Bridgeport, Conn., is still solvent, a federal judge rules last Thursday, somewhat to the relief of the municipal bond market. Bankruptcy is not the answer for municipal ills, at least not yeat.
The case has attracted intense interest in our market because Bridgeport is the largest city so far to try solving its financial difficulties with Chapter 9 of the Bankruptcy Code. The city faces a shortfall of $16 million in a $320 million annual budget for the fiscal year ending June 30, 1992, but it has $25 million in the bank.
If the city had succeeded in gaining protection from its creditors, bondholders might have to stand in line to get their money, and they might not be paid 100 cents on the dollar, and the wait might well stretch on a good while.
Bridgeport could still go bankrupt. On July 21, Judge Alan H.W. Shiff ruled that Bridgeport, Connecticut's largest city and one of its poorest, had the right to file for bankruptcy, but he left open whether the city's request would actually be approved. Last week, he rejected the request because he found that the city was not insolvent.
We think this is a good ruling. The state, which has guaranteed some Bridgeport bonds and has a control board watching the city's revenues and expenses, has demanded that it raise revenues or cut expenses or craft some combination of the two to bring its budget into balance. The city has been slow to respond to this realistic program, and filing for bankruptcy protection would only enalbe it to continue to avoid facing the music.
Sooner or later, states and cities with severe budget problems must make the hard choices -- raise taxes, reduce services, redraw the lines between poverty-stricken downtowns and wealthy suburbs, extract more state or federal aid, whatever it takes. None of these steps will be easy, and some of them may be impossible.
While everyone glibly demands "hard choices," the reality is that government officials rarely have the knowledge, the power, and the will to make them. It is important, however, that they begin.
But they won't while they have any other route available to them. That's why protection under bankruptcy law would hinder the process.
Har bargaining is needed more than judicial protection. We suspect that the closer municipalities come to insolvency, the more likely they are to take action, and that is why we think Judge Shiff's decision last week was correct.
When all the money is spent and police cars and fire trucks run out of gasoline, garbage bags pile up, and street lights are turned out, people will wake up and see that something widespread and basic is happening. Municipal budgets will then be drawn to reflect the new reality.