Mayors and chief administrators in some big name, "fiscally challenged" communities need to parse their words more carefully when they make public assertions about their financial problems. I'm hearing some loose talk about "bankruptcy" and "insolvency" in various parts of the country. Sometimes these words are used by politicians while the city's financial officers are telling bond ratings agencies that everything is under control. That's asking for trouble.

Often, these words are used by local leaders who are trying to get the point across to the public, the media and their employees' unions in simplistic household terms that the city's fiscal outlook is bleak. Everybody knows that bankruptcy is bad -- that you're out of money -- so that's the easiest term to use to connect with the public. Say the word "insolvency" and eyes begin to glaze over.

Last week, the chief administrator of one of America's largest cities, Los Angeles, made headlines by predicting dire consequences if taxes are not raised and labor unions don't cooperate in helping to balance the books by backing off of scheduled salary increases. He may not have used the B-word himself, but the newspaper did.

In municipalities that are actually on the route to federal bankruptcy court, the B-word is totally appropriate. Nobody should kid themselves about the problems of a city or county that has no choice but to seek a federal court reorganization of its financial affairs. In some cases, the only way to compel changes in union contracts and unsustainable retirement plans is for the receiver to order reforms that employees and retirees will not accept voluntarily. The receiver for Central Falls, R.I., has made that exact point in public remarks. This becomes a central issue in states where retirement benefits enjoy ostensible constitutional vesting protections or the law is unsettled. In the states where bond laws are conducive, the bankruptcy path may also be necessary to fix a fiscal problem from a financial blunder like a sports stadium, an incinerator, a sewerage system or some other public facility that failed to live up to inflated dreams. In these cases, we never see the financial officer of the distressed bond issuer telling Moody's, Fitch, and Standard and Poor's that the bonds are going to be hunky-dory.

Where I see exposure to municipal officials is the scenario in which public officials plead poverty in public at the same time that their financial team is trying to maintain high investment-grade bond ratings. That's where their doublespeak creates a tangled web.

Bond ratings analysts are not fools. They read the newspapers, so we should expect them to push back at rose-colored presentations made by the financial teams who are trying to show their community in the best possible light. Let's not worry too much about any wool being pulled over their eyes. But there is a good chance that those ratings agency presentations will be subpoenaed back home in legal proceedings, often by unions seeking to prove that fiscal conditions really aren't bad enough to warrant modifications of labor contracts or pensions promises.

This doesn't mean that a city with a high bond rating can't argue for substantial reforms of its pension plan on the grounds that it's unsustainable. The city of San Jose, Calif., is going through that very debate right now. Its mayor has made a strong case that continuation of the current retirement benefits system will ultimately destroy the city's financial capacity to provide essential services, even though it presently enjoys a good bond rating. Security of existing bonds, especially general obligation debt secured by taxes, does not mean that a public employer has unlimited capacity to pay pension and retiree medical benefits at any level, at any cost.

But my point here is that the chief executives, their public relations teams, their lawyers and their finance officers need to coordinate their communications to these various audiences more carefully. At the very least, they would be smart to include a disclaimer-style slide in their ratings presentations that acknowledges the challenges they face and the mitigation strategies they are pursuing.

The media is sometimes at fault, and has a responsibility here also. Some reporters use terms like "specter of bankruptcy" to get headlines and put words into the mouths of public officials. In most cases, however, they quote their sources accurately. So be careful when you use the term "bankruptcy" and "insolvency" unless you really mean it. It may come back to haunt you.