As US cities struggle, mayors say no to bankruptcy

WASHINGTON Jan 19 (Reuters) - Mayors of U.S. cities still caught in the recession sought to assure the public and investors in the $2.8 trillion municipal bond market on Wednesday that they will do everything to avoid defaults and bankruptcy.

Attendees at the annual meeting of the U.S. Conference of Mayors in Washington emphasized pension reform as key to shoring up their finances.

"There is no scenario where we would ever consider the 'B' situation," said Los Angeles Mayor Antonio Villaraigosa, who is vice president of the Conference of Mayors. "I don't even use that word because we're going to make the tough decisions."

Villaraigosa spoke at a press conference following remarks by other mayors attending the meeting who also indicated their intense efforts to avoid bankruptcy.

"My city council will be looking at civilian pension reform for new employees, as well, and I know a lot of our cities are doing the same thing," Villaraigosa said.

Two years ago, Vallejo, California, filed for municipal bankruptcy, and smaller cities across the country are considering following suit, creating nervousness in larger cities like Chicago.

Many cities currently face "serious financial problems," said Chicago Mayor Richard Daley, who is nearing the end of his sixth term as mayor and is not seeking re-election. He added that metropolitan areas of all sizes must examine pension reform as well as cutting operation costs and attracting foreign investment.

"Government has to get smaller, more efficient," he told reporters. "You really have to streamline government because I don't think future revenues are going to be there."

Cities are still reeling from the recession that began in 2007, especially because one of their major sources of income, property taxes, has yet to improve as the housing market remains weak. On top of that, support from state governments is shrinking and the federal economic stimulus plan that gave them a mild boost is ending.

For example, last month Moody's Investors Services cut Las Vegas's general obligation debt rating, citing the city's deteriorating property tax revenues.

And as 2011 dawns, cities are making tough choices to deal with the effects of the longest and deepest recession since the Great Depression, even though it ended in the summer of 2009.

On Tuesday, Camden, New Jersey, considered one of the most dangerous cities in America, moved closer to laying off nearly half of its police force and other employees to close a $26.5 million budget gap.

New York City Mayor Michael Bloomberg told public workers on Wednesday that they will not receive an increase in wages unless they accept smaller pension and health benefits, as part of his bid to save money in the face of multibillion-dollar budget gaps over the next year.

Hamtramck, near Detroit, has been pushing its home state of Michigan for permission to file for Chapter 9 municipal bankruptcy as it expects to run out of money soon.

Last spring, former Los Angeles Mayor Richard Riordan said his city, the second largest in the country, was on track to declare bankruptcy before 2014.

One area of growing concern is pensions. Many cities did not put enough into funds to cover promises they made to retirees and those funds' investments took large hits during the financial crisis.

Last April, Chicago released a special commission's report that concluded financial assets were insufficient to guarantee all pension benefits promised to city employees and retirees. The report found the pension funding ratio fell to 43 percent at the end of 2009 from 83 percent in 2000.

Chicago would need about $660 million a year to boost its funded ratio to 90 percent in 50 years.

"We're going to do everything we have to do to balance our budgets," Villaraigosa said, referring to the hundreds of mayors gathered in Washington to meet with members of Congress and President Barack Obama this week. "The fact is our pensions aren't sustainable and the fact is there's a way out if our employees work with us." (Additional reporting by Jon Hurdle in Camden, Karen Pierog in Chicago, Jim Christie in San Francisco, and Joan Gralla and Edith Honan in New York; Editing by Leslie Adler)