Our nation has thousands of smaller cities, and no one keeps tabs on their financial condition in real time. Consequently, municipal bond investors can be caught by surprise when one of these cities gets into trouble. Because Bitvore chows through enormous volumes of web and social media content to detect the lightning bolt of a material change important to municipal bond investors, our users often get the first-mover advantage by learning about emerging crises before other market participants.
Such is the case with Bogalusa, a 12,000 resident city in Louisiana with about $9 million in outstanding bonds. Last week, Louisiana’s Legislative Auditor sent Bogalusa’s mayor a strongly worded letter listing a series of concerns about the city’s finances. Among the issues raised:
- Severe pension underfunding arising from the city’s consistent failure to make actuarially required contributions to its Employee Retirement System (as of the end of calendar 2012, the system was only 36% funded)
- The Board responsible for managing the retirement system not meeting regularly, because two of the three positions are unfilled
- A negative general fund balance
- Improper loans from the Debt Service Fund to the General Fund that have not been repaid since 2006 and 2007 (inter-fund loans are normally supposed to be repaid within the fiscal year they were incurred)
- Insufficient reserve account funding for two classes of revenue bonds – in violation of the bond covenants
- Failure of the city’s computerized accounting system in May 2013, with the system remaining down through the remainder of the year
News of the letter appeared in local media on Monday, and our system picked up the stories shortly thereafter. The Legislative Auditor has given the city until May 16th to respond to its findings. We note that Louisiana allows cities to file for bankruptcy under Chapter IX of the US Bankruptcy Code and wonder whether this could be the first such filing in 2014.