.

Remember, that’s a $655.8 million budget, and if you don’t think that’s enough, then you have quenched your thirst with poisonous Kool-Aid. There will never be enough. Never.

Let the district live with the enormous sums it already has for a few years so that the rest of us can catch up to our declining property values and our increased taxes.

Joe Soucheray can be reached at jsoucheray@pioneerpress.com or 651-228-5474. Soucheray is heard from 3 to 6 p.m. weekdays on 1500ESPN.

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Rising pension costs hurt San Bernardino, other Southern California cities

By Andrew Edwards, Staff Writer
Posted:   07/21/2012 09:49:50 PM PDT

The deterioration of San Bernardino’s public finances to the point where city officials are willing to declare bankruptcy could be the prologue to another fight over public employee benefits.

Pension costs are not the only source of San Bernardino’s financial ills. The city’s own financial analysis blames weak revenues, deficit spending and accounting errors for a $45million deficit.

Whatever deserves the most blame for cities’ poor financial health, public employees’ pensions have received increased scrutiny as San Bernardino and other local governments in the Inland Empire, Los Angeles area and the rest of California have struggled to stay in the black since the Great Recession.

To some, pensions must be cut to preserve key government services without raising taxes in the midst of a weak a economy.

“You’re going to ask people, if they’re making $20,000, $30,000, $40,000 a year, if they’re going to pay more taxes, which aren’t going to be enough probably? If they’re going to pay more taxes for public employees?” San Bernardino Councilman Fred Shorett asked.

On the other hand, the leaders of employee unions said they should protect existing retirement agreements and respond that politicians are targeting pensions to avoid accepting responsibility for wasteful spending.

“You sit down and you bargain the best you can through that process, and to have us get blamed or accused that we ask too much, we sit down and we assume the

city will not give something they can’t afford,” said Steve Turner, president of San Bernardino’s police union.

Bankruptcy is a rare move for cities, but San Bernardino is not alone in having to deal with the combined pressures of growing retirement costs, shrinking revenues and the public’s unwillingness to pay higher taxes simply to protect existing services.

Elsewhere, California municipalities have taken steps to curtail the generous pension plans that became the norm for California governments in the early 2000s.

That process has generally happened through bargaining, with various degrees of conflict between city managers and employees.

A more recent tactic, though still uncommon, is for officials to bypass negotiations and ask the voters themselves to change pension rules.

That happened in June when San Diego and San Jose voters approved ballot measures to cut retirement benefits. The measures, however, have been challenged in court.

San Bernardino County voters may see at least one pension reform measure on their ballots in November. Supervisors Janice Rutherford and Neil Derry each have proposals to put on the ballot.

Rutherford’s plan includes a provision to require voter approval for any future increases to county employees’ pension benefit formulas.

Derry’s would increase new county employees’ retirement ages and require current and future employees to contribute some of their wages to their pension plans.

His office reports the San Bernardino County Employees Retirement Association fund is short $1.7billion and risks insolvency without immediate changes.

“If you don’t do it early on, by the time you do it later on, it will be too late,” Derry said.

Derry acknowledged that he voted for pension formula increases as a San Bernardino council member, but he said financial estimates at the time indicated the programs were affordable.

Then, the city of San Bernardino risked losing workers to other cities offering better benefits, he said.

Now, local governments are seeing pension costs account for growing portions of their general fund.

San Bernardino County’s retirement costs rose from 3.1percent of expenditures in 1999 to 9.5percent in 2011.

The city of San Bernardino’s retirement costs have risen from 9 percent of general fund expenses fiscal 2006-07 to 13percent in the fiscal year that ended June 30.

Los Angeles’ pension costs account for about 20percent of general fund expenses.

A decade ago, city leaders and employees did not have to face these kinds of pressures.

Most cities handle their employee retirement plans through the California Public Employees Retirement System, or CalPERS.

CalPERS collects a percentage of employers’ and employees’ wages to invest in the state’s retirement fund. Cities sometimes, however, contribute the employees’ share.

The object is for returns to help pay for the cost of thousands of retirees’ benefits without local governments having to pay straight cash.

Not so long ago, this worked so well that people could talk of cities being “superfunded,” meaning that investment returns were so great that a city did not have to spend one single dollar from its treasury to meet pension obligations.

In Pomona, general employees’ pensions were superfunded from 2000 to 2004. Police officers’ pensions were superfunded from 2001 to 2003.

Pomona and many other cities increased maximum pension benefits in this era. Police benefits in 2002 were increased to a “3 at 50” formula, meaning an officer could retire with a pension worth 3percent of his or her highest salary, multiplied by up to 30 years of service, at age 50.

Several other cities and state agencies extended this benefit to police and firefighters during the past decade.

But the superfunded times did not last forever. In 2004, Pomona had to contribute about 18percent of police officers’ salaries to CalPERS. That figure spiked to nearly 44percent of officers’ salaries the following year, and is projected to be at 32percent to 33percent in 2013.

Pomona will also have to contribute 12percent to 13percent of general employees’ salaries to CalPERS next year.

“It’s an increase that affects your ability to fund services,” said Mark Gluba, assistant to Pomona’s city manager.

Gluba, however, did not say pensions are the sole source of continuing troubles that threaten to close the city library. He also said police and other city workers deserve credit for accepting pay concessions during recent lean years.

A key factor in rising pension costs is beyond the control of Pomona and other cities. When CalPERS investment returns are weak, as they have been, cities have to pony up the dollars that investments fail to bring in to the system.

The $234billion CalPERS fund delivered a scant 1percent return on investments for the fiscal year that ended June 30. That’s far below the projected 7.5percent return.

CalPERS chief investment officer Joseph Dear has said recent years’ returns have been the worst in a generation. Over the past five years, CalPERS earned just 0.1percent despite earning 7.73percent over the past two decades.

Like many cities, Pomona has adjusted to a tougher financial environment by adopting a two-tiered retirement system. That means new hires will not receive the same benefit package as employees who worked for the city before the new system was adopted.

Long Beach police and firefighters have also agreed to pay the full 9percent share of their CalPERS contributions, up from a previous 2percent.

Police concessions in Long Beach are projected to save at least $69million by 2022. Firefighter concessions will save about $36million in the same period, city officials say.

West Covina is another city where safety and other employees have begun to pay the full share of their retirement plans as CalPERS increases the employers’ share. Employees’ contributions have helped reduce West Covina’s financial problems, but retirement costs will remain an issue, City Finance Director Thomas Bachman said.

“As pension rates are projected to continue to rise in the future, especially public safety costs, they will continue to have an impact on our ability to provide services,” he said.

San Bernardino has also switched to a two-tiered system, but that is more of a long-term plan than something that may immediately help the city emerge from bankruptcy.

“You do one or the other. You either cut services or you cut benefits and compensation,” said San Bernardino Mayor Pat Morris, a former Superior Court judge who himself earned a pension for his work on the bench.

Morris said pension plans need to be reformed to raise retirement ages to assume that most people will work until the age of 65 and that police and firefighters will be able to work as late as 60.

REGION: Cities say they’re not going bankrupt | Breaking News | PE.com – Press-Enterprise

It’s an obvious question after San Bernardino sought bankruptcy — is my city next?

The early answer, at least in the Inland area, is probably not. While three California cities plan to file for bankruptcy and more could follow, local officials say their finances aren’t at the breaking point.

“Bankruptcy doesn’t work on a domino basis,” said Redlands Councilman Bob Gardner.

The executive director of the League of California Cities said he doesn’t think a wave of municipal bankruptcies is coming. We’re looking at three cities out of 482,” Chris McKenzie said.

“You’re still talking about a very small percentage of the urbanized population of the state. It’s important not to overreact.”

San Bernardino’s City Council on Wednesday, July 18, voted 5-2 to declare a fiscal emergency and file for Chapter 9 bankruptcy protection. Officials said bankruptcy is the only solution to the city’s $45.8 million deficit and a cash-flow problem that jeopardizes the city’s ability to meet its Aug. 15 payroll.

Stockton announced bankruptcy plans in late June, followed days later by Mammoth Lakes. Compton is considering it, and published reports indicate eight other Golden State cities — none in Riverside or San Bernardino counties — have informed municipal bond market analysts they’re in trouble.

Nationwide, 13 cities, counties and government agencies filed for bankruptcy last year, the highest annual level in nearly two years. Seven U.S. municipalities filed this year.

For Stockton and San Bernardino, bankruptcy comes after years of sagging retail sales and lower property values dried up tax revenue. In Mammoth Lakes’ case, the ski town lacks the money to pay a $43 million court judgment levied after a development company sued, alleging Mammoth Lakes breached a contract in which the company improved an airport in exchange for the right to build a hotel.

Stockton and San Bernardino were especially hard hit by the explosion of foreclosures that followed the sub-prime mortgage crisis, said McKenzie and H.D. Palmer, a state Department of Finance spokesman. In May and June, San Bernardino had the third highest foreclosure rate among California cities with 200,000 or more residents.

As foreclosures shrank property tax income, San Bernardino closed most city offices on Fridays and cut employees’ pay 10 percent over a three-year period. The city also reduced its workforce by 20 percent in the past three years.

Inland cities have adopted a variety of cost-cutting measures. Hemet outsourced its trash collection and considered replacing its police force through a contract with the Riverside County Sheriff’s Department.

Lake Elsinore and Wildomar, which already have sheriff’s contracts, pared back the number of deputies patrolling their cities. Wildomar’s City Council meets only once a month to save money, and officials closed public parks after voters rejected a park maintenance fee.

California lawmakers’ decision to abolish redevelopment and transfer vehicle license fee revenue to the state budget adds to cities’ financial woes, McKenzie said.

“Whether or not (those actions are) going to push (cities) over the fiscal cliff is going to depend on their total fiscal picture,” he said. “But those have definitely been very damaging actions by the state.”

Palmer disagreed. The overwhelming majority of successor agencies created to wrap up the final affairs of local redevelopment agencies have paid their bills on time, he said. Once those bills are paid, property tax money ticketed for redevelopment now goes to cities, counties and other special districts, Palmer said.

Grand Terrace Mayor Walt Stanckiewitz said his city ran into problems when previous administrations used redevelopment dollars to finance the general fund, which pays for the bulk of city activities. The city is now paying its redevelopment fund back, he said.

Today, Grand Terrace’s $3.4 million general fund budget is balanced and “We’re in a tentative stable situation,” Stanckiewitz said. Whether it stays that way depends on the state budget, he said, and whether state officials reconsider their decision not to pay for some of Grand Terrace’s redevelopment debt.

Formed in 2011, Jurupa Valley is too young to go bankrupt, Mayor Laura Roughton said.

But unless the city gets back vehicle license fee money in the next 15 months, it may have to dissolve, she said. Loss of the vehicle-license-fee revenue took a $13.2 million bite out of Jurupa Valley’s past and present budgets.

Lake Elsinore Interim City Manager Tom Evans said he couldn’t foresee his city following San Bernardino’s path. While foreclosures hurt Lake Elsinore’s property tax revenue, new homes are being bought and sold and the city has room to grow, he said.

Lake Elsinore dipped into its reserve fund to get through 2010, but was able to bank $4.2 million in 2011, city figures show. It now has $10.8 million in its rainy day fund.

Rick Teichert, Moreno Valley’s financial and administrative services director, said despite a $14 million deficit reported last fiscal year, the city was not at risk of bankruptcy. He said the city’s fund balance has filled in holes. He said it generally is dangerous for a city to dip below a $15 million fund balance.

Meanwhile, the City Council approved an austere, three-year budget beginning in 2011-12. Earlier this year, Teichert told council members that property and sales tax revenue was more than expected.

via REGION: Cities say they’re not going bankrupt | Breaking News | PE.com – Press-Enterprise.