Bacon's Rebellion

Democracy Thrives in Sunlight

Buena Vista: the Canary in Virginia’s Fiscal Coal Mine

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James A. Bacon
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dead_canaryby James A. Bacon

The City of Buena Vista, which defaulted in 2014 on a $9.2 million bond issue to pay for a golf course that was supposed to spur growth in the city, has received some good news. It will be allowed to keep its city hall. For now. The office building, along with the police station and the golf course itself, stands as collateral on the debt.

Although ACA Financial Guaranty Corp., the bond insurer, still could take possession of city buildings, reports the Roanoke Times, it will not do so any time soon. “ACA is not currently interested in pursuing the option of foreclosing on the deeds of trust securing the bonds,” an attorney for the insurer wrote to the Buena Vista city manager.

The long-running controversy has harmed the ability of Buena Vista, a city of 6,500 in the Shenandoah Valley, to access credit markets. The Virginia Resources Authority recently rejected a request by the city for a loan to upgrade its public water system.

Maybe someone needs to call in Marc Edwards, the Virginia Tech professor who documented the lead poisoning in the water system of Flint, Mich., to make sure Buena Vista’s water is OK. I say that only partly tongue in cheek. The overlooked part of the Flint tragedy is the decades of fiscal mismanagement preceding the city’s takeover by state authorities that allowed the water system to deteriorate.

In Virginia, there is very much the idea that “it could never happen here.” But, in fact, it could, and Buena Vista is a case study. There are many other fiscally challenged cities, towns and counties in Virginia, where the old tobacco-textiles-furniture-and-coal economy has suffered comparable devastation to the Michigan automobile economy. Who knows what kind of hail-mary “investments” other local governments have pursued in desperate bids to revitalize local economies? Who knows the extent to which localities have deferred maintenance on their municipal water systems?

Buena Vista is so small that its plight has escaped the notice of the usual hand wringers, and I haven’t heard of any requests for bail-outs (although that’s not to say Buena Vista hasn’t been quietly looking for help.) At the national level, Puerto Rico is bordering on insolvency, and the entire state of Illinois is close behind. You can be assured that both will ask for help at some point to relieve them from the consequences of their bad decisions and dysfunctional political cultures.

Inevitably, Americans will face cruel choices — either bail out reckless and improvident governments or let their innocent citizens face more Flint-like calamities — and most likely Virginia will, too. To be sure, the Old Dominion’s finances are sounder than those of most states, but they aren’t as sound as we think, and not every jurisdiction has a AAA bond rating like Fairfax County, Henrico County of the City of Virginia Beach.

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7 responses to “Buena Vista: the Canary in Virginia’s Fiscal Coal Mine”

  1. Cville Resident Avatar
    Cville Resident

    So, we have one city of 6,500 people in a state of 8.3 million inhabitants that makes a bad decision. And now we will extrapolate that fiscal calamity is right around the corner.

    Where have I heard this right wing horror fantasy before? Oh, that’s right, Meredith Whitney.

    Recall:

    http://www.bloomberg.com/news/articles/2010-12-22/meredith-whitney-overreaches-in-muni-default-call-commentary-by-joe-mysak

    50 to 100 significant muni defaults in 2011 totaling 100s of billions of dollars…..

    Let’s look at what even the right wing WSJ said about this fallacious logic:

    http://www.wsj.com/articles/SB10000872396390444549204578021380172883800

    And Ms. Whitney? Her hedge fund went bust in less than 2 years:

    http://www.bloomberg.com/news/articles/2015-06-10/meredith-whitney-says-she-s-done-with-hedge-funds-after-struggle

    Right wing ideologues have been predicting the collapse of the muni market since the 1970s.

    But then again, I believe we had a post just a few weeks ago predicting a financial downdraft citing the market’s recent losses as “evidence.” Gee, the market is now positive for the year. Is that “evidence” that we’re headed for a global economic boom?

    1. James A. Bacon Avatar
      James A. Bacon

      Excuse me, Cville, who is extrapolating from Buena Vista’s default to “fiscal calamity right around the corner?” Not me. You missed the point of the post. Perhaps I should have bold-faced key lines to make it easier for those not predisposed to worry about municipal finances. But I will do so here: The Virginia Resources Authority recently rejected a request by the city for a loan to upgrade its public water system.

      Now, let me ask you, is the Flint, Mich., lead-poisoning disaster a “right wing horror fantasy?” We can argue all day long about whether the GOP Snyder administration deserves most of the blame or the Obama administration’s EPA deserves the blame for the lead-in-the-water screwup. But the calamity had its roots in Flint’s fiscal insolvency. Is it a “right wing horror fantasy” to point that out?

      Many people concerned about the water supply have observed that hundreds of American communities could face similar issues. Are public health advocates purveying a “right wing horror fantasy?”

      As I asked in the story, how many other fiscally stressed localities have deferred maintenance on their water systems? Is that a question that only someone peddling a “right wing horror fantasy” would want to know the answer to?

      Finally, should more Flint-like incidents occur — would you deny the possibility that they might? — is it a “right wing horror fantasy” to suggest that Americans (and Virginians) face cruel choices between bailing out improvident governments or letting innocent citizens suffer?

  2. TooManyTaxes Avatar
    TooManyTaxes

    It’s my understanding that most local jurisdictions in Virginia have some type of internal guidelines for the amount of debt that can be outstanding and the amount of debt service costs that can be borne. And, of course, all debt is rated (hopefully, the rating agencies have cleaned up their act).

    But, just as in business debt, some municipal debt will turn into bad debt. It’s part of the risk of lending money. I don’t see this as a step down the road to chaos.

    The bigger problem, IMO, is unfunded pension liability. Few governmental entities have really gone so far as to initiate meaningful reform that includes protection for those close to retirement. The political problem will be when taxpayers, most who don’t have pensions, will be asked to bail out public sector pensions with higher taxes and reduced services.

    A Fairfax County supervisor has stated that, for county teachers, who have two pensions (state and local), the fringe benefit cost is 53% of salary on average. No private business could sustain that burden. Even more stupid is the economic incentive provided to teachers to retire in their 50s. That’s plain stupid, push experience teachers and mentors out the door early.

  3. jalbertbowden Avatar
    jalbertbowden

    You are overlooking the other players in the Flint tragedy: private sector, mostly in the automobile industry.
    But I’m much more interested what you did say, as it highlights a very important concept in all of this:
    city governments (effectively citizens) are held to the wire here.
    We can be assured that they will ask for help, just like the private sector does.
    And what will our response be?
    Virginia Resources Administration’s morals and ethics should be towards the public good, not debt ratios and bond ratings.
    Not making poor fiscal choices is part of VRA’s job, but so is distributing resources to our citizens.
    Taking a business over community approach, while lecturing the community about their moral integrity….sounds like an anti-community.

    Speaking of old businesses and cronism and deteriorating infrastructures, where is the Tobacco Region Revitalization Commission in all of this?
    And the coal subsidies for southwest, what have they been spent on over the past 20 years?

    Not infrastructure.

    We chose to bail out one group, why would we not choose to bail ourselves out?

    That brings us full circle back to my point about the morals of business vs. morals of citizens.

    1. James A. Bacon Avatar
      James A. Bacon

      So many government programs subsidize/bail out so many people for so many different reasons that it’s all but impossible to draw the line anymore. That’s the slippery slope we’re on. Cville thinks I’m deluded. We’ll see.

  4. LarrytheG Avatar
    LarrytheG

    more “sky is falling” , “government is inherently evil and wasteful” blather.

    sorry.

    there are 133 political jurisdictions in Virginia. There are thousands of them across the USA.

    Yes – a few of them have gotten themselves into financial difficulties – some of them, in part, because of a collapse of industry like autos and others because they were perhaps not operated with the best financial judgement.

    But how is this a big DOWN trend of more and more govt entities crashing and burning financially?

    FLINT is a place where their auto industry died – like Detroit their neighbor whom ironically they were buying water from.

    The other irony is the folks on the right blaming the EPA – the same EPA they have spent the last 8 years arguing was exceeding it’s powers by involving itself in issues that were State’s rights.

    so NOW – that the States screwed up (like they have before when there was no EPA), it’s the EPA’s fault?

    so which is it it – do you want the EPA – MORE INVOLVED than they are NOW? is that what you want?

    or is this more likely one more area where the folks on the right twist and turn on issues and do 180 degree turns when events go the “wrong” way?

    WHO should be determining whether or not there is lead in water or not anyhow?

    What this proves more than anything else – is that when money is involved in an issue involving public health – BOTH the private sector AND govt will sometimes make a call – to save money – even when there is risk involved.

    it’s NOT a “government” thing – it’s a “people in charge” thing.

    People in charge are human and they make really bad decisions and sometimes when they do that they are wearing a private sector hat and sometimes they wear a govt hat.

    The fact that we DO have an EPA is NOT some overreach of govt.

    we have a HISTORY of local and state govt FAILING to protect water – in rivers AND in public water systems – and it almost always goes back to money.

    And it’s NOT JUST FLINT – it’s ALWAYS involved more than a few political jurisdictions as is now coming out.

    Here’s the $64 question.

    Is it the job of govt to make sure that lead is not in drinking water and if “ye” is the answer then at what level is that responsibility and how is accountability governed?

    Do YOU – REALLY WANT – in every community – a FEDERAL EPA employee checking water and issuing violations?

    is that what we want? What exactly did the EPA – not do that it should have done?

  5. TomH Avatar
    TomH

    I won’t apologize for government inefficiency because it happens more often than it should. However, the Flint situation was caused by choosing a minor fiscal advantage over the welfare of many, many people. The water in Flint was fine as long as it was supplied by Detroit from Lake Huron, as it had been for decades. It could have been safe for decades more if the state administrator had not decided to end the contract for a minor savings. Once it was switched to highly polluted and corrosive river water as the source, a small investment in a common chemical would have avoided the problem. Some reports say that the state administrator decided to save about $100 a day and forego the required additive and thus put at risk the health of many thousands. Others say there was more to it than simply saving a bit of money. It is unlikely that we shall discover the whole truth of this sad situation.

    But the lives of our citizens and their communities are more than what is revealed by a municipal balance sheet.

    Our Declaration of Independence proclaims that every government owes its existence to the community that creates it. As do the organizations, such as corporations, that are created by those governments.

    The seeds of the Flint fiasco were sown by the malfeasance of GM. For decades unions were paid off with higher wages while the executives and shareholders prospered. Customers paid higher prices for increasingly shoddy cars, until the imports arrived. But most paid this little heed because they all still had money in their pockets.

    When the bailout came, bondholders and the GM shareholders came out OK, the unions made a bundle, but cities like Flint were devastated as whole divisions of GM and all of their manufacturing plants were thrown on the scrapheap. Flint’s infrastructure was built to support GM and its community of workers. Then suddenly its tax base fell off a cliff. What was ultimately a city government problem began in the boardroom of GM.

    We should expect fiscal responsibility from our elected officials. But why do we not hold our private officers to the same standard? When they do not execute their fiduciary roles, we paper over the problem because we say they are too big to fail. And then they collect their bonuses and make the problem even larger.

    During much of my business career, corporations had investors who considered themselves owners. They expected corporate executives to be stewards of the corporate assets and protect owner’s interests over the long term. These days, CEO’s and shareholders are in it for the quick buck. Investors are no longer owners but speculators in the giant casino constructed by Wall Street.

    Many business apologists say that, by law, corporations must focus on profits. In my experience with a number of different businesses in a variety of industries, a corporation must do what its by-laws say it must do. Every organization, for-profit and not-for-profit, must take in more than they give out or they won’t be in existence for long. But this doesn’t mean that has to be their only objective. There is a relatively recent invention of something called a “B Corp” which allows an organization to declare that it will be of service to its community as well as to its shareholders. Studies show that these organizations are not only more socially responsible but also more fiscally responsible than their counterparts.

    We don’t have to choose between doing good and doing well. Governments and corporations that choose to benefit a few through entitlements or favors to cronies should be dissolved or renewed when they no longer serve their purpose. In this way something that is better adapted to the needs of the times can take its place.

    The coming times will test our beliefs about what we feel is truly important. Our political and financial house of cards might not hold up to a stiff wind. We can begin to choose better ways now, while we have the tools available, without calling for Armageddon to force our hand.

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