California’s Stockton’s Bankruptcy to Go Forward

In the news this month, a federal bankruptcy judge has authorized Stockton, California’s chapter 9 municipal bankruptcy to move forward. According to the Los Angeles Times, the judge noted twice that the creditors had negotiated in bad faith with the city. Of note is the $900 million obligation the city owes to the California Public Employees Retirement System (CalPERS), which state law requires municipalities to fund. Experts predict a fight between whether the creditors will be able to use the federal bankruptcy code to force Stockton to renegotiate its pension obligations or if California’s sovereignty supersedes any agreement over the CalPERS funding.

For those watching from Las Vegas, the ability of their municipalities to pay their sovereign bond obligations is of great importance, given that Clark County’s unemployment rate is now 9.8 percent and there are numerous underwater homes. Nevada does not allow municipalities to file in chapter 9 as California does. Instead, cities have other tools at their disposal, like North Las Vegas’ decision to declare a state of fiscal emergency last summer.

The good news is that in late June 2012, Standard & Poor’s rated North Las Vegas’ debt at A-, which is good, but the ratings agency gave it a negative outlook. (Las Vegas’ is AA/Stable.) Moreover, the unemployment rate is dropping, having crossed into single digits in March 2013. The situation appears stable, though North Las Vegas’ mayor recently lost her reelection primary.

The consequences of a fiscal emergency can be quite dire, causing private citizens to file Las Vegas bankruptcy themselves. Furloughed or laid-off city workers might be unable to make their debt payments and will spend less of their salary into the local economy. Unionized workers might suffer salary freezes, and reduced city services makes cities less attractive to live in, prompting more people to leave. In the direst of situations, cities might cut pensions to workers who didn’t pay into Social Security.

Municipal fiscal emergency can lead to a vicious cycle, and if you’re caught up in it, you need experienced bankruptcy counsel to navigate you to safer shores.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.