Still ignoring media coverage of Chapter 9 (municipal) bankruptcy filings? That may not be a sound strategy given the findings of a new Pew Charitable Trusts study.
Pew’s report, A Widening Gap in Cities: Shortfalls in Funding for Pensions and Retiree Health Care, notes that a group of 61 major U.S. cities comprises a steep, $217 billion gap between what it has promised to public sector workers/retirees and money they actually have set aside to meet such entitlements. The findings are based off of investigating trends mainly from 2010 and 2009 and intimate the problem is likely to continue to grow.
It is a key reason why, despite Chapter 9 being used quite sparingly during the last 80+ years, Business Credit contributor Bruce Nathan, Esq., of Lowenstein Sandler PC, has been talking of the potential trend and its dangers for nearing two years. Deborah Thorne, Esq., of Barnes & Thornburg LLP, also expressed concerns. She predicted there could be significant ramifications for credit departments if a quick escalation in filings happened within the next couple of years.
“I don’t see states and municipalities becoming better funded then they have been,” Thorne said in the latest edition of the magazine. “I see that getting worse. Vendors selling to public entities want to be mindful of how they are going to be paid and how well financed the portion of the municipality is that you are dealing with.”
Pensions and other retiree entitlements for former public sector employees have been an issue in a number of places where Chapter 9 filings have been used as an answer to escalating debt problems that appear to be worsening for municipalities throughout the nation, rather than improving.
-Brian Shappell, CBA, NACM staff writer