Saturday, June 27, 2015

MUNI FINANCE | Cantwell and Ravitch (with Postscript)

Larry Cantwell (L) and Dick Ravitch at the East Hampton, NY Library.
This and following photo by JTMarlin.
This year the East Hampton Library initiated a high-quality series of lectures named after the late Tom Twomey, the library's former Chairman.

The lectures are held in the basement of the new addition to  the library and are financed by donations.

Patti Kenner told me she spoke with Twomey the day before he died, and what he wanted to talk about with her was his speaker series.

Yesterday, Larry Cantwell and Dick Ravitch spoke about municipal finance.
  • Ravitch is a national expert on the subject, having overseen financial controls on New York City and Detroit and elsewhere. (Stockton, Calif., is another bankruptcy that was discussed.) His expertise may be in demand in coming months and years as the debt chickens come home to roost.
  • Cantwell is an expert on local finances. Together, they provided a formidable range of expertise on the subject of municipal government and finance that may well be in demand in the coming months if the Federal Reserve goes ahead with its program to raise interest rates above its zero-bound level. Puerto Rico has already announced that it is drowning in its existing debt and can't pay them.
Ravitch was made Chairman of the Municipal Assistance Corporation when New York City became insolvent in 1974. Mayor Beame had been financing annual deficits by borrowing and the banks suddenly stopped lending. Ravitch formed an independent entity to which NYC sales taxes were pledged, and that entity assumed the debts and paid them off. Meanwhile NYC was under strict controls to prevent a return to financing deficits with debt.

Cantwell, who is Supervisor of the Town of East Hampton and was previously Village Administrator of the Village of East Hampton, agreed with a questioner that East Hampton went through something of the same kind of crisis in 2007-2008. The Town borrowed to pay for current-year operating deficits, as described the New York State Comptroller in a scathing report.
Phyllis Italiano (L) and Bridget Fleming at the meeting.

Someone asked about school consolidation, since there are inequities in the school taxes paid by residents of the different school districts in East Hampton Town. One response is to push for consolidation of school districts. Another is to seek to address the inequities through subsidies for the communities with higher school burdens.

Larry Cantwell said that Assemblyman Fred Thiele, who has a district office in Bridgehampton, was the point man for discussion of this issue.

Bridget Fleming followed up by noting that an attempt to pass a law to help burdened school districts was introduced in Albany and lost by only 39 votes. She is continuing to press for such a law. Phyllis Italiano of East Hampton is a big fan of hers.

Postscript (July 1, 2015)

To the list of municipal insolvencies and control boards since New York City's, I should add Yonkers, Nassau County, the District of Columbia and Jefferson County, Alabama.

The National Governors Association has posted a MuniFactSheet questioning the idea that the number of municipal defaults is growing. It says that between 1970 and 2011 there were only 65 defaults on rated debt, excluding technical defaults.