20 Cities That May Face Bankruptcy After Detroit

Tuesday, 06 Aug 2013

Newsmax.com

By Stephen Moore

Think Motown is the only major U.S. city in a boatload of financial trouble? Think again.

Detroit’s bankruptcy filing sent shivers down the spine of municipal bondholders, government employees, and big-city urban residents all over the country.

That’s because many of the 61 largest U.S. cities are plagued with the same kinds of retirement legacy costs that sent Detroit into Chapter 9 bankruptcy this summer.

These cities have amassed $118 billion in unfunded healthcare liabilities. These are legal promises to pay healthcare benefits to municipal workers beyond the employee contributions to finance those funds. This is a giant fiscal sink hole — and because of defined benefit plans, the hole keeps getting deeper.

Detroit may be the largest city in American history to go bankrupt, but it is not alone. The city raced to the financial insolvency finish line before anyone else in its class.

Keep an eye on “too big to fail” cities like Chicago, Philadelphia, and New York.

According to an analysis by the Manhattan Institute, several Chicago pension funds are in worse financial shape than the worker pensions in Detroit. One is only 25 percent funded, and where the other 75 percent of the money will come from is anyone’s guess. And there are about a dozen major California cities having systemic problems paying their bills.

Here is my worry list, based on bond ratings and other data, of the top 20 cities to watch for financial troubles in the wake of the Detroit story:

1. Compton, Calif.
Compton has teetered on the brink of bankruptcy after it accrued a general-fund deficit of more than $40 million by borrowing from other funds, depleting what had been a $22 million reserve.

2. East Greenbush, N.Y.
A New York state audit concluded that years of fiscal mismanagement — including questionable employment contracts and illegal payments to town officials — left East Greenbush more than $2 million in debt.

3. Fresno, Calif.
Fresno had the ratings of its lease-revenue bonds downgraded to junk-level by Moody’s, which also downgraded its convention center and pension obligation bonds due to the city’s “exceedingly weak financial position.”

4. Gulf County, Fla.
Fitch Ratings warned that Gulf County’s predominately rural economy is “narrowly focused,” with income levels one-quarter below national averages and economic indicators for the county also comparing unfavorably to national averages.

Read More Here