“Bankrupting” Public Unions – Mike Shedlock – Townhall Finance Conservative Columnists and Financial Commentary

“Bankrupting” Public Unions – Mike Shedlock – Townhall Finance Conservative Columnists and Financial Commentary.

Distressed cities are finally doing what they should have been doing long ago, declaring bankruptcy to force concessions from public unions. Numbers are still a trickle, but at soon as a major city such as Oakland or LA selects that option, we will likely see a torrent of municipal bankruptcies.

At a packed, two-day conference on municipal woes sponsored by Michael Stanton, the publisher of The Bond Buyer Distressed Cities Discuss Bold Tactics in a New Fiscal Era.

The conference was devoted to a discussion of the strengths and weaknesses of the more powerful tools being used in many cities these days, including receiverships, emergency declarations and even bankruptcy.

Attempts to plug budget holes with one-time transactions are giving way to other approaches, “This is truly a new era for dealing with troubled municipalities,” said Stanton.

New woes were unfolding elsewhere even as a capacity crowd of government officials, investors, lawyers and credit analysts were gathering here to discuss the trend.

In Jefferson County, Ala. — which filed the biggest Chapter 9 municipal bankruptcy in American history this fall after its sewer-construction financing fell apart and a court threw out one of its taxes — county commissioners were voting to default on a general obligation bond payment.

In Detroit, city and state officials were sparring over how much emergency aid the city might be able to get, and how much state oversight and control would accompany it.

Stockton, Calif., was in negotiations in a last-ditch effort to avoid becoming the biggest American city yet to declare bankruptcy. And just two hours west of Philadelphia, Harrisburg, the state capital, recently announced that it would default on a payment coming due to general obligation bondholders.

Robert G. Flanders Jr., the state-appointed receiver for Central Falls, R.I., said his city’s declaration of bankruptcy had proved invaluable in helping it cut costs. Before the city declared bankruptcy, he said, he had found it impossible to wring meaningful concessions out of the city’s unions and retirees — who were being asked to give up roughly half of the pensions they had earned as the city ran out of cash.

“The municipality is on bended knee asking the retirees and unions to come to the table and give up their contract rights,” he recalled. “All of that leverage shifts once you have the gumption to pull the Chapter 9 trigger. And guess what? That produces agreements quicker and more effectively than otherwise.”

Naomi Richman, a managing director at Moody’s Investors Service, wondered aloud whether it might become more acceptable for cities to declare bankruptcy.

“Back in the ’80s, the stigma against corporate bankruptcy fell away, and it became viewed as a strategy a corporation might pursue for various reasons,” Ms. Richman said. “Recently, with the residential housing collapse, individual bankruptcy has less of stigma in society — it’s a strategy that a person might be advised to follow if they have a debt that they can’t afford. Could the same thing happen for municipal bankruptcy?”

Rhode Island City Offers Gloomy Lesson

The Huffington Post reports As Detroit Bankruptcy Looms, Rhode Island City Offers Gloomy Lesson

PHILADELPHIA — Bankers, consultants and elected officials gathered at a conference here on Wednesday to discuss a hot political question for the formerly sleepy municipal bond industry: how to sell the need to protect the rights of bondholders — the often large, distant financial institutions who extend the credit that keeps towns humming — when cities enter financial crisis. The issue has most recently been thrown into relief as a Monday deadline for the city of Detroit to accept a consent order to fix the city’s budget looms.

“While the economists have declared the recession to have been over for almost three years now, the problems of state and local governments continue to mount,” said Bob Kurtter, the managing director for U.S. state and regional ratings at Moody’s Investors Service. “Default continues to be rare,” he said, but “our ratio of downgrades to upgrades has been negative for the past 12 quarters.”

As more cities and states struggle to fill the $1.26 trillion gap between what they have actually set aside for pensions and retirement benefits and what they have promised, municipal accountants will grapple with questions that will increasingly resemble those faced by Detroit or former Rhode Island Supreme Court Justice Robert Flanders when he was appointed last year as receiver for Central Falls, a struggling former factory town in the Ocean State.

From the comments of Flanders and others at the municipal bonds conference, it seems like the industry is in agreement about one thing going forward: someone is going to have to suffer, and it shouldn’t be bondholders.

Bondholders and Unions Should Both Share the Pain

This idea that bondholders should not take losses is ludicrous. Anyone stupid enough to buy Detroit bonds should pay a hefty price. Moreover, since untenable promises made to public unions are generally a leading cause of bankruptcy, public unions should suffer as well.

Gov. Rick Snyder Move on Detroit

The Christian Science Monitor reports Detroit nears deal to avert bankruptcy, but is it a state takeover?

March 27, 2012

With Detroit now formally in a state of “severe financial emergency,” city and state officials are grappling with the terms of an agreement to resolve the crisis, which both sides say they expect to be signed by week’s end.

So far, Michigan state officials are avoiding talk of a takeover – a toxic term in a majority black city whose elected officials are opposing the appointment of an emergency manager. Detroit officials are calling for more financial support from the state.

While Michigan Gov. Rick Snyder (R) says he wants to avoid assigning an emergency manager to control the city’s finances, the agreement being worked out between the city council and the state treasurer’s office is expected to force the most extensive financial restructuring ever experienced by Detroit, or any other US city its size.

Governor Snyder now has 10 days to deliver a “consent agreement,” according to a new law that allows the state to take financial control of any municipality facing bankruptcy. Since the law passed in March 2011, Michigan has placed four cities and two school districts under emergency management.

The law allows the state to break collective bargaining agreements, privatize city assets, fire local officials, and force a restructuring to keep basic city services flowing.

“It’s a big experiment,” says Vincent Hutchings, a political scientist at the University of Michigan in Ann Arbor. “Detroit is a high-profile city with a lot of issues.”

City officials oppose referring to the final deal as a “consent agreement,” which can lead to an emergency manager. The city wants to retain power to approve budgets but will hire a chief financial officer who will report to the mayor, said Deputy Mayor Lewis on Tuesday. The city also wants the state to lend Detroit money – a move that Snyder has refused in the past.

Meanwhile, many Detroit residents are protesting the possibility of the state playing a larger role in management of their city. An open meeting of the state commission was nearly shut down Monday by protesters who shouted, sang, and angrily denounced the state officials for what they see as trying to intervene with the democratic process. One activist filed a request with the Michigan Supreme Court for an emergency injunction to stop Snyder’s team from moving forward.

Adding to the drama is the weekend hospitalization of Detroit Mayor Dave Bing, who remains bedridden.

$1.26 Trillion Pension Gap

The only way to fill a pension gap of that size is to reduce benefits. Tax hikes are out of the question. And the fastest, easiest, and best way to get pension concessions from public unions is to reduce benefits and tell the unions what they get.

There is no need to negotiate. Central Falls did not negotiate, they said take 50% or you may end up getting even less.

Ultimately, the only way to deal with public unions is to strip them of all power including collective bargaining rights, then claw back ridiculous benefits in bankruptcy court.

Eco-Scams Are as Easy as “A123” – Michelle Malkin – Townhall Conservative Columnists

Eco-Scams Are as Easy as “A123” – Michelle Malkin – Townhall Conservative Columnists.

While President Obama was busy lambasting Big Oil tax breaks on Thursday, yet another one of his environmental welfare recipients (the very kind he wants to redistribute oil subsidies to) was teetering on the edge of bankruptcy. Who needs to win the Mega Millions lottery? Start a pie-in-the-sky eco-boondoggle, and a half-billion-dollar jackpot ripe for squandering is all yours!

The Solyndra of the week is A123 Systems, an electric vehicle battery company based in Massachusetts. The firm also has battery plants in Michigan, where former Democratic Gov. Jennifer Granholm once heralded A123 as a federal stimulus “success story.” Former House Speaker Nancy Pelosi visited the company headquarters and hailed it as a “great example of how Recovery Act funding is helping American companies.” In addition to nearly $300 million in Obama Recovery Act funds, Granholm kicked in another $135 million in tax credits and subsidies to bribe the company to keep jobs in her state.

How’s the return on government investment? This green dud will have taxpayers seeing red. A123’s official company motto is “Power. Safety. Life.” But the firm’s reality is “Out of power. Endangering safety. Clinging to life.”

Earlier this week, the company announced a recall of malfunctioning battery packs manufactured in Livonia, Mich. A123 makes the products for Fisker, Chevrolet and BMW electric cars. Consumer Reports flagged the potentially hazardous defect caused by faulty calibration earlier this month. The recall will cost upward of $55 million.

A Deutsche Bank analyst wrote: “We no longer have enough confidence that (A123) can raise sufficient capital (without massive equity dilution) and/or continue to augment their book to future business. Recent quality issues may lead to concerns over (A123’s) ability to manufacture with quality at high volumes, potentially leading to customer defections or at least difficulty in procuring new contracts.”

When it rains, it pours. The dead battery debacle follows news of 125 layoffs in November due to diminished vehicle production by top client Fisker Auto. That troubled company (which A123 has itself dumped $20.5 million of stock equity and cash into) admitted faulty wiring problems with its electric cars.

While Michigan workers lost their jobs, Massachusetts executives burned through $155 million in cash this year and the company stock plummeted to just over $1. A123 lost a net $172 million over the first three quarters of 2011 and has yet to see a profit. Like Solyndra’s top brass, A123 managers have been living high on the hog and partying it up with Democratic Party bigwigs.

The Michigan-based Mackinac Center reports that in February, “A123’s Compensation Committee approved a $30,000 raise for (Chief Financial Officer David) Prystash just days after (its primary customer) Fisker Automotive announced the U.S. Energy Department had cut off what was left of its $528.7 million loan it had previously received.”

Prystash’s hike was 8.5 percent, taking his base salary from $350,000 to $380,000. One A123 vice president, Robert Johnson, received a 20.7 percent pay increase that saw his salary grow from $331,250 to $400,000. Another vice president, Jason Forcier, vice president of the automotive solutions group, climbed from a $331,250 base salary to $350,000.

Analyst Paul Chesser of the D.C.-based National Legal and Policy Center raises pointed questions about the timing of the pay raises: “Were their actions intended as greater protection for their executives in the case of a sale or bankruptcy of the company?” Inquiring House GOP investigators looking into the Obama Department of Energy’s big green boondoggles should want to know.

And taxpayers should want to know more about the cozy ties between A123 and the White House and Democratic politicians. A123 Systems CEO David Vieau showered Barack Obama, the Democratic National Committee and key Democrats on Capitol Hill with nearly $17,000 before receiving the stimulus injection. A123 enviro-boodle also flowed to Mass. Sen. John Kerry and Rep. Ed Markey. Betting on “smart grid” cronyism has been a bonanza for the well-connected — and a big, bad bet for taxpayers.

Let it fail – Tea Party Nation

Let it fail – Tea Party Nation.

Posted by Judson Phillips

If you want to see the poster child for the failure of American liberalism, look no further than Detroit. 

 Motor city was once a hub of the American economy.  It was a poster child for American economic dominance.  Today, it is a ghost town.  In the last decade, a quarter of the population has left.  Parts of the city are simply uninhabited.  Wild life is moving back into quarters of the city where people have fled.   One of the hottest tickets in Detroit, perhaps the only hot ticket, is something called Urban Exploring.   This is where intrepid souls venture into the wreckage that used to be Detroit in its heyday.  These buildings they go into include the old train station, old schools and hospitals. 

 The Democrat Mayor of what is left of Detroit and the Republican Governor of Michigan are currently in a fight.  Detroit has an economy that makes the Greek economy look like it was run by Dave Ramsey. 

 Mayor Dave Bing does not want the State to take over Detroit.  The Republican Governor of Michigan Rich Snyder wants to do that because Detroit has been so badly managed.  

 Since the 1960’s Detroit has had its hand out for every Federal Government handout that has come down the pike.  The result has been the total destruction of what was once one of the most prosperous cities in America.

 By fighting the Governor on the take over, Mayor Bing wants to perpetuate the failure that has been Detroit for the last fifty years.   Detroit has not had a Republican Mayor in 51 years.  One Democrat after another has raided the city coffers and bankrupted the city.

 Unfortunately, Governor Snyder wants to perpetuate failure too. 

 It is time to admit the truth.

 Detroit is dead.  Let’s pull the plug on Detroit and let it die. 

 Michigan needs to revoke the charter for the City of Detroit and let it pass into history, with other dead cities, like Pompeii.  Similar to Pompeii, Detroit has been buried by an avalanche of progressive volcanic ash.

 As Detroit dies, we need to be warned that it is but the canary in the mineshaft. 

Every city has the same problems Detroit has.  Perhaps not to the same degree but every city does. 

 Every major city relies of federal grants and other tax dollar bailouts to keep the city afloat.  Liberal Democrats, who keep promising greater benefits to the core constituencies that keep them in power, run every one of these major American cities

 Many cities have already driven away a significant portion of their tax base by constantly increasing the taxes the city imposes.   

 One of the ways we can cut Federal Spending is by cutting these block grants and other transfers to the cities.  Cities need to be able to run on their own tax revenues and not have bailouts from the government.

 The problem with bailouts is that they never work.  All they do is mask the problem and allow the politicians who caused the problems to escape the responsibility of fixing them.

 It is time we the people started saying no to the incompetent city hall politicians who believe the city treasury exists only to serve their reelection needs.  It is time we stop feeding failure.  

 Let Detroit die. 

 Something will replace it.  Something better.  Something that will work and will not cost the taxpayers millions or even billions of dollars.

 Let Detroit stand as a warning for everything that is wrong with liberalism.

 Let Detroit’s epitaph be, “Created by the free market.  Destroyed by liberals.”

The Myth of Romney – Tea Party Nation

English: Governor Mitt Romney of MA

Image via Wikipedia

The Myth of Romney – Tea Party Nation.

Posted by Judson Phillips

Myths have this habit of hanging around, growing and even be repeated and believed.  Mitt Romney is the center of one of the biggest myths going around.

 What is the myth of Romney?

 The myth of Romney is that he is electable.  It is right up there with the myth he is a conservative. 

 The headlines for today by the Romney friendly media are that Romney one two states.   As always the drive by media does not go into the story the way it should be delved into. 

 Romney won Arizona handily.   He took 47% to Santorum’s 26%, Gingrich’s 16% and Paul’s 8%.  That sounds impressive until you realize the other three did not challenge Romney in Arizona.   Romney had the endorsement of the sitting governor, was not really contested by the other candidates and he still could not break 50% of the vote. 

 In Michigan, even though Romney won, the results can only be called a disaster.  Romney calls Michigan his home state.   He was raised there and his father was a popular governor there.  He went in, as always out spending his opponents.  In this case, he only had one real opponent, Rick Santorum.   Newt Gingrich and Ron Paul both passed on Michigan to concentrate on other contests.  Once again, Romney one but he only won by three percent and while this time his vote total exceeded what he had four years ago, this is the first contest in a while where that has happened.  Even with two candidates basically sitting Michigan out, Romney could only barely break 40%.  Almost 60% of the voters of what is allegedly Romney’s home state do not want him. 

 That says something.

 There is a trend here that even Myth Romney should be able to figure out. 

 When Romney wins he must outspend his opponents five or ten to one and he is depressing the Republican voting base.  If Romney cannot, even with a huge financial lead, draw more voters than he did four years ago in the primary, what is he going to do this fall when he is the one being outspent five to one? 

 It is time for the Republican Party to act.   It is time for the Party hierarchy to sit down with not only the establishment but with Tea Party and conservative activists to find a consensus candidate who can in fact beat Barack Obama this fall. 

 Myth Romney is not that candidate.  He has proven that repeatedly.  The GOP electorate has not really fallen in love with any of the candidates this year.  The closest candidate who has excited the GOP base is Newt Gingrich.  This is because where Gingrich has won, the voter turnout was up.  This is something that will be desperately needed this fall.

 Last week I said that I would support the GOP nominee this fall, even if it was Romney because Obama is simply so bad. 

 I am now rethinking that. 

 Obama must be beat.  I am willing to support almost any Republican who can get in there and beat Obama.  But that is the rub.  I am willing to support almost any Republican who has a chance to beat Obama. 

 Romney has no chance. 

 The Republican Party needs to realize this train is going down the rails and off the cliff.

 If the Republican Party wishes to commit ritual political suicide, why should any conservative activist waste their time playing Doctor Kevorkian to the GOP?

 Meanwhile, perhaps we conservative activists should be asking the GOP, if you don’t want to win, could we borrow your party for a little while?