Philadelphia, 5th Largest City in US is Effectively Bankrupt; Mayor Holds Closed Meeting With Wall Street to Discuss Asset Sales

You know a city is in deep trouble when its mayor invites Wall Street but not the press and not private citizens to a closed meeting to discuss the future, including a sell-off of city assets.

Philadelphia Mayor Michael Nutter, whose municipality has the lowest credit rating of the five most-populous U.S. cities, did just that.

My translation: Philadelphia is bankrupt. However, that easily discernible fact will of course be denied until it officially happens.

Please consider Philadelphia Holds Closed Meeting With Wall Street

Philadelphia Mayor Michael Nutter, whose municipality has the lowest credit rating of the five most-populous U.S. cities, will address investors at a conference financed by underwriters and closed to the public and the press.

The invitation bills tomorrow’s meeting as a chance to hear “Philadelphia leaders and investors discuss building the city’s future.”

Philadelphia is hoping to attract investors for the city, which is rated three steps above junk by Standard & Poor’s. The city and its authorities have $8.75 billion in outstanding debt as of September, according to bond documents. Philadelphia’s pension system is 47.6 percent funded this year, the documents say.

Tours of city assets are set for the second day of the conference, including the Philadelphia Gas Works, the largest municipally owned natural-gas utility in the U.S. The city plans to hire a broker to steer the sale of the system, which may fetch as much as $496 million, according to Lazard Ltd. (LAZ)

Sam Katz, chairman of the Pennsylvania Intergovernmental Cooperation Authority, created in a 1991 state law that oversees the city’s finances, said that with the conference being held locally, it “certainly created some concern on the part of people that it should be made public.”

He’s more troubled, however, by the fact the school district isn’t on the agenda, he said. Facing a $304 million deficit, school officials have asked the city for $60 million and the state for $120 million.

“The school district’s in a crisis,” Katz said. “They’re the same tax base.”

Philadelphia officials facing a $1.35 billion spending gap over five years voted in March to shut 9 percent of its public schools.

Philadelphia, 5th Largest City in US is Bankrupt

It does not take a genius to figure out what is going on here. Philadelphia is bankrupt. Without even seeing the details, it is safe to assume untenable union wages and pension benefits are at the heart of it all. A 47.6% funded pension is rather telling in and of itself.

Gutless Mayor Michael Nutter does not even have the decency to let the public or the press hear what is going on. Instead he invited Wall Street to a private tour of Philadelphia's assets, hoping to sell assets and stave off the inevitable.

What fundamental issues is Nutter solving?

Pensions? No
Schools? No
Union Salaries? No
Bloated Payrolls? No
Benefits? No

Instead of inviting Wall Street to a private tour, Nutter ought to be inviting the press and private citizens to a press conference to declare the city's bankruptcy.

We've been down this path before, most recently in Stockton, California. Here are some Stockton Bankruptcy Articles to consider in case you are not familiar with the story. 

Most relevant to Philadelphia is a ruling the Stockton Bankruptcy is Valid, City Acted in Good Faith. The judicial ruling means bondholders are at risk, and the city will not be forced to raise taxes to pay off creditors.

Also see CalPERS Pension System in the Crosshairs of Stockton Bankruptcy Dispute.

With those rulings, Philadelphia's cost of borrowing is likely to soar. Regardless, the city is nothing but a walking zombie now. The end is at hand.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com