North Las Vegas pursues bill that could allow municipal bankruptcies

Cash-strapped North Las Vegas plans to press ahead with state legislative fixes for its money woes — up to and including a bill that would allow Nevada cities to declare bankruptcy.

Mayor John Lee on Thursday said a bill that would allow cities to go belly up — instead of entering receivership, the state’s broadly untested bankruptcy alternative — “should be on the table” at the 2015 legislative session.

It remained unclear which state office or lawmaker might bring such a bill forward, though the state Department of Taxation hasn’t ruled out including the municipal bankruptcy option as part of a bill draft request scheduled to go before the state committee on Local Government Finance in August.

“You have to understand that the (severe financial emergency) law was basically built for White Pine County, not for cities like Reno, Henderson and us,” Lee said at an editorial board meeting with the Las Vegas Review-Journal.

“(Municipal bankruptcy) allows the bond companies to realize they’re invested in this, too, and as soon as you bring everybody to the table, you can do a lot of great things.”

North Las Vegas plans to submit a balanced $492 million budget to the state tax department next week, but the recession-ravaged city is far from out of the woods.

The city faces continued declines in property tax revenue and ballooning payments on an estimated $422 million in outstanding debt obligations, a financial position that bond analysts at Fitch have likened to bankrupt municipalities in California and Pennsylvania.

Officials hope the specter of state-sanctioned bankruptcy would encourage bondholders to renegotiate those bonds in time to thwart a $7 million uptick in annual bond payments scheduled to hit the city’s books in 2016.

“Just having that threat there could make a world of difference,” Mayor’s Office Chief of Staff Ryann Juden said Thursday. “We may never have to use it, but having it there would help out a lot.”

Mesirow Financial Managing Director Peter Bianchini said threatening to pull the bankruptcy lever “would not be good” for bondholders such as himself.

He prefers a more revenue-focused approach — perhaps a loosening of state-imposed property tax caps — that aims to bring bondholders to the bargaining table through the promise of future growth, not the threat of collapse.

“The history of municipal bankruptcy is pretty checkered and generally does not get people the outcomes they expect,” Bianchini said. “When you look at places that have gone bankrupt, I think what happens is the cost and complexity outweighs the benefits.”

One complicating factor for North Las Vegas could be its water and sewer bonds, debt instruments Bianchini said are normally immune from a city’s Chapter 9 filing.

“In most other bankruptcies, water and sewer bonds are kept out of it,” he explained, “and even if, for argument’s sake, you wrote down water and sewer debts, wouldn’t residents want their rates to go down?”

Officials say the city is working with state staffers and Assembly Speaker Marilyn Kirkpatrick to engineer fixes for Nevada’s severe financial emergency law once the Legislature reconvenes in February.

Kirkpatrick, D-North Las Vegas, who has said the state receivership statute “could use a little clarity,” remains willing to talk about a bankruptcy bill, but said she won’t be the one bringing it to the floor.

In the end, she said, the risks of such a move could outweigh the rewards.

“Of course we can talk about it, but we don’t know what it does, we don’t know the ramifications,” Kirkpatrick said.

“We’ll continue to have a conversation, but at the same time you have to know, as a local government, when to be responsible for the debts you created … (Bankruptcy) shouldn’t just be out there to use when it’s convenient.”

Deputy State Tax Director Terry Rubald, who was tasked in March with drafting changes to the state’s receivership law, could not be immediately reached for comment.

Contact James DeHaven at jdehaven@reviewjournal.com or 702-477-3839. Find him on Twitter: @JamesDeHaven.