Municipal Messes Keep TMA in the News

TMA’s involvement with cash-strapped municipalities continues to spur interest from news reporters. Recently, a Dow Jones reporter interviewed Scott Eisenberg, a managing partner at Amherst Partners from our Michigan Chapter, and Michael Imber, principal at Grant Thornton, from our New York City Chapter.

Eisenberg was among corporate turnaround professionals summoned by the state of Michigan’s incoming treasurer in December to discuss ways to train emergency financial managers. The program launched in February and Eisenberg and Imber were among the first 60 turnaround professionals certified as emergency financial managers.

In March, Michigan Governor Rick Snyder signed a law giving state-appointed financial managers the power to end employee contracts and suspend collective bargaining. Much hue and cry ensued. Still nearly 400 government and private sector workers took the second emergency manager training course in April. Bloomberg and Bloomberg Businessweek and Crain’s covered developments; less salutary were remarks on the Teamster Nation blog.

The Dow Jones reporter wanted to know what other states may follow suit, as well as how restructuring techniques in the private sector can be transferred to the public sector. Both Imber and Eisenberg discussed how turnaround professionals, in the role of chief restructuring officers, are empowered to make and implement tough decisions to achieve the maximum economic outcome. Not so in the public sector, where the maximum economic outcome may not always be the most politically expedient.

That’s fine, if a municipal, regional or state body can foot the bill for that choice, Imber said. In these times, that choice is less affordable. Eisenberg gave the example of two school districts that previously served 20,000 students, but now each serve only 8,000. It should be one district, but school officials are reluctant to make a decision that spells the end of their own jobs.

Imber says his firm has responded to about a half dozen requests for proposals (RFPs) issued by municipal agencies, illustrating another difference from how public sector agency engagements differ from those in the private sector. Imber foresees a bifurcated municipal distressed market: towns with budgets less than $100 million in revenues that could be served by small firms and large municipalities, counties and states that need broader expert services addressing tax policy, pensions, valuation, accounting and other areas, which large, full-service firms provide.

Eisenberg noted that cash-strapped states don’t face one-size-fits-all problems. Michigan’s structural problems include high unemployment, severe property tax declines, and a large elderly population. Illinois, on the other hand, is hobbled principally by underfunded pensions. He regards the Delphi bankruptcy as a loud wake-up call marking the end of an era of $70,000-$80,000 union jobs in which workers put in a day’s work and received pay for two,  considering pension and benefits.

The public sector will have to endure the “gut-wrenching” change experienced in the private sector, he said, and learn to do more with less.

Read the article.

Retiring Bankruptcy Judge Seeks Adequate Compensation

At the TMA Board of Trustees meeting held during the recent 2011 TMA Spring Conference in Chicago, Jack Butler presented a letter he recently received from the Hon. George C. Paine, II, Chief Judge of the U.S. Bankruptcy Court for the Middle District of Tennessee.

In his letter, Judge Paine, who will be retiring at the end of 2011, explains that compensation for bankruptcy judges has remained the same (about $160,000) for over 20 years because of linkage to Congressional salaries. The Judge then notes that, as a result, bankruptcy judges are paid less than other court and government employees who have substantially less responsibility. He also points out the disparity between judicial salaries and the compensation of attorneys in private practice.

Judge Paine warns of the potential consequences to corporate restructuring resulting from the disincentive that inadequate pay creates for capable and experienced bankruptcy attorneys to choose to serve in judicial capacities. He says, “this inequity can only lead to less qualified candidates applying for judgeships rather than highly qualified individuals seeking the position as the capstone to a successful commercial legal career.”

Judge Paine has raised serious concerns regarding the long-term impact of inadequate compensation upon the willingness of highly qualified candidates to serve on the bankruptcy bench. His letter contains a number of examples where federal employees with specialized skills are paid at levels intended to attract strong talent.

We who work in the restructuring industry are challenged by the Judge’s letter to act together “to push for increased judicial salaries so that judgeships become the capstone of successful careers, not stepping stones or gravestones.” It is important that we speak up to educate Congress on the importance of adequate compensation for bankruptcy judges.