I ran across a current article from the WSJ highlighting that some municipalities may need to contemplate Chapter 9 bankruptcies:
The economic slump, however, is forcing debt-laden cities, towns and smaller taxing districts throughout the U.S. to consider using Chapter 9. As their revenue declines faster than expenses, some public entities are scrambling to keep making payments on municipal bonds. And that is causing experts to worry about the safety of securities traditionally considered low risk.
Chapter 9 bankruptcy is seldom employed and generally unknown to most of the populace. It provides very specific protections (from US Courts):
The purpose of chapter 9 is to provide a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts. Reorganization of the debts of a municipality is typically accomplished either by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan.
It applies only to the following (again, from US Courts):
Only a “municipality” may file for relief under chapter 9. 11 U.S.C. § 109(c). The term “municipality” is defined in the Bankruptcy Code as a “political subdivision or public agency or instrumentality of a State.” 11 U.S.C. § 101(40). The definition is broad enough to include cities, counties, townships, school districts, and public improvement districts. It also includes revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities, and gas authorities.
Most states are experiencing revenue shortfalls, resulting on strain to state budgets. States in turn are delaying or suspending funding to local municipalities, creating financial crisis on the local level. Some municipalities have dabbled in the exotic financial instruments that are partly to blame for the Great Recession, and given the anti-incumbent environment and high unemployment, elected leaders would be hesitant to raise taxes. On the first page of the search results for “Chapter 9 Bankruptcy on Google News names Las Vegas, Harrisburg, and Sand Diego and Vallejo, California, but there are certainly others.
I’ve highlighted in the past how Google Trends “ a measure of the searching behavior of Google’s users “ can surface sentiment and intentions (previously, here and here). Now, I’m not saying that the towns listed above are contemplating “Chapter 9 bankruptcy protection after defaulting on municipal bond payments or other financial crisis, but I am saying that enough users from those towns (and states) searched for “Chapter 9 for Google to reveal a significant trend (also note that there is insufficient volume to refine to that state level or for a more discrete time range). Unless those users were searching for Chapter 9 of the latest Harry Potter book, this may very well mean something.
