The South Bay Law Firm Law Blog highlights developing trends in bankruptcy law and practice. Our aim is to provide general commentary on this evolving practice specialty.
 





 
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    Posts Tagged ‘Government debt’

    Reflections for a Holiday Weekend: The Great Recession of 2008

    Monday, July 5th, 2010

    Last weekend’s July 4 holiday afforded members of the US business and restructuring community an opportunity for reflection on recent economic history.  Those who took the opportunity to do so would have benefitted from “The Great Recession of 2008-2009: Causes, Consequences and Policy Responses,” a recent discussion paper authored by Sher Verick and Iyanatul Islam and prepared under the auspices of the Institute for the Study of Labor (an independent think-tank associated with the University of Bonn, Germany).

    Assorted international currency notes.
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    According to the authors’ abstract:

    “Starting in mid-2007, the global financial crisis quickly metamorphosed from the bursting of the housing bubble in the US to the worst recession the world has witnessed for over six decades.

    Through an in-depth review of the crisis in terms of the causes, consequences and policy responses, [the] paper identifies four key messages. Firstly, contrary to widely-held perceptions during the boom years before the crisis, the paper underscores that the global economy was by no means as stable as suggested, while at the same time the majority of the world’s poor had benefited insufficiently from stronger economic growth.

    Secondly, there were complex and interlinked factors behind the emergence of the crisis in 2007, namely loose monetary policy, global imbalances, misperception of risk and lax financial regulation.

    Thirdly, beyond the aggregate picture of economic collapse and rising unemployment, this paper stresses that the impact of the crisis is rather diverse, reflecting differences in initial conditions, transmission channels and vulnerabilities of economies, along with the role of government policy in mitigating the downturn.

    Fourthly, while the recovery phase has commenced, a number of risks remain that could derail improvements in economies and hinder efforts to ensure that the recovery is accompanied by job creation. These risks pertain in particular to the challenges of dealing with public debt and continuing global imbalances.”

    Verick and Islam’s work offers an excellent overview for anyone seeking to view economic events of the last two years through a “wide-angle” lens.

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    Will Municipal Debt Adjustment Be Limited in California? Inching Toward an Answer.

    Tuesday, April 27th, 2010

    Two prior posts on this blog (here and here) have traced the progress of an obscure – but potentially important – piece of California legislation designed to regulate the ability of local California governments to seek relief through the municipal debt adjustment process of Chapter 9.

    Based on :Image:Flag of California.svg. Create...
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    Relatively little-known California State Assembly Bill 155 would, if voted and signed into law, require local public entities to first seek approval from the California Debt and Investment Advisory Commission (which operates under the auspices of the State Treasurer’s Office) prior to seeking the federal debt adjustment relief presently available to them by local government decision.

    Though ostensibly addressing the “debt” and “investments” of local governments, the bill is in fact aimed squarely at protecting public employee unions who – unnerved by the 2008 Chapter 9 filing commenced by the City of Vallejo, California – have backed the legislation since its introduction into the California legislature nearly 18 months ago.  According to analysis produced last July by the State Senate’s Local Government Committee, “labor unions and others want to require state oversight of local governments’ bankruptcy petitions.”

    Map of California highlighting Solano County
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    The reason?  Public employee pensions and other employee benefits.

    The details of public employees’ hiring and retention arrangements are typically governed by collective bargaining agreements (or “Memoranda of Understanding” in the context of public labor relations), brokered by the employees’ unions and their public employers.  As presicently noted in an article on municipal collective bargaining agreements authored 3 years ago, “Public sector unions have successfully obtained comparatively generous compensation and benefits packages even as the fortunes of American labor have continued to decline. In particular, municipal pensions may jeopardize the fiscal survival of many public sector employers.”

    With perrenial state and local budget deficits, declining property values and a shrinking tax base, and significantly reduced revenues, many local governments are now in precisely the sort of “survival mode” suggested by this article . . . and the unions know it.  As a result, AB 155 has quietly made its way through the State Assembly and now appears poised to go to the State Senate floor.

    Is “bankruptcy by committee” an appropriate balance between state interests and local government control?  Does it hamstring local govrenment officials from responding effectively to a local fiscal crisis?  Because municipal bankruptcies have always been used very sparingly, and only 2 such proceedings (including Vallejo’s) have filed statewide since 2008, is committee approval truly necessary?  Or is it merely a means by which public employee unions can improve their bargaining position outside of bankruptcy?  And what happens if a local government in financial crisis can’t get committee approval?

    These questions appear, to date, unanswered.

    But last week, AB 155 took a step forward, clearing the Senate’s Local Government Committee.  The bill will now go to the Senate Appropriations Committee for review.

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