The lessons of bankruptcies and near-bankruptcies
Last week I had the pleasure of speaking at the plenary session for the Association for Budgeting and Financial Management (ABFM)’s annual meeting in New York. My co-panelists included NYU finance professor Dall Forsythe who as Budget Director for the State of New York during the fiscal crisis that pushed New York City to near bankruptcy in the mid-1970s, gave us an inside look of what went into staving off fiscal collapse. Professor Forsythe explained New York City may not be a generalizable example of municipal bankruptcy but it is an excellent study of how a major city avoided collapse and rebuilt itself into a financial powerhouse over the following decades.
Ted Orson also spoke. As lead legal council for Central Falls’ recent bankruptcy proceedings, Mr. Orson gave a riveting talk about how leaders in Central Falls worked with the state government and retired workers to come to terms with the city’s empty coffers. It was not easy. Retired firemen and police officers were asked to take a 55 percent cut in their pension benefits. I think his talk underscored the importance of transparency and truth in pension accounting. No one wants to have it get to this point.
My talk zoned in on pension accounting – the new GASB rules and what they mean. In a followup post I’ll explore how GASB 67 and GASB 68 are likely to affect government’s accounts. And also the role that Moody’s decision to discount pensions using a corporate bond rate is going to change the way we view municipal and state finances.