RT | A top Federal Reserve official indicated Tuesday that the municipal
bankruptcies of Detroit, Michigan, and Stockton, California, could mean
further such filings in the future, more so that current bond ratings
suggest.
At a workshop on the US bankruptcy code for local governments, or
Chapter 9, New York Fed President William Dudley spoke of the
possibility for more US cities to fall into bankruptcy before
long.
"While these particular bankruptcy filings have captured a
considerable amount of attention, and rightly so, they may
foreshadow more widespread problems than what might be implied by
current bond ratings," Dudley said, according to a text
of his speech.
"We need to focus our attention today on addressing the
underlying issues before any problems grow to the point where
bankruptcy becomes the only viable option," he added.
Dudley did not mention any specific municipalities that could
join the likes of Detroit, but he did say that cities borrowing
money to pay for a current year's operating budget is
"equivalent to asking future taxpayers to help finance
today's public services."
Chicago is one city that is facing unfunded pension liabilities
of more than $35 billion, according to the Civic Federation.
Chicago received a warning just last week -- the same week it
reelected Rahm Emanuel as mayor -- from
Standard & Poor's over its debts, as the city has $8.3
billion in general obligation bond debt.
"In our view, if the city fails to articulate and implement a
plan by the end of 2015 to sustainably fund its pension
contributions, or if it substantially draws down its reserves to
fund the contributions, we will likely lower the rating,"
Standard & Poor's wrote. "This is regardless of whatever
relief the state legislature may or may not provide. We will
likely affirm the rating and revise the outlook to stable if
Chicago is able to successfully absorb its higher pension costs
while maintaining balanced budgetary performance and reserves at
or near their current level."
Unfunded pensions across the US could be as high as several
trillion dollars, Dudley said.
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