| This article challenges some myths. | | | | some extra time when there are budget disputes |
| A number of people have decided selling to | | | | by state politicians. |
| governments is the way to gain new customers | | | | Check again. Municipalities can and do file |
| and restore revenue. You might want to look | | | | bankruptcy. In fact they have their own |
| before you leap and apply at least the same | | | | bankruptcy regulations, called Chapter 9 created in |
| credit review and procedures which you do for | | | | the Great Depression. Those city bankruptcy |
| commercial entities. | | | | filings had not happened much until lately, but |
| How much have you considered these two | | | | things are rapidly changing. |
| issues? | | | | A February 18, 2010 Wall Street Journal article in |
| First, you think governments and municipalities are | | | | section C1 titled Muni Threat: Cities Weigh Chapter |
| held to the same standards of financial reporting | | | | 9 describes the situation in more painful detail |
| and management disclosure that your business | | | | including naming four municipal groups in |
| must comply with. | | | | bankruptcy or on the edge of bankruptcy. They |
| Check again. They have their own watered down | | | | are Las Vegas Monorail, Vallejo California, |
| version of generally accepted accounting | | | | Harrisburg Pennsylvania, and the Sierra Kings |
| procedures. They have prevented accounting | | | | hospital system. Consultants are moving into the |
| groups from applying rules and regulations in line | | | | space to help governments prepare for filing |
| with commercial business disclosure, particularly on | | | | Chapter 9 bankruptcy. |
| the liabilities for unfunded pension and healthcare | | | | Some experts are saying that almost every city |
| commitments for their employees and retirees. | | | | and state is insolvent or bankrupt if they were |
| Management disclosure levels for politicians are | | | | truthful about promises and guarantees they have |
| very minimal compared to those for business | | | | made on their employee retirement and |
| Chief Executive Officers, officers, or directors. | | | | healthcare plans. It is scary when you research |
| That should really scare those of you who | | | | how many are insolvent even with the limited |
| question accuracy or integrity of current | | | | disclosures made. |
| accounting statements, footnote disclosure and | | | | My suggestion is that your process to watch your |
| management communications to shareholders and | | | | exposure to this sector be as robust as for |
| the public. | | | | conventional business credits. Or you can wake up |
| Secondly, you think municipalities cannot go | | | | some day and have some large write offs, just |
| bankrupt. They will always be around to pay you | | | | as a number of bondholders and some vendors |
| and other vendors; even though they might need | | | | are seeing. |