San Diego Urged to Consider Bankruptcy

Thursday, 17 Jun 2010 12:43 PM Article By: Dan Weil

The city of San Diego should consider bankruptcy, the county of San Diego Grand Jury said in a recent report. The grand jury, which examines local governments in addition to indicting suspected criminals, says such a step could help the city cut its onerous retirement and health benefits. The city has an unfunded pension obligation of $2.2 billion and an unfunded retiree healthcare liability of $1.3 billion, according to the report. San Diego represents the fifth major city this year to arouse bankruptcy talk by the count of Bloomberg columnist Joe Mysak. San Diego’s neighbor Los Angeles is one of the others. San Diego’s situation is unsustainable, the report points out. “The city leadership should acknowledge the financial crisis the city is facing and make fundamental changes in how our government operates in order to avoid future crises,” it says. However, bankruptcy won’t be an easy path, experts say. “It will be difficult to make the case that the city is insolvent,” Natalie Cohen of National Municipal Research, told Mysak. “It seems the grand jury report is looking to bust open the discussion about the irrevocable nature of pension obligations.” Ironically enough, while cities teeter on the verge of bankruptcy, municipal bond prices continue to rise. "The day of reckoning is here," Jeffrey Schoenfeld, chief investment officer of Brown Brothers Harriman, told the Wall Street Journal. "But municipal investors continue to act as if there's no default risk in municipal bonds."

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