PHILADELPHIA- In the wake of Detroit's chapter 9 filing, distressed municipalities need to consider a more long-term view, municipal analysts said Monday at The Bond Buyer's Mid-Atlantic Municipal Market Conference.
Too often attorneys and municipal advisors look for the quickest avenue to address bankruptcy rather than how to better position for the future, Thomas Metzold, managing director and head of capital markets at National Public Finance Guarantee, said during a panel on bankruptcy in the wake of Detroit.
He said Detroit's bankruptcy plan fall short in addressing future challenges and does not offer a template for other struggling municipalities to follow.
"One size does not always fit all," said Metzold. "All bankruptcies are not equal."
Frank Coughlin, Assured Guaranty's deputy chief surveillance officer for public finance, said local governments need to be more proactive with creating revenue to avoid reaching distress level since there often is not help from the state level. Coughlin said even localities that have strong wealth levels such as his home area of Long Island's Nassau County have created credit challenges from a resistance to raising taxes that can result in "a quick slide."
Tom Kozlik, managing director at PNC Capital Markets, said during the panel that many local governments have not adjusted to financial conditions that exist after the 2008 recession. He said a large number of local governments are failing to generate enough revenue to keep up with their spending.
"There are a lot of stresses that are difficult if not impossible for state and local governments to deal with," said Kozlik. "There is a new fiscal reality."
Standard & Poor's (S&P) analyst Lisa Schroeer said when states set up an emergency manager to oversee a municipality in danger of default, who is appointed can often be important in the municipal market.
She pointed to New Jersey Gov. Chris Christie's appointment of an emergency management team for Atlantic City last January that included former Detroit emergency manager Kevyn Orr as a lesson for how these decisions may resonate with bond investors.
Orr is no longer on the Atlantic City emergency management team, but his track record prompted concerns from S&P and Moody's Investors Service about a potential for restructuring debt because of his association with the Detroit bankruptcy.
"Politics matter when making these decisions when you are distressed," said Schroeer.
