Looking for a quick-and-dirty fiscal stress test for a troubled state or municipality near you? Check out today's New York Times obituary of Brenton W. Harries, the former Standard & Poors president who knocked down New York City's bond rating when signs of the city's virtual bankruptcy became obvious in the spring of 1975.
From the article:
From the article:
In 1976, Mr. Harries recalled that the city's credit rating was suspended after the agency received "startling answers" from the comptroller to two questions: "What is your cash shortfall for the next 90 days? Answer: About $2 billion. If you husbanded all your resources, did not pay any of your bills and applied all your revenues first to the payment of debt service, and you couldn't borrow from the banks, would you have enough money to meet debt service? Answer: No."Those two questions pretty much describe a fiscal death rattle anywhere. A state or municipality is in big, big trouble--New York City '75-level trouble--if it is facing a three-month cash shortfall equivalent to more than 10 percent of its budget and it can't meet debt service payments without borrowing.
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