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Las Vegas bankruptcy lawyers split about the prudence of having Chapter 9 on the table for municipalities in Nevada

April 25, 2015

“We want to have the option but we want never to use it,” is basically what North Las Vegas Mayor John Lee communicated in a letter supporting the Senate Bill that would allow cities in Nevada to declare bankruptcy “if the state Tax Commission found that a severe financial emergency existed and was expected to last at least three years.” But others, including some Las Vegas bankruptcy lawyers and finance experts, aren’t so sure how good having the option on the table, even solely for the purpose of leverage, would be for the state. Phrases like “only as a last resort” and ensuring “all stakeholders share equally in the burden of saving” municipalities go into the argument for Chapter 9 bankruptcy protection for Nevada cities.

Still, Mayor Lee wants to make it crystal clear that “North Las Vegas does not need bankruptcy,” and even if it was allowed, “North Las Vegas would not have sought its protection.” So why bother with it at all? Local economists and Las Vegas bankruptcy lawyers know all too well the ramifications of actually implementing the plan, citing the troubles Detroit had in the 18 months it took to resolve its bankruptcy, which ended up costing the city “over $180 million of taxpayer money for legal and other professional fees.” But what’s good for one professional (or a few) may not be good for the state.

The managing director of portfolio surveillance for the National Public Finance Guarantee Corp. openly opposed the bill, stating that “there are viable alternatives to bankruptcy,” like “fiscal discipline, a consistent focus on cost controls and revenue growth.” So for North Las Vegas, facing “ballooning payments on an estimated $422 million in outstanding debt obligations” and “continued declines in property tax revenue,” the answer is not giving up and restructuring, but tightening the belt and rising above.

That may not be so easy, other Las Vegas bankruptcy lawyers might be willing to counter. And, as officials in support of the bill are keen to point out, the hope is again, not to actually ever invoke the bankruptcy option, simply to use it as a “state-sanctioned specter” that “would encourage bondholders to renegotiate those bonds in time” to avoid a wide-scale financial catastrophe.

One of the best Las Vegas bankruptcy lawyers and commercial litigators, Karl A. Shelton would probably view the potential arrangement from a business and industry perspective: what can the city afford in the long term? Would mayors prefer tax dollars be spent on declaring bankruptcy or be more tightly regulated to regain fiscal competence over several years? Still, the question at hand is unavoidably primarily political rather than practical.

And right now, city and state officials are viewing the option as a political weapon rather than an economic tool, talking about in terms of being “a game changer” that can “bring everyone to the table to find a solution” that doesn’t include bankruptcy itself. The irony heavily infused with passing the senate bill goes unspoken: what happens when cities began to use the option that was never meant to be implemented in the first place.

 

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