Fiscal Distress

Fiscal Distress Myths and Realities Part II: Municipalities Use of Chapter 9 is Rare


Fiscal Distress Myths and Realities Part II: Municipalities Use of Chapter 9 is Rare ( )

Part II of James Spiotto’s Series on Fiscal Distress Myths and Realities: Municipalities Use of Chapter 9 is Rare Compared to Corporations Use of Chapter 11

 

 

See Part I of this series: Default Rate for State and Local Government Debt Has Been Relatively Low Especially When Compared to Corporate Debt Default

Myth:    The Rate of Bankruptcies for Municipalities is Comparable to the Rate of Corporate Bankruptcies
Reality:   The Rate of Bankruptcies for Municipalities is Actually Less .086% or 8.6/10,000 than that of Corporate Chapter 11 Filings Per Year Over the Last 36 Years
Historically the Use of Chapter 9 Bankruptcy by a Municipality Has Been Rare and a Last Resort Especially Compared to Corporate Chapter 11 Filings:
  • Since 1937 when Chapter 9 municipal debt adjustment was enacted almost 80 years ago there have been only 666 Chapter 9 filings, namely by small municipal utilities and special tax districts and by some cities, towns, villages and counties, but generally not of any significant size.
  • Since 1954, virtually all of those municipalities that filed Chapter 9 were small or not major issuers of bond debt except for Bridgeport, CT in 1991, Orange County in 1994, Vallejo, CA in 2008, Jefferson County, AL in 2011, Stockton and San Bernardino, CA in 2012 and Detroit in 2013. Both Harrisburg, PA and Boise County, ID cases were dismissed, as was Bridgeport in 1991.
  • Of the 297 Chapter 9 filings since 1980 and of the 322 filings since 1954, 176 (191 since 1954) have been municipal utilities and special districts and only 54 (64 since 1954) have been cities, counties, towns and villages. The remaining 53 have been hospitals or healthcare, 8 transportation and 6 school or educational facilities. Less than 70% of the Chapter 9 filings resulted in a confirmed plan of debt adjustment.
  • Since 1980 Chapter 11 corporate filings have averaged at least 10,000 per year, compared to about 8.6 Chapter 9 filings per year.
Current Use of Chapter 9:
  • No Tsunami of Chapter 9 filings in 2012, 2013, 2014 and 2015.
  • Only 13 Chapter 9 filings in 2011, 12 in 2012, 8 in 2013, 10 in 2014, 3 in 2015 and 2 so far in 2016.
  • Only 4 cities, towns, counties or villages filed Chapter 9 (municipal bankruptcy) in 2011, namely Jefferson County, Central Falls, Boise County and Harrisburg, PA (Boise County and Harrisburg were dismissed), 3 in 2012, namely Stockton, San Bernardino and Mammoth Lakes (which was dismissed that year) and only 1 in July, 2013 – namely Detroit. Since the Detroit Chapter 9 was filed in 2013, 2014, 2015 and, so far in 2016, only one city, Hillview, KY in August 2015, filed and that was dismissed in April, 2016 without filing a plan of debt adjustment.
  • Total Chapter 9 filings since 1937 – 666. States cannot file Chapter 9 –
    Co-Sovereign with Federal Government and 10th Amendment Issues.
  • Still RARE and mainly small special tax districts, municipal utilities.
  • In the last 60 years, only 64 cities, towns, counties and villages have filed out of 318 Chapter 9 filings that have been made. Twenty-nine of the 64 (44%) were Chapter 9 cases dismissed before any plan of debt adjustment was confirmed, with purportedly the city, town, village or county finding a better resolution, or was not authorized to file under state laws.

Click on any of these charts and graphs to expand

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Look out for Part III of James Spiotto’s series, Access and the Cost of Borrowing is a Reflection of the Perceived Risk of the Government Credit, coming soon.

James E. Spiotto, Co-Publisher © James E. Spiotto. All rights reserved

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