At the New York Fed: Chapter 9 and Alternatives for Distressed Municipalities and States
On Tuesday, April 14, the Federal Reserve Bank of New York hosted an all-day workshop entitled Chapter 9 and Alternatives for Distressed Municipalities and States. The workshop was jointly organized and sponsored by the Volcker Alliance and George Mason University’s State and Local Government Leadership Center. The event brought together key experts, practitioners, and researchers on the subject of fiscal distress at the state and local level. The aim of the session was to foster discussion on the role of Chapter 9 of the U.S. Bankruptcy Code, alternatives for distressed governments, and strategies to avoid stress and achieve good fiscal outcomes.
New York Fed President Bill Dudley welcomed participants with a speech in which he emphasized the importance of state and local governments both as creators of economic activity—hiring millions of workers and investing in infrastructure—and as producers of services that are crucial to the well-being of the private sector. Dudley also pointed out that the sector has significant debt, which takes various forms, including municipal bonds but also unfunded liabilities for pension and other personnel-related costs. These latter debts, which financed past, not current, public services, are especially likely to cause problems. Dudley urged governments to focus on addressing their fiscal issues before extreme measures like bankruptcy become the only viable option.
The day consisted of three panels and a discussion. First, George Mason’s Frank Shafroth moderated a panel made up of the judges from the three largest municipal bankruptcies in U.S. history: Thomas Bennett (Jefferson County, Alabama), Christopher Klein (Stockton, California), and Steven Rhodes (Detroit). The judges discussed their experiences with how Chapter 9 works and how it could be improved.
Next, William Glasgall of the Volcker Alliance moderated a panel that included experts on alternatives to Chapter 9: Bob Deis, the former city manager of Stockton; Clayton Gillette of NYU School of Law; and James Spiotto of Chapman Strategic Advisors LLP. After an informal lunch, Chuck Reed, former mayor of San Jose, California, chaired a session entitled “Avoiding Fiscal Distress.” This panel featured a diverse slate of participants, including two sitting big city mayors (Donald Guardian of Atlantic City, New Jersey, and Stephanie Miner of Syracuse, New York). Also on the panel were the Wharton School’s Robert Inman, the Governmental Accounting Standards Board’s David Vaudt, and Steven Kreisberg of the American Federation of State, County, and Municipal Employees.
The day closed with a discussion among all participants on the best steps that cities and towns can take to avoid fiscal distress, and the role of the states in facilitating those efforts. All agreed that the exchange of views from these experts had been extremely valuable.
The views expressed in this post are those of the author and does not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.
Andrew Haughwout is a senior vice president in the Bank’s Research and Statistics Group.