Over the last year a number of California cities have been filing bankruptcy because they can't afford to continue paying lucrative employee contracts that include extravagant pensions where an individual can retire as young as 50 years old at 90% of their highest wage.
Now, bond insurance companies are beginning to fight back war of words.
They have said that the California municipalities would rather skip the bondholders then cut back on the amount pension benefits promised to their employees.
What's interesting is, most cities offer elected officials like council members and mayors the same benefits that employees receive.
This might be the problem of why cities in the process of filing bankruptcy are not going after the biggest portion of the financial crisis caused by the liability from these lucrative pensions.
Today, MBIA, the bond insurer for the bankrupt city of Stockton, filed a motion with the bankruptcy court contesting the Stockton, California bankruptcy filing stating it didn't even attempt to negotiate with CalPERS, the employee pension company.
On January 1, 2012, the California State Assembly passed a bill, AB 506,that requires cities considering filing for bankruptcy to spend three months mediating with their creditors to attempt to avoid having the city file for bankruptcy.
According to MBIA, the city of Stockton never even discussed the matter with CalPERS prior to the bankruptcy filing.
They further stated that employee pensions need to be treated as a financial liability, just like any other debt.
It appears that Stockton was planning on continuing to make payments to continue funding the extravagant pensions for their employees while using the bankruptcy filing to bail out on the bondholders.
This city is currently attempting to walk away from $124 million debt that was incurred by pension obligation bonds that it took out in 2007.
According to reports, since the city didn't have enough money to give its employees competitive pension benefits if borrowed money from Assured Guaranty Ltd.
The list of California cities that have had to cut public services for the demands of the employee unions to fund these unsustainable pensions and benefits is continuing to grow.
It seems that just about every city in the state jumped on the bandwagon in the name of being competitive to hire employees back when the real estate market was booming.
The whole economy in California is a house of cards and ready to crumble at a moment's notice.
I don't know how Stockton plans on continuing to pay for these pensions in the future if they had to borrow to pay for them in the past.
Even filing bankruptcy won't fix their problems if they don't address the real problem which is the salaries and extravagant employee benefit packages.
It's time for cities to wake up and smell the coffee and realize if they don't fix the problem, filing bankruptcy will only get creditors off your back temporarily as the problem will resurface again soon.
Now, bond insurance companies are beginning to fight back war of words.
They have said that the California municipalities would rather skip the bondholders then cut back on the amount pension benefits promised to their employees.
What's interesting is, most cities offer elected officials like council members and mayors the same benefits that employees receive.
This might be the problem of why cities in the process of filing bankruptcy are not going after the biggest portion of the financial crisis caused by the liability from these lucrative pensions.
Today, MBIA, the bond insurer for the bankrupt city of Stockton, filed a motion with the bankruptcy court contesting the Stockton, California bankruptcy filing stating it didn't even attempt to negotiate with CalPERS, the employee pension company.
On January 1, 2012, the California State Assembly passed a bill, AB 506,that requires cities considering filing for bankruptcy to spend three months mediating with their creditors to attempt to avoid having the city file for bankruptcy.
According to MBIA, the city of Stockton never even discussed the matter with CalPERS prior to the bankruptcy filing.
They further stated that employee pensions need to be treated as a financial liability, just like any other debt.
It appears that Stockton was planning on continuing to make payments to continue funding the extravagant pensions for their employees while using the bankruptcy filing to bail out on the bondholders.
This city is currently attempting to walk away from $124 million debt that was incurred by pension obligation bonds that it took out in 2007.
According to reports, since the city didn't have enough money to give its employees competitive pension benefits if borrowed money from Assured Guaranty Ltd.
The list of California cities that have had to cut public services for the demands of the employee unions to fund these unsustainable pensions and benefits is continuing to grow.
It seems that just about every city in the state jumped on the bandwagon in the name of being competitive to hire employees back when the real estate market was booming.
The whole economy in California is a house of cards and ready to crumble at a moment's notice.
I don't know how Stockton plans on continuing to pay for these pensions in the future if they had to borrow to pay for them in the past.
Even filing bankruptcy won't fix their problems if they don't address the real problem which is the salaries and extravagant employee benefit packages.
It's time for cities to wake up and smell the coffee and realize if they don't fix the problem, filing bankruptcy will only get creditors off your back temporarily as the problem will resurface again soon.
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