June 26 (Reuters) – For decades, bankruptcies have been rare events in the $3.7 trillion municipal bond market, but experts say there now might be at least a small uptick as many counties, cities and towns are struggling to recover from the economic recession while coping with stubbornly rising costs.
There have been only six Chapter 9 municipal bankruptcy filings so far this year, compared to 13 in all of 2011, according to data from law firm Chapman and Cutler.
Since 1980, muni bankruptcies totaled 268, with most involving utilities and special districts, the data showed. Cities, villages and counties accounted for only 49 of the filings. The highest number of bankruptcy filings occurred in Nebraska, followed by California and Texas.
Analysts, investors and traders are all watching to see what happens with a few possible trailblazing cases still playing out.
Stockton, California, located east of San Francisco, is poised to take a major step toward becoming the biggest U.S. city ever to file for bankruptcy after talks with its creditors on Monday night.
The city, with a population of 292,000, is weighing a plan that would suspend $10.2 million in debt payments and reduce spending on employee compensation and retiree benefits by $11.2 million.
JEFFERSON COUNTY, ALABAMA
At $4.23 billion, Alabama’s Jefferson County last November set the record for the biggest municipal bankruptcy filing, which is still working its way through the court.
Jefferson County, home to Birmingham, Alabama’s largest city, is saddled with massive sewer-system debt.
A tentative workout, mainly with Wall Street creditors, unwound and scuttled concessions that might have been worth $1 billion to the cash-starved county.
After the loss last year of a local jobs tax, the county has cut hundreds of staff, reduced services sharply and stopped payments on general obligation debt.
Earlier this month, the county’s computer systems failed, delaying payments of bills and deposits.
ORANGE COUNTY, CALIFORNIA
The county, California’s third most populous, filed for bankruptcy in December 1994 after rising interest rates savaged investment bets by its treasurer, leaving the county with a loss of $1.7 billion in an investment pool. That put the county at risk of a $1 billion default the next year.
Orange county emerged from bankruptcy after 18 months. It lost its title of the biggest ,municipal bankruptcy in the U.S. history when Alabama’s Jefferson County filed in November 2011.
Harrisburg, Pennsylvania, the state capital, so far has lost in court when it has tried to file for bankruptcy. But it might relaunch that strategy when a law that bars Pennsylvania cities from such filings expires on June 30.
Harrisburg, with a population of 50,000, is plagued by $320 million of debt incurred by cost overruns from an upgrade of its incinerator.
On Tuesday, Harrisburg’s City Council sued the state to halt work being done by a state receiver overseeing the city’s fiscal recovery plan.
The former U.S. Navy town near San Francisco filed for bankruptcy on May 23, 2008, after failing to address steep city personnel costs and sliding revenue from a housing slump.
In July 2011, the city won court approval for its financial plan to exit bankruptcy protection.
CENTRAL FALLS, RHODE ISLAND
The smallest city in the smallest U.S. state filed for bankruptcy on Aug. 1 2011, after failing to win concessions from public-sector retirees and others to address an $80 million unfunded pension and retiree health benefit liability that was nearly quadruple its annual budget of $17 million.
Central Falls’ bankruptcy was filed by its state-appointed receiver. The state has appointed budget commissions to oversee the finances of two other Rhode Island towns, East Providence and Woonsocket.