Going bankrupt usually limits one’s ability to pay for new things, at least until all the other creditors are satisfied. And as you may have heard, the city of Stockton, California, recently became the largest municipal bankruptcy in the US. With the nation’s highest crime rate and lowest police staffing rate, among other dire statistics, things do not look good.
Never required to consider cost in requiring environmental compliance, the EPA is kind of piling on. Stockton has an aging wastewater treatment plant that just doesn’t meet regulations, as it was built some 70 years ago, and during heavy storms, it often results in combined sewer overflows (CSOs). (CSOs result when the wastewater treatment plant’s intake capacity is overwhelmed, and the plant then temporarily allows stormwater and sewage to bypass treatment, discharging directly into the environment.) The EPA has been going after more and more municipalities for CSOs, notably Atlanta (my hometown bias, sorry), in the past few years. Apparently the Stockton wastewater treatment plant needs a $156 million upgrade, and EPA will surely issue fines for CSOs until this happens.
That said, Stockton apparently shouldn’t have too much trouble issuing new bonds to pay for this upgrade. The reason is that the wastewater treatment customer fees represent a consistent inflow of money to repay the bond, and the city could then issue revenue bonds rather than general fund bonds, the latter of which no one would offer, given the city’s recent attempt to default. Odd that the economics work out that way, but I guess this is some good news for the Stockton economy – a tiny stimulus package that will deliver long-term infrastructure benefits.