CBO Has Started Weighing Benefits Of Bankruptcy Or Default For Local Governments
The Congressional Budget Office is warning about the fiscal stress faced by local government. This chart shows how much revenues are down.
More stress is expected as home prices decline.
The ten-page brief includes a long discussion on bankruptcy versus default. The CBO seems to prefer:
One key advantage of bankruptcy is the “automatic stay,” which is issued by a court and prevents creditors from taking action against the municipality and its officials without approval from the court…
Another important advantage of bankruptcy is that courts can implement a restructuring plan without the consent of every creditor…
The bankruptcy process may also allow a municipal government to reduce its labor costs by facilitating the consent of employee unions to changes in labor contracts….
http://www.businessinsider.com/cbo-fiscal-stress-faced-by-local-government-2010-
12?sailthru_m=h2a
Already, Detroit’s Mayor Bing has implemented a new plan to stave off bankruptcy by eliminating City services, including road repairs, police patrols, street lights, and garbage collection, to 20% of the City. The schools are bankrupt too.
Detroit Mayor Plans to Halt Garbage Pickup, Police Patrols in 20% of City; Expect Bankruptcy, Massive Municipal Bond Turmoil in 2011 – Cedes 20% of Detroit to Gangs and Homeless
http://globaleconomicanalysis.blogspot.com/2010/12/detroit-mayor-plans-to-halt-
garbage.html
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