Coos County Watchdog


  • Home >>>
    • About Us
    • Contact Us
    • Links
    • Whistle-Blower’s Page
  • Blog >>>
    • Info Blogs
  • Issues >>>
    • Johnson Creek Dam
    • Jury Nullification >
      • Jury Nullification on Facebook
    • More Choices in Bandon
    • NO Bandon Marsh Expansion >
      • Bandon Marsh Expansion on Facebook
    • Second Amendment Sanctuary Ordinance >
      • S.A.S.O on FB
    • State of Jefferson >
      • State of Jefferson on Facebook
    • The Coos County Charter
    • Urban Renewal Information

Lessons from the Detroit Bankruptcy Example for Community Enhancement Plan

5/8/2014

Comments

 
Hey Folks,
The following are link to a couple articles analyzing the causes of the Detroit Bankruptcy  There are lessons here that need to be learned by the people of Coos County before we go forward with the Community Enhancement Plan.....Rob T. 

Judge Declares Detroit Bankrupt; Gives OK to Cut Pensions, Burn Creditors

http://www.thenewamerican.com/economy/economics/item/17092-judge-declares-detroit-bankrupt-gives-ok-to-cut-pensions-burn-creditors
Six days after Orr moved to declare bankruptcy, the state of Michigan approved plans for a bond issue to help pay for a new $444-million arena for the Detroit Red Wings hockey team. Taxpayers would be enlisted to pay off those bonds, of course, all in the name of “stimulating” the economy. Governor Snyder said that such a project would be “a huge momentum shift” for economic activity, and that it would tie in nicely with nearby baseball and football stadiums. He said, "It’s something that hopefully will be a tax-base generator. Not the arena as much per se, but all the surrounding development."

Orr himself, who has witnessed first-hand how such spending on “hopeful” projects in the past has driven the city’s finances into the ground, added:

There’s always a debate about does this pan out?

The reality is we are so needy of some economic development, I can’t see how we don’t pursue it because if we don’t, what’s left?

These are the lyrics of the same song sung back in 1997 when Detroit built the 40,000-seat baseball park for the Detroit Tigers (shown). Then Governor John Engler said the new stadium would “symbolize” the city’s renewal.

And in 1999 when the city decided to build Ford Field for the Detroit Lions football team, Chairman William Ford said this would “showcase the city’s turnaround.”

Some lessons have to be learned over and over. Allowing individuals to make financial decisions based on the free market is always the way to simulate an economy. That’s what’s driving Midtown.

On the other hand, politicians making promises that can’t be kept, to be paid for by others, is the lesson that the Detroit bankruptcy is able to teach, but only to those willing to listen.

The Detroit Bankruptcy

http://www.demos.org/publication/detroit-bankruptcy
Legacy Expenses
The city’s “legacy expenses” increased by $62.8 million between FY 2008 and FY 2013. These legacy expenses include the city’s debt service and financial expenses as well estimates of its future liability for healthcare and pension benefits it pays to retirees. A close look at the city’s legacy expenses reveals that this $62.8 million increase was driven heavily by the city’s complex financial deals, not retiree benefits.
  • The city’s financial expenses increased by $38.5 million between FY 2008 and FY 2013, accounting for more than 60 percent of the total increase in legacy expenses.
  • The city’s pension contribution expenses remained relatively flat, rising only $2 million during this time. The city’s contribution might have been larger if it had had more money, but increases in the actual contributions it did make did not contribute materially to the cash flow crisis.
  • The city’s healthcare contribution expenses increased by $24.3 million. This constitutes an increase of 3.25 percent, per year, which is less than the nationwide annual increase in healthcare costs of 4 percent.
The city’s pension contributions in particular did not play a role in pushing it into bankruptcy because they did not contribute materially to the increase in the city’s legacy expenses that added to the cash flow shortfall. While the city’s healthcare contributions did increase, this was largely because of rising healthcare costs nationally, not because the city’s benefits were too generous. In fact, a comparative analysis of Detroit’s retiree benefits shows that its pension and healthcare benefits are in line with those of other comparable cities.

Financial deals.Detroit’s financial expenses have increased significantly, and that is a direct result of the complex financial deals Wall Street banks urged on the city over the last several years, even though its precarious cash flow position meant these deals posed a great threat to the city. The biggest contributing factor to the increase in Detroit’s legacy expenses is a series of complex deals it entered into in 2005 and 2006 to assume $1.6 billion in debt. Instead of issuing plain vanilla general obligation bonds, the city financed the debt using certificates of participation (COPs), which is a financial structure that municipalities often use to get around debt restrictions. Eight hundred million dollars of these COPs carried a variable interest rate, which the city synthetically converted to a fixed rate using interest rate swaps.

These swaps carried hidden risks, and these risks increased after the Federal Reserve drove down interest rates to near zero in response to the financial crisis. The deals included provisions that would allow the banks to terminate the swaps under specified conditions and collect termination payments, which would entitle the banks to immediate payment of all projected future value of the swaps to the bank counterparties. Such conditions included a credit rating downgrade of the city to a level below “investment grade,” appointment of an emergency manager to run the city and failure of the city to make timely payments. Projected future value balloons in low, short-term rate conditions. This is because the difference between the fixed swap payments made by the city and the floating swap payments projected to be paid by the banks increases. Because all of these events have occurred, the banks are now demanding upwards of $250-350 million in swap termination payments.

These swap deals were particularly ill-suited for a city like Detroit, which had been hovering on the edge of a credit rating downgrade for years. Because the risk of a credit downgrade below “investment grade” was so great, the likelihood of a termination was imprudently high. The banks and insurance companies were in a far better position to understand the magnitude of these risks and they had at least an ethical duty to forbear from providing the swaps under such precarious circumstances. The law recognizes special duties that sophisticated financial institutions owe to special entities like cities in providing complex financial products.  A strong case can be made that the banks that sold these swaps may have breached their ethical, and possibly legal, obligations to the city in executing these deals.

Related Posts:
Open Letter to the Coos County Board of Commissioners about the SCCF 
County Elections Questions from a Constituent for County Commissioner Cribbins
BOC---Cowardly, Commissioners Cribbins & Sweet Betray the Voters of Coos County
Unanswered Questions about the South Coast Community Foundation
MGX---CEP/SCCF will Impact ALL of Oregon
AFP---Information on the CEP/SCCF Presentation at the Red Lion on May 1, 2014
Letter to Editor---SCCF Should pay for Coos Bay Sewer Upgrades
Letter to Editor---Promises in the Dark with the Jordan Cove Project
BOC---Public Meetings Coos County Planning Changing Land Use Laws
Letter to Editor---County Politicians Keeping Public in the Dark on SCCF
RPCC---Republican Monthly Meeting "Candidate Forum" April 24, 2014
Critique of the BOC Town Hall in Bandon---"PUT IT ON THE BALLOT"
BOC---Public Meetings on South Coast Community Foundation "Put it on the Ballot"

BOC---Public Meeting for Vote on South Coast Community Foundation April 1, 2014

Letter to Editor---South Coast Community Foundation Scam will Top All Past 
MGX---Geddry Slams Koch over Forced Cooperation & Jordon Cove Funding 
League of Oregon Cities Class of Slanted View on History of Urban Renewal in OR 
City of Bandon---Expanding Government Cheese
Urban Renewal---King Hales of Portland Master of Government Development
FBI Press Release on Charges Against Local Bandon Developer Michael Drobot
Urban Renewal---Read How Schools suffer to Support Wealthy Foreign Companies
City of Bandon---Local Developer Michael Drobot Admits to Bribery & Conspiracy 
Preserving the American Dream:  Lessons in Beating Boondoggles
Agenda 21---Sustainable Development & Regionalism
City of Bandon---Votes on the renewal of City Manager's Contract



Comments

    Categories

    All
    A.F.P.
    Agenda 21
    Bandon
    B.I.A.
    B.L.M.
    Coos Bay
    Coos County
    Coos County
    Coquille
    County Charter
    Curry County
    C.W.A.
    Democratic Party
    D.E.Q.
    Eco Devo
    Eco Devo
    Economic Development
    Educational
    Elections
    E.P.A.
    F.D.A.
    F.E.M.A.
    Individual Rights
    I Spy Radio
    Jury Nullification
    Legislation
    Letter To Editor
    Mary Geddry
    N.D.A.A.
    News Wave
    N.O.A.A.
    North Bend
    O&C Land
    O.D.F.W.
    O.D.O.T.
    O.F.F.
    O.H.A.
    O.P.R.D.
    O.R.C. Mining
    O.W.E.B.
    P.E.R.S.
    Petitions
    Port Of Coos Bay
    Public Comments
    Public Events
    Regulation
    Republican Party
    S.A.O.V.A.
    State Of Jefferson
    The Bandon Marsh
    The Economy
    The Rob Taylor Report
    The Supreme Court
    The Tea Party
    Urban Renewal
    U.S.A.C.E.
    U.S.D.A.
    U.S.F.S
    U.S.F.W.S.

    Sign-Up Now to Stay Informed

    * indicates required

    View previous campaigns.

    Send Letters to:
    ​[email protected]​

    Disclaimer: Letters to the Editor and other opinions published in The Coos County Watchdog blog are not necessarily the views of the Editor, Publisher, or possible anyone else in their right mind.  The Watchdog reserves the right to edit, omit, or copy any and all submissions. 
    Letters to the Editor must be attributed with a name, address, and contact phone number. 

    WARNING:
    Political correctness is not practiced on this
    page & some content is inappropriate

    RSS Feed


    Archives

    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014
    December 2013
    November 2013
    October 2013
    September 2013
    August 2013
    July 2013
    June 2013
    May 2013
    April 2013
    March 2013
    February 2013
    January 2013
    December 2012
    November 2012
    October 2012
    September 2012
    August 2012
    July 2012
    June 2012
    May 2012
    April 2012
    March 2012
    February 2012
    January 2012
    December 2011
    November 2011
    October 2011
    September 2011
    August 2011

Powered by Create your own unique website with customizable templates.
Photo from DieselDemon