Puerto Rico, Atlantic City and Chicago school district bondholders have reason to fear a fight in court if the ailing governments collapse financially: recent cases show that when municipalities go broke, investors lose when pitted against municipal retirees.
The latest example is San Bernardino, California, which saddled bondholders with a 60 percent loss while keeping retirement benefits intact under a settlement last month aimed at ending its nearly four years in bankruptcy. That’s in line with the outcome of the local-government bankruptcies filed since the onset of the Great Recession, all but one of which sheltered pensioners from the deeper cuts extracted from investors who bought their debt.
“The more cases that come to light like this in favor of pensioners, the odds of breaking those precedents become lower and lower,” said Howard Cure, director of municipal research in New York at Evercore Wealth Management, which oversees $6.2 billion of assets. […]
“Pensions are faring far better than other creditors under Chapter 9,” analysts led by Peter Hayes, BlackRock’s head of municipal bonds, wrote in an note Monday. “This reinforces the view that bondholders need to be extremely cautious dealing with distressed municipalities.” […]
In every recent bankruptcy nationwide except for Central Falls, Rhode Island, pensioners have fared better than bondholders, according to Moody’s. In Detroit’s, the biggest, pensioners recovered about 82 percent of what they were owed, compared with 25 percent for bondholders, according to the rating company.
The dream of using bk as a tool to get out of paying pensions probably won’t work, although it could reduce pension costs. And it could still be used to bust up union contracts (which may be the real point here), although AFSCME is still alive in the Motor City.
Gov. Bruce Rauner has all but sealed the fate of legislation pushed by Mayor Rahm Emanuel that would put off nearly $220 million in payments to the city’s police and fire pension funds, saying “there’s no way” he’d sign the bill without action on his pro-business, union weakening agenda.
Just hours after a private meeting with the governor, House Speaker Michael Madigan widened the gap between them Tuesday afternoon, telling legislators the state budget mess is “completely avoidable” and the result of Republican Gov. Bruce Rauner pursuing “a personal agenda.”
The Southwest Side Democrat’s relatively rare extended remarks on the floor came just before the Illinois House voted to pass a $3.89 billion appropriations bill to fund state universities and social service agencies. And it also came just two hours after Madigan wrapped up a meeting with Rauner and the other three top legislative leaders about the budget impasse that’s reached its tenth month.
“Never before has the state gone this long without a budget. Every other governor that I have worked with has negotiated with the General Assembly in good faith to help the people of Illinois and to ensure the people of our state did not needlessly suffer,” Madigan said. “The fact is the current budget crisis was completely avoidable. While this crisis was avoidable, Gov. Rauner has refused to put an end to the crisis.”
Madigan called Rauner’s Turnaround Agenda “his personal agenda, which is targeted at diminishing the wages and standard of living of the middle class and other struggling families.”
“The governor’s objections to House Democratic budget priorities are based on his insistence the General Assembly first pass his personal agenda, which is targeted at diminishing wages and the standard of living of the middle class and other struggling families,” Madigan said. “Progress will not be made by targeting the wages and standard of living of the middle class.”
Madigan said he’s had differences with all six governors with whom he has served.
“Every other governor I have worked with has negotiated with the General Assembly in good faith,” Madigan said.
“Differences with governors is not something that is new to me. Nor is it something that has prevented me from working with governors of both political parties for the good of the people of Illinois in passing state budgets,” Madigan said. “Over 30 years I have worked with six governors from both political parties. Twice as many Republicans as Democrats… I have had differences with all the governors I have worked with including governors of my own party… Many of you will recall the very strong differences I had with former Gov. Rod Blagojevich. However, we found a way to compromise. My record over the years is one of compromise…”
[Madigan contended] it has been the Republican governor’s strategy all along to try to get rid of public unions and seek a state government shutdown.
The Democratic leader quoted from a speech then-candidate Rauner made a couple of years ago in Tazewell County in which he likened the need to act in state government the way President Ronald Reagan did in a 1981 decision to fire thousands of striking air traffic controllers.
“I apologize but we may have to go through a little rough times and we have to do what Ronald Reagan did with the air traffic controllers,” Rauner said at that dinner.
“We sort of have to do a do-over and shut things down for a little while, that’s what we’re going to do,” Rauner said.
Rauner met with Madigan and other legislative leaders Tuesday. But the speaker’s remarks indicate they made no progress on a budget deal.
* Our good friends at BlueRoomStream.com posted video of Madigan’s prepared remarks. They’re even harsher than portrayed in the above stories. Check it out…
…Adding… The full video of Rauner speaking at that Tazewell County Lincoln Day Dinner referenced in Madigan’s speech is here…
“But even if they’ve got a major majority against us, you know what, they can’t stop us. They won’t stop me if I want to spend dramatically less. You need the legislature if you want to spend more. If you want to spend less, they can’t stop me. They can’t stop me.”
