Municipal Bankruptcy: Coming to a Government Near You?

Great news: A U.S. bankruptcy judge has ruled that the city of Stockton, CA can declare bankruptcy.  News reports have called Stockton "emblematic of government excess."

Its salaries, benefits and borrowing were based on anticipated long-term developer fees and increasing property tax revenue. (Emphasis mine.)

Like numerous other municipalities across the country, Stockton leaders relied very heavily on borrowing and obviously weren't very good at saying "no" to anyone.  The most prominent issue of course is the city's pension obligations, but we should not discount the role of massive debt; this is a cautionary tale for Texas. 

"But that's just those crazy liberals in California!" you say. 

Not so fast, Pardner, we've got plenty of local debt right here in Texas.  In fact, according to the Comptroller's office, local debt has more than doubled over the last decade.  And for us Williamson County folks, we should note that while Stockton's debt burden was just shy of $1 billion, Leander School District taxpayers are now on the hook for $2.7 billion. 

Sadly, there are folks in local government who are adamantly defending these local debt burdens.  Leander ISD, and have even gone so far as to claim the Texas Bond Review Board numbers are, er, misleading.  LISD Board of Trustees President Pam Waggoner has been trying to assure everyone that the ISD debt isn't really such a bad thing, and, after all it was voter approved.  (By 6-8% of the registered voters.)  Surprisingly enough, she also seems to blame the State Legislature for Leander ISD's bad CAB practices:

CABs are one of several ways we handle debt . The answer to this problem is for the State Legislature to not punish us for going over the 50-cent test.

Um, say, how about not spending and borrowing so much?

Waggoner suggests that her board is 'fiscally' conservative, but as candidate Jim MacKay has pointed out, the district has essentially played a fiscal "shell game" to make it appear as though the debt were below state-approved levels. 

MacKay, who is challenging Waggoner in the May elections, has written an explanation of the LISD financial shell game, and notes that the bond writers sure are making a nice living on all this district borrowing and refinancing. 

Sadly, Ms. Waggoner has refused to meet Jim MacKay for a public debate, and hasn't even bothered to accept invitations to speak to local conservative groups.  I guess she is hoping this will all just go away?  Perhaps she's right; if things get too bad, Leander ISD could, like Stockton, declare bankruptcy.  

And we thought it was only in California.

Note:  The state legislature is taking action on the growing problem of local government debt- House and Senate Bill 5 would create greater transparency and a bipartisan coalition of lawmakers are proposing an outright ban on the CAB practices defended by Waggoner.