Municipal Debt: Learning from Municipal Financial Crises
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Many US municipalities and states are currently facing severe financial pressure. They have huge unfunded pension commitments, and recent forecasts of widespread defaults have resulted in a large sell-off of their bonds. This is not new. Financial history is full of instructive defaults by governments on their debt. Can these past crises teach us about what to do now?

In spring 1975, the municipal debt market refused to make any more loans to New York City to finance its perpetual deficits. The nation's largest city was insolvent. New York City's pleas for a federal bailout were famously and rightly refused. On the other coast, Orange County, California, one of the richest counties in the country, became insolvent from losses on financial speculations and entered municipal bankruptcy in December 1994. Experts at this event will analyze lessons learned from these crises and discuss government debt defaults, the idea of state bankruptcies, and challenges in managing local finances.
1:45 p.m.


New York City Financial Crisis: E. J. MCMAHON, Manhattan Institute
Orange County Bankruptcy: PATRICK SHEA, Attorney
Sovereign Debt Defaults: ADAM LERRICK, AEI
Bankruptcy for States?: MICHAEL S. GREVE, AEI
Managing Local Finances: DAVID JOHN, Heritage Foundation


Question and Answer

Speaker biographies

Edmund J. McMahon
is the director of the Empire Center and the Manhattan Institute’s senior fellow for tax and budgetary studies. At the Manhattan Institute, he studies the tax and spending policies of New York City and New York State and issues recommendations on how these policies can be reformed to increase economic growth. Before joining the Manhattan Institute, he served as deputy commissioner for tax policy analysis and counselor to the commissioner in the New York State Department of Taxation and Finance, director of minority staff for the state assembly Ways and Means Committee, vice chancellor for external relations at the State University of New York, and director of research for the Business Council’s research arm, the Public Policy Institute. Mr. McMahon’s recent work has included studies focused on state budget reform, public pensions, public-sector collective bargaining, the impact of federal tax changes proposed by the 2008 presidential candidates, and the state and local fiscal impact of the financial-market meltdown. He has testified frequently before the New York State legislature, and his articles have appeared in the Wall Street Journal, Barron’s, the Public Interest, the New York Times, the New York Post, the New York Daily News, Newsday, and the New York Sun, among other publications.

Patrick C. Shea is a lawyer and strategic adviser in financial structures, capital structures, capital projects, and private- and public-sector financial reorganizations. He has represented or advised many of the nation’s largest financial institutions, their boards of directors, and individual officers and board members, and he has been appointed to represent large classes of financial interests in difficult capital- and finance-related restructures. In 1994, the federal court appointed Mr. Shea to represent the 175-plus municipal entities with investments of over $5 billion in the Orange County financial restructuring. He has managed large law firms and corporate entities, and he is a cofounder and director of a regional bank with branches in California and Washington. Mr. Shea has also authored and edited commercial, legal, and business publications. 

Adam Lerrick
is a visiting scholar at AEI and the Friends of Allan H. Meltzer Professor of Economics at the Tepper School of Business at Carnegie Mellon University. He was a senior adviser to the chairman of the International Financial Institution Advisory Commission (known as the “Meltzer Commission”), where he analyzed the workings of the World Bank and reassessed its role in the global economy. He also serves as an adviser to the Joint Economic Committee. Previously, Mr. Lerrick was an investment banker with Salomon Brothers and Credit Suisse First Boston, and he originated and led the negotiation team of the Argentine Bond Restructuring Agency in the $100 billion Argentine debt restructuring. 

Michael S. Greve
is the John G. Searle Scholar at AEI. He cofounded and, from 1989 to 2000, directed the Center for Individual Rights, a public-interest law firm. He has written extensively on many aspects of the American legal system. His publications include numerous law-review articles and books, including The Demise of Environmentalism in American Law (AEI Press, 1996), Real Federalism: Why It Matters, How It Could Happen (AEI Press, 1999), and Harm-Less Lawsuits? What’s Wrong with Consumer Class Actions (AEI Press, 2005). He is the coeditor of Competition Laws in Conflict: Antitrust Jurisdiction in the Global Economy (AEI Press, 2004), Federal Preemption: States’ Powers, National Interests (AEI Press, 2007), and Citizenship in America and Europe: Beyond the Nation-State? (AEI Press, 2009). Mr. Greve also heads AEI’s Transatlantic Law Forum. His book The Upside-Down Constitution (Harvard University Press) will appear this fall.

David C. John is a senior research fellow at the Heritage Foundation and the lead analyst on issues relating to pensions, financial institutions, asset building, and Social Security reform. He has also spoken on corporate governance and financial literacy, and he is interested in finding ways to allow workers to build assets and grow out of poverty. Mr. John is also the managing director of the Retirement Security Project, which focuses on improving retirement savings in the United States, especially among moderate- and low-income workers. He is the coauthor with J. Mark Iwry of the “Automatic IRA,” a small business retirement savings program for firms that do not sponsor any other form of retirement savings or pension plan. In addition, Mr. John has testified before a number of House and Senate committees on topics as diverse as proposals to improve the Pension Benefit Guaranty Corporation’s measurement of the fiscal strength of defined-benefit pension plans; how to reduce the leakage of funds from 401(k)-type plans; how to structure and regulate Social Security personal retirement accounts, and steps that should be taken to improve the program for women and minorities; and how to increase the information that the public can receive about Social Security programs.

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