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As California Cities Are Filing Bankruptcy Bond Insurers Cry Foul

As California Cities Are Filing Bankruptcy Bond Insurers Cry Foul
"In the past year, a number of California localities have filed for bankruptcy because they cannot afford to continue paying lucrative employee contracts that include extravagant pensions that allow individuals to retire as early as age 50 at 90 percent of their highest salary. Now, bond insurance companies are engaging in a verbal counterattack. They have stated that California municipalities would rather avoid bondholders than reduce the promised pension benefits for their employees. Interestingly, the majority of cities provide elected officials like council members and mayors with the same benefits as employees. This may be the reason why cities in the process of declaring bankruptcy are not pursuing the largest portion of the financial crisis caused by these lucrative pensions.Today, MBIA, the bond insurer for the insolvent city of Stockton, filed a motion with the bankruptcy court contesting the Stockton, California bankruptcy filing, claiming it made no attempt to negotiate with the employee pension company, CalPERS.The California State Assembly passed AB 506 on January 1, 2012, mandating that cities contemplating bankruptcy spend three months mediating with their creditors in an effort to avoid filing for bankruptcy. According to MBIA, the city of Stockton and CalPERS never discussed the matter prior to filing for bankruptcy. In addition, they asserted that employee pensions must be regarded as a liability, just like any other debt. It appears that Stockton intended to continue making payments to continue financing the lavish pensions for its employees, while using the bankruptcy filing to escape its obligations to bondholders. This municipality is presently attempting to escape a $124 million debt incurred by pension obligation bonds issued in 2007. According to reports, the city lacked sufficient funds to offer competitive pension benefits to its employees if it borrowed money from Assured Guaranty Ltd.The number of California cities that have had to reduce public services due to employee union demands to fund unsustainable pensions and benefits continues to increase. When the real estate market was booming, it would appear that nearly every city in the state hopped on the bandwagon in order to be competitive in the hiring of employees. California's entire economy is a house of cards that could collapse at any moment. If Stockton had to borrow to pay for these pensions in the past, I do not know how they intend to continue paying for them in the future. Even filing for bankruptcy will not solve their problems if they do not address the actual issue, which is excessive salaries and employee benefits. The time has come for cities to realize that filing for bankruptcy will only provide temporary relief from creditors, as the problem will soon resurface if no solution is found.
" - https://www.affordablecebu.com/
 

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"As California Cities Are Filing Bankruptcy Bond Insurers Cry Foul" was written by Mary under the Finance / Wealth category. It has been read 131 times and generated 0 comments. The article was created on and updated on 31 May 2023.
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