Stockton is one of California's larger cities. Nearly a year ago, its city council voted to file for bankruptcy. This is the largest municipal bankruptcy filing in the nation's history. Bridgeport, however, is in worse financial condition that Stockton when you consider off-balance-sheet obligations.
Bridgeport's financial mess has been in the making for a much longer period of time, but there are strong parallels between the two cities. Housing prices in Stockton have declined dramatically from their peak in 2006. Bridgeport's housing prices have also dropped significantly from their 2007 peak, although not as much as Stockton's.
But Bridgeport is far worse off when you consider unfunded pension and retiree health obligations. Stockton made very generous pension and retiree health care promises that have proved to be unaffordable and unsustainable — about $830 million in unfunded promises for a city with a population of about 269,000. Bridgeport has about $1.2 billion in unfunded pension and retiree health care promises for a city with a population of about 146,000. Bridgeport's financial burden per person is almost three times as bad as Stockton's.
Both cities also made bad bets. Stockton had an ill-timed $125 million bond offering in 2007 to improve the funding of its employee pension plans. It was expecting returns to far exceed the borrowing costs. That has not been the case. Bridgeport had a much larger $350 million bond transaction in 2000 for its pension plans. The city's investments then more than halved in value, to $161 million in 2009. Now both cities face long-term repayment obligations and larger pension contributions than they expected.
Bridgeport can, for now, still pay its debts and other obligations through additional tax increases. But property taxpayers are beginning to revolt, and it is only matter a time before it will be unable to do so.
I purchased my home in Bridgeport on the advice of friend and former congressman Chris Shays. I did not know that the city was ground zero for fiscal irresponsibility at the time, but I did know that it had real potential, and it still does.
One reason that Bridgeport can't get its act together is its patronage politics. Unlike Stockton, Bridgeport has city employees on its city council, including the president, who is deputy director for the city's labor relations. The Bridgeport city charter forbids city employees from holding elected council seats for an obvious reason: They have influence over their own salaries and benefits. This represents a clear conflict of interest and is a major barrier to achieving the structural changes necessary to restore fiscal sanity in Bridgeport. It also serves to reinforce the importance of passing House Bill 5724 this legislative session to prevent city employees from being on a city council when the city charter prohibits it.
This is not the first time Bridgeport has come to the financial precipice. In 1991, Bridgeport became the first major U.S. city to file for bankruptcy when Mayor Mary C. Moran secretly filed under Chapter 9 of the federal bankruptcy code. A federal judge denied the petition, and since 1993 Connecticut law has required that municipalities receive approval by the governor before filing for bankruptcy in federal court. Although municipalities are prevented from filing without approval, historically the state has established financial review boards to oversee fiscally distressed municipalities, and Bridgeport operated under a such a board from 1988 to 1995.
The time has come for the state of Connecticut to — this time — appoint a financial control (not review) board to assume charge of the city's finances. The new board needs to have additional authority, including the ability to make recommendations on restructuring the city's pension and retiree health care obligations.
All interested parties — including the state, elected city officials, unions, retirees, bondholders and other creditors, and taxpayers at the state and city level — should work together to make this happen sooner rather than later.
A properly designed and effectively implemented financial control board, combined with passage of House Bill 5724 and additional economic development, can help the city avoid bankruptcy and help it reach its potential.
If these actions do not take place, it's only a matter of time before Bridgeport will once again have to file for federal bankruptcy protection — but this time, its petition would probably be accepted.
David M. Walker is founder and CEO of the Comeback America Initiative, a nonpartisan, nonprofit organization that promotes fiscal responsibility in government. He is former U.S. comptroller general.
Reprinted with permission of the Hartford Courant.
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