Bonds. Municipal Bonds.

The post title puts the case as Sean Connery, the original celluloid Bond, might have put it. By coupling the latest news out of Birmingham, Alabama (the Pittsburgh of the South, as some would have it), with the New York Times' summary of Pittsburgh's natural population decline, Chris Briem finally has hooked me on the story of the public finance disaster that looms over Pittsburgh.

To recap, briefly:

The City of Pittsburgh owes roughly $1 billion in general obligation debt, i.e., municipal bonds.

The City of Pittsburgh also has roughly $500 million outstanding in unfunded pension liabilities.

On a per capita basis, the City of Pittsburgh owes more money than Jefferson County, Alabama, in which Birmingham is the largest city. "Jeffco" has roughly $3 billion in bonds outstanding. The county has been toying all Spring with the possibility of filing for federal bankruptcy protection. Just the other day, however, its bondholders and related creditors agreed to extend a forebearance agreement -- again staying the day of reckoning for the county and raising the possibility that Jefferson County may be too big to fail.

Is Pittsburgh any better off? There are no revenue windfalls in the offing, and if the per capita debt measure matters, then things are only going to get worse.

Municipal bankruptcies are not like "ordinary" corporate bankruptcies. Chapter 9 of the bankruptcy code, which would apply to both Jefferson County and Pittsburgh, includes certain special rules governing the classification of creditors; the bankruptcy trustee in a Chapter 9 case does not have the power to step in and run the municipality, as a Chapter 11 trustee might in a corporate proceeding. Among other things, that means, I think, that a bankruptcy court would have relatively few tools with which to manage the expected conflict in Pittsburgh between its bondholder and bond insurer (and reinsurer) creditors, on the one hand, and its pension obligee creditors, on the other hand. If and when forebearance agreements become topics of local discussion, there's no assurance that all of Pittsburgh's creditors can be made to get on the same page. Jefferson County may be too big to fail -- but is Pittsburgh?

Meanwhile, out in California, the Bay Area city of Vallejo filed its own Chapter 9 bankruptcy petition the other day. Residents quoted in The New York Times claimed to be excited by the prospect of municipal financial restructuring. I drove through Vallejo right after this happened and can safely report: uncertain though it may be, life goes on.

Out in California, municipal fiscal disasters are localized; poor towns subsidize the wealthy. All do not suffer jointly. Only sixty miles from Vallejo, in the Silicon Valley Eden called Menlo Park, the (re)building boom continues unabated, with teardowns and new McMansions to the left and teardowns and new McMansions to the right. Both before and after traversing Vallejo, in Menlo Park I saw the usual: Moms walking dogs. Nannies strolling babies. Men steering bicycles with one hand and cradling cell phones in the other. A Safeway store more palatial than the East Liberty Whole Foods and a Giant Eagle Market District combined. Latino day laborers with red baseball caps waiting idly at the side of the boulevard, waiting for a ride and a day's wage.

Pittsburgh's wealthier suburbs seem to care not about the city's public finance disaster because they imagine themselves to be more or less like Menlo Park, that is, essentially immune from what's happening on the other side of the bridge. But the Pittsburgh region is unlike the Bay Area in many, many ways, and this is one of them. If Pittsburgh goes completely in the financial tank, it seems likely to me that much of the region is so intertwined with the City economically that many of those suburbs will go with it.

Commuter tax, anyone?