Archive for June, 2009

Prichard, Alabama, town of about 25,000, outside of Mobile, filed Chapter 9 bankruptcy in 1999 and finally exited in 2002. They look poised for a second round. Their issues seem similar to Vallejo, California – they cannot afford to continue paying their retiree pensions and could run out of money in the next month. We found summary of a presentation of the bankruptcy to the Southern Political Science Association annual conference in January, 2009:

“Prichard, Alabama presents a textbook analysis of how financial distress factors can lead to municipal bankruptcy. In the case of Prichard, these financial distress factors were left unaddressed and eventually led to the financial collapse of the municipality…..Ultimately, the municipality faced ever decreasing revenue streams which were coupled with an increasing debt load. This led the City of Prichard, Alabama to file for Chapter 9 Bankruptcy in 1999. At that time, the municipality was over $3.9 million in debt which it could not service.” http://www.allacademic.com/meta/p_mla_apa_research_citation/2/8/3/3/8/p283382_index.html

One of the provisions of the bankruptcy was that the town should begin making payments to its pension fund by this year. The Alabama Press Register reports that the town’s pension fund is about to be out of money in a month or so ($392,000 at last report, losing about $100,000/month to support their 193 retirees), they have taken out a line of credit from Wachovia for $300,000 but the town has been reluctant to draw on the line because they will have to pay interest to the bank with money they don’t have. http://www.al.com/news/press-register/metro.ssf?/base/news/1242638110202130.xml&coll=3

The city may well to have to pay pensioners less money than they are owed on their defined benefit plan beginning this summer.

Looking for some current financial information about the town we found reference to a recent water and sewer authority bond issue in May 2009, thinking we could get some information about the town. The bonds were insured by Assured Guaranty (AGO), but no official statement was filed with EMMA, the disclosure site of the Municipal Securities Rule Making Board.

Data is scanty but the authority is in trouble too (The Prichard water board’s public-records policy dams the free flow of information – Birmingham News Commentary – al.com). Citizens groups have protested their high rates and a movement is afoot to dissolve the authority and be taken over by the Mobile Area Water and Sewer System (MAWSS), a component of the city of Mobile http://www.mawss.com/pdf/06apr09.pdf. What we could glean from a 2005 official statement was a BBB- rating from Standard and Poor’s and a contentious consent decree on environmental concerns with the state. There is discussion of dissolving the system, dissolving the city, filing bankruptcy, or issuing “revenue anticipation warrants” for expected revenue from a motorsports park in construction (hmmm). It looks like the town is out of money; their water and sewer rates are too high for the ratepayers and they have pension obligations they can’t pay for. Seems like a case study of what is happening in many smaller municipalities around the country whose tax or ratepayer base is decimated but obligations remain high. We hope they don’t rely on a car dealership for revenues.