Municipal bankruptcy: not a magic pill

As Mammoth officials continue to hand over information to Mammoth Lakes Land Acquisition so they can eventually negotiate payment of Mammoth’s $41 million debt, the option of bankruptcy remains

stephaniegomes

Vallejo City Councilwoman Stephanie Gomes talks bankruptcy reality.

a possibility.  Advisor to the Town, Marianna Marysheva-Martinez continues to say she does not prefer bankruptcy.  It is believed MLLA agrees.  Martinez did share with Sierra Wave an article on details of the City of Vallejo’s bankruptcy.

The article appears on InsideBayArea.com and quotes Vallejo City Councilwoman Stephanie Gomes who appeared at a meeting of the Contra Costa Taxpayers Association.  The article quotes Gomes as saying that bankruptcy is not a magic pill for cities struggling to balance their budgets.

In the case of Vallejo, a number of financial issues hurt the city, including closure of the Mare Island Naval Base and the disappearance of its federal funds.  The loss of the base created a major economic vacuum.  The article said Vallejo had also failed to cost out pensions and benefits and employee unions gained in power.

In a downhill loss of the tax base, general fund and reserves were depleted by 2008 and the Vallejo City Council voted to file for bankruptcy.  Unions fought the bankruptcy but lost.  The article on Vallejo said that “The city won a precedent-setting legal point: that a bankruptcy court could void public employee contracts.”

The City of Vallejo still has problems but did gain power over employee unions, according to the article written by Peter Langley, a former city councilman from Martinez, CA.

 

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10 Responses to Municipal bankruptcy: not a magic pill

  1. upthecreek August 4, 2011 at 12:34 pm #

    It may not be the MAGIC PILL
    however it is the Reality Pill
    Tic, Tic, Tic

     
  2. Rob August 4, 2011 at 2:34 pm #

    “The city won a precedent-setting legal point: that a bankruptcy court could void public employee contracts.”

    So something good could come of this

     
  3. johndoeml August 4, 2011 at 3:07 pm #

    I don’t think any of the commenters recommending bankruptcy think of it as a “magic pill”, through which all problems vanish. However, the problems faced by Mammoth Lakes dwarf the typical problems other towns have balancing the budget. Assuming a population of 8,000 individuals, the debt is $5,125 per tax payer. This is, of course, much higher than deficits almost anywhere else.

    Right now the town government and staff are paralyzed. Vital services are in the process of being negotiated away. Staff is demoralized. Bankruptcy is a means to clean up finances in a structured manner and remove future uncertainty. It would be painful, but it would be quicker. That’s what TOML needs.

    Many of the arguments against bankruptcy are easy to refute. For example, the argument has been made that bankruptcy will hurt the town’s credit rating. Well, yeah. But isn’t the town’s credit in the toilet already? I sure wouldn’t lend to a town with a $41 million dollar debt.

    Then there are the worries that the town’s streets won’t be plowed. But municipal bankruptcy allows the preservation of vital services.

    Also, some worry that the town will lose all its assets. Municipal bankruptcy preserves assets that otherwise could be given away.

    Yes, bankruptcy is embarrassing. It’s hard to admit you were a council member, advisor, supervisor or whatever at the time your town went bankrupt. But it’s time to mitigate the damage that has already been done.

     
  4. Ken Warner August 5, 2011 at 11:03 am #

    What worries me is that the same people who got us into this mess are now negotiating a settlement. Well, not exactly the same people but pretty close.

     
  5. Jake Steel August 5, 2011 at 1:33 pm #

    “MLLA agrees”… who cares what these people like.. FILE NOW and send that $4000 a week lady HOME as well!

    and if MLLA ever thinks they are getting land and building they can plan on having picket signs all around and a local boycott for LIFE!

     
  6. Nancy Tucker Baker August 6, 2011 at 12:27 am #

    I agree with Johndoemi and Jake Steel. Yes, I’m sure our credit rating already sucks. I also know that municipal bankruptcy would preserve vital services such as road plowing, etc. I can’t really see that bankruptcy could possibly do any more damage at this point. We need to file soon…that $30 million became $41 million awfully dang fast.
    And, as to MMM getting her $4000. a week…then stating she thinks “MLLA is not in favor of bankruptcy”…jeez, of course they don’t want it!
    Unless TOML is willing to hand over some tangible real property or other asset, such as, say the infamous bell-shaped parcel, we need to file bankruptcy before the debt climbs higher and before any asset forfeiture is served upon the Town.

     
  7. Wayne Deja August 7, 2011 at 4:56 pm #

    Coming soon to the Eastern Sierra……..Another tourist attraction…..The Ghost Town of Mammoth Lakes…

     
  8. Mark August 7, 2011 at 11:27 pm #

    Orange County filed for bankruptcy in the early 90’s and now that county is better off now than before bankruptcy.

     

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