Boston Globe reports via AP that the city of Stockton, CA, the first muni to declare bankruptcy, has to figure out how to allocate massive financial burden equitably among creditors while meeting massive state pension obligations.
On Monday Stockton was granted Chapter 9 protection as its creditors questioned whether state pension obligations can be fully met while other debt-holders go partly paid. The issue is federal bankruptcy laws that require pension fund debts to be honored above all others. This could have huge implications across the nation, experts say.
CYPRUS HERE WE COME "The fear is that there is going to be a run on the banks. Every municipality will stop pension payments if Stockton is allowed to do it," said a bankruptcy attorney. Californias $225 billion Public Employees Retirement System (Calpers) is underfunded by $87 billion--- more money due retirees than there is in the system.
Stocktons biggest creditors insured $165 million in bonds the city issued in 2007 to keep up with CalPERS payments as property taxes plummeted (the Obama curse). Stockton now owes CalPERS about $900 million to cover pension promises by far the citys largest financial obligation. Nearly two dozen California cities are now facing bankruptcy or financial emergencies hefty municipal pension costs are getting heightened scrutiny. (Excerpt) Read more at boston.com ...
LOTTA PORK FOR POLS IN GOVT BOND ISSUES---business and individual taxpayers saddled with billions in taxes via Wall Street bonding deals states love to put together. (Jon Corzine sold muni bonds to suckers at G/S.) How very easy it is for conniving pols to get a gigantic piece of these billion dollar pies. Wall Street knows how to make money disappear faster than a cream puff at a Weight Watchers weigh-in. Read on taxpayers.
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NPR.ORG-- California School District Owes $1 Billion On $100 Million Loan
More than 200 school districts across California are taking a second look at the high price of the debt using risky financial arrangements. Collectively, the districts have borrowed billions in loans that defer payments for years leaving many districts owing far more than they borrowed. In 2010, officials at the West Contra Costa School District, just east of San Francisco, were in a bind.
The district needed $2.5 million to help secure a federally subsidized $25 million loan to build a badly needed elementary school. President of the school board said, We'd be foolish not to take advantage of getting $25 million when the district had to spend just $2.5 million to get it. The only way we could do it was with a CAB [capital appreciation bond].
Those bonds are unlike typical bonds; CABs allow districts to defer payments well into the future by which time lots of interest has accrued and accrued and accrued. In the West Contra Costa Schools, that $2.5 million bond will cost the district a whopping $34 million to repay. (hat tip to Grampa Dave)
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Paraphrasing Saint Augustine Without a system of justice what is govt but a marauding band of thieves.
” Those bonds are unlike typical bonds; CABs allow districts to defer payments well into the future by which time lots of interest has accrued and accrued and accrued. In the West Contra Costa Schools, that $2.5 million bond will cost the district a whopping $34 million to repay. (hat tip to Grampa Dave)”
The Cosa Nostra Schools will end up shoveling the obligations to the California taxpayers......until California goes BK : )