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Bankruptcy Watch: New York Cities Next?


Dozens of cities and towns in New York are near financial collapse. Now the state Comptroller is implementing an “early intervention mechanism” to help them stave off bankruptcy and reassure investors that it’s still safe to lend to New York municipalities.

As in newly bankrupt Stockton, the chief problem is skyrocketing pension costs. The Comptroller’s office found that more than 100 local governments in New York can’t pay for 75 percent of all current liabilities. A new law allows local governments to postpone pension payments, but it’s a risky measure that threatens to  make the problem worse:

Moody’s, the credit ratings agency, has said the measure could increase the level of unfunded liabilities, especially if investment returns are below expectations.

“The positive short-term budgetary relief will outweigh the cost of increasing unfunded pension liabilities for only the most financially stressed local governments,” Moody’s said in a report issued on Monday.

This is the same combination of myopia and unrealistic investment projections that have gotten California’s pension system into so much trouble.

The municipalities under “severe fiscal stress” will be named next month, but they’re not the only ones that simply can’t afford to keep their generous pension promises. As in California, these budget realities can be papered over for a few years or even decades, but soon enough costs soar even while the quality of public services plummets. This can’t go on forever, and it won’t.

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