San Diego Bankruptcy Talk Lingers

The San Diego Union-Tribune reports:

Under federal law, government agencies can file for bankruptcy under a specific section, Chapter 9. Orange County was the nation's largest municipal bankruptcy.

A Connecticut city, Bridgeport, came close to insolvency in 1991, but a judge decided the city had too much cash on hand to qualify. New York neared bankruptcy 30 years ago, but state aid and civic guidance pulled the city back to solvency.

Most governmental bankruptcies involve small agencies or special districts, said James Spiotto, a Chicago attorney who has testified before Congress on the issue. In nearly 70 years, there have been only 553 court proceedings for government agencies seeking relief from debt.

San Diego, with most of its problems linked to the pension shortfall, is not alone. Spiotto estimates that public agencies nationwide are carrying a collective $700 billion in unfunded pension obligations.

Because of that, the importance of how San Diego handles its fiscal problem “cannot be overstated,” he said.

“How this gets dealt with affects everyone in California, and in the whole country,” Spiotto said. “It's a big issue. San Diego has a great reputation. What they do to deal with it may lead the way, good or bad, for the others.”

The prospect of bankruptcy began to be mentioned in spring 2003, as the extent of the city's pension problems emerged.

Months earlier, the City Council had approved a now-notorious deal to extend a policy that increased employee retirement benefits while allowing the pension system to be underfunded.

Burdened by the extra expense – and battered by stock losses from the technology bust and the market's post-Sept. 11 doldrums – the retirement fund began to reflect a deficit that has since ballooned, and in so doing, has spread into nearly every nook of San Diego's political square.

This is an article all municipal bond holders should read.Those who are for small government may come to the conclusion that a Chapter 9 bankruptcy is the best way to get rid of government.A city like San Diego has many unused parcels of land that could be sold.Something to think about.