Restructuring Municipalities

As the ripple effect of the meltdown spreads, state and local governmental entities are hardly immune from the financial squeeze. At the state level, California's financial problems have gotten the most press. But, every state is being impacted heavily, just at different speeds. And, local entities are the next ripple.

Counties, cities, towns and all kinds of special governmental entities are caught in a vicious squeeze. The one-two punch of reduced valuations on residential property and now on commercial properties is decimating the tax base. Unpaid taxes are increasing as properties are abandoned. Federal and state support is getting cut back (notwithstanding the impact of the Stimulus program for some entities). And, user fees are declining as both companies and individuals are more judicious about their spending, even for necessities such as water.

At the same time, demand for free services/assistance is increasing what with a population severely impacted by job losses, home equity losses, and investment losses.

Governmental entities of all kind have, like much of America, had a mind set of ever increasing revenue funding ever increasing spending. Those days are over! And, in my opinion, not just over in the near term.

Just like corporate America needs effective restructuring assistance, so too does the municipal world.

But just like the corporate world, many municipal entities will regrettably seek help too late to effectively utilize the full panoply of restructuring alternatives. Regrettably there will be more bankruptcy filings, ala that of Vallejo, a Northern California city that filled bankruptcy in May of last year.

When municipal entities do start reaching out for help...and they will, who will be the market leaders in serving this unique subset of the restructuring market? Which law firms will lead the way? The traditional leaders in restructuring, or the leaders in municipal finance, or innovative combinations of these two highly specialized areas?

Likewise with consulting/advisory firms. Who will lead the way?

The market is wide open. This area is such a great opportunity for firms to establish preemptive market leadership. Who will do so? Too early to identify the firms, per se, but the leaders will undoubtedly be firms that:

1. Understand and fully appreciate the legal and operational differences between a corporate restructuring and that of a municipal entity,

2. Are skilled at negotiating between constituencies with very different interests (without using the hammer of "well we will just put you out of business."),

3. Are comfortable with the transparency that comes with a restructuring in the municipal world,

4. Are able to create appropriate urgency in an environment that generally moves at a much slower pace than the corporate world,

5. Are adept at operating in a political environment, and

6. Are skilled in navigating the sometimes tricky waters of governmental procurement.

As with my recent post about nonprofit restructuring needs, let there be no joy in Mudville at yet another support structure of our society being devastated by this economic meltdown. The cutbacks in government services that will be part of successful restructurings will impact all of us. As such, let us all hope that some of the best minds in the Restructuring profession are attracted to this market opportunity.