Insolvencia, bancarrota, calote: velhos problemas latino-americanos, agora nas capitais do Imperio

Pois é, quem diria: a irresponsabilidade dos políticos latino-americanos, proverbial ao longo de quase 200 anos de história, parece ter se deslocado um pouco mais ao norte.
Agora são dezenas de cidades americanas, e alguns estados -- o caso da Califórnia já é conhecido -- a entrarem em insolvência e serem obrigados a declarar bancarrota.
Tudo bem quando o processo é negociado com os credores, mas por vezes o calote se manifesta de forma mais insidiosa.

Harrisburg, Pa., other cities overwhelmed by economic downturn and debt
By Michael A. Fletcher
Washington Post Staff Writer
Monday, June 21, 2010; A01

HARRISBURG, PA. -- This city has a $68 million bill coming due before year's end, an impossible sum that is larger than its annual budget. It's a predicament caused by extravagant borrowing and spending, and now there are only unpleasant fixes: steep tax increases, severe layoffs and crippling service cuts, even bankruptcy.

It's a story that could be repeated across the country as cities and towns deal with the lingering consequences of the economic downturn and mounting debt.

The obligations of state and local governments have doubled in the past decade, to $2.4 trillion, according to a recent Federal Reserve report, a figure that excludes more than $1 trillion in unfunded pension and retiree health-care liabilities.

Generally, economists are not alarmed by increasing government debt during recessions because it stokes much-needed economic activity. But this time, concerns are deepening that the debt burden is too large for some municipalities to handle, forcing them into draconian service cuts or large tax increases, both of which would be a drag on the sputtering recovery. Beyond Harrisburg, other cities might have to default on their loans because most states are too strapped to bail them out.

Harrisburg's crisis has been precipitated by a malfunctioning municipal incinerator, whose ill-fated expansion was promoted as a potential moneymaker. But after seven years of cost overruns, construction delays, design problems, financings, refinancings and more refinancings, the city is on the hook. The $68 million bill is part of $288 million in outstanding debt related to the project.

The debacle is pushing the 150-year-old state capital toward default. The fiscal crisis has shaken the city, which over the past decade has spruced up its riverfront downtown and created tourist attractions in large part through low-cost financing afforded by municipal bond sales. In one notorious example, former mayor Stephen R. Reed spent nearly $8 million from the public authority that owns the incinerator to buy wagon wheels, rifles and other memorabilia for a Wild West museum that never opened. And like a homeowner who binged on cheap financing, this city is underwater financially.

"The truth is, we are already insolvent," City Controller Dan Miller said.

Harrisburg is among an increasing number of municipalities showing signs of extreme fiscal stress. Squeezed by rising unemployment, plummeting tax revenue and growing employee costs, Vallejo, Calif., filed for bankruptcy two years ago. Jefferson County, Alabama's largest county, teeters on the edge of bankruptcy after a complex interest rate swap on a $3 billion sewer project went awry.

Last month, Central Falls, R.I., an impoverished city not far from Providence, put its finances in the hands of a receiver, who might have to rewrite contracts, cut pensions and restructure debt. Meanwhile, the nation's leading debt-rating agencies have relegated seven cities -- including Detroit, Harvey, Ill., and Woonsocket, R.I. -- to junk bond status, vastly increasing their borrowing costs.

A 'terrible problem'
Citing the growing amount of money owed by local governments, noted investor Warren E. Buffett (a director of The Washington Post Co.) this month told a federal commission examining the roots of the financial crisis that coming years will bring a "terrible problem" for municipal debt.

"Clearly, there are budget issues, and they are probably worse now than they were six months ago. And they will get worse," said Matt Fabian, managing director of Municipal Market Advisors, a Massachusetts firm tracking the municipal bond market. "To this point, cities and states have gone after other stakeholders for relief -- employees, taxpayers, contractors -- and they have not moved to take assets away from investors."

Just a small number of defaults could shake confidence in the municipal bond market, which is considered a safe harbor for investors because it is assumed that the cities and towns that sell bonds can always raise taxes to pay them off. But with total debt growing rapidly, and taxpayers and politicians showing greater resistance to new levies, those old assumptions are being tested. Local governments rely on municipal bonds to raise money for major construction projects. Roads, bridges, dams, senior citizen homes, mass transit lines, schools and playgrounds are paid for through the municipal bond market, which offers governments access to low-cost financing just as mortgages allow people to buy homes.

In the past, the bond market's importance motivated officials to do all they could -- including raising taxes and cutting services and personnel -- to make payments. If cities miss payments or show severe fiscal stress, their bond ratings are cut, significantly increasing borrowing costs and making it more difficult to emerge from debt. Even when municipalities file for bankruptcy, "the tradition is that bondholders get paid in full," said James E. Spiotto, a Chicago lawyer specializing in public financing. "The reason is that without access to the bond market, cities can't function."

When municipalities couldn't help themselves, their states usually stepped in. Cleveland defaulted on more than $15 million in bonds in 1978 but was able to refinance them not long after. Also in the 1970s, New York was lifted from a financial hole with state help. More than a decade later, Pennsylvania bailed out Philadelphia.

Since 1980, just 245 municipal entities have filed for bankruptcy, the majority special districts and other entities, such as housing developments and subdivision infrastructure projects, that were unable to raise taxes on their own. "We'll undoubtedly see a few more cities than usual consider defaulting, but it is by no means the norm," said Chris Hoene, director of research at the National League of Cities, which represents the interests of the nation's 19,000 municipalities. "For the most part, these are going to be rare instances."

Bleak forecast
But local and state governments face bleak revenue prospects as the lagging effects of the recession cut into tax receipts and increase pension-fund losses, making it harder for them to keep pace with their debt.

With Pennsylvania facing a deep deficit, few people expect it to offer a bailout to Harrisburg. The city's crushing incinerator debt comes atop a $9 million deficit in the current budget, creating an unprecedented fiscal crunch that has left the new mayor and other leaders of this 50,000-resident city weighing unsavory options.

Harrisburg's 1972-vintage incinerator required repeated repairs -- and refinancings -- that put the project $94 million in debt before the federal government ordered the incinerator shut in 2003 because it was spewing toxic dioxin. Faced with eating that debt or refurbishing the plant, former mayor Reed led a push to invest $125 million in incinerator expansion and upgrades. The idea was to create a facility that would draw trash -- and revenue -- from nearby counties and produce steam and electricity that could be sold to local utilities.

But construction delays and design problems surfaced, causing the city to borrow even more millions. The city eventually brought in a new operator, who required more money to get the incinerator going. When the plant was finally operational, it never attracted the envisioned business. Now its steam line is broken, as is one of the turbine blades, eliminating steam sales and reducing its electricity production. The result is that the city has missed several debt payments, which have been made by other bond guarantors.

"Basically, the construction project was a failure," said William J. Cluck, a lawyer who served on the incinerator board.

Not only is the city contemplating layoffs in its 537-employee workforce, it is asking for contract rebates, considering the sale or long-term lease of revenue-producing assets, including parking garages and water and wastewater systems, and asking creditors to restructure and forgive debt.

"We all need to take some hits. I'm not going to let the city sink. I'm not going to let the city auction off all its assets and have nothing while everyone walks away with a sweeter deal just by renegotiating and restructuring and taking us further and further out, and you still get every dime you had in the beginning of the deal," said Mayor Linda D. Thompson, who added that she wants to avoid bankruptcy. "I'm not willing to do that."

Miller, the controller, said the city's least painful path would be bankruptcy -- a once unthinkable option. "When you say the word 'bankruptcy' people conjure up all kinds of images," Miller said. "Bankruptcy is merely a tool to turn things around and get us on stable financial ground."