Moody's: More Calif. cities could go bankrupt
Stockton, Calif., in July became the largest American city ever to declare bankruptcy. / AP Photo/Ben Margot
(CBS/AP) SACRAMENTO, Calif. - One of the top U.S. credit rating agencies said Friday it will begin a wide-ranging review of municipal finances in California because of what it sees is a growing threat of increased city bankruptcies and bond defaults.
Moody's Investors Service issued a report saying that the growing fiscal distress in many cities in America's most populous state was putting bondholders at risk.
It noted that some municipalities were considering bankruptcy as a new strategy to address budget deficits and avoid obligations to bondholders, an emerging dynamic that could have ripple effects throughout the investment community.
Moody's said it expects "more bankruptcy filings and bond defaults among California cities, reflecting the increased risk to bondholders as investors are asked to contribute to plans for closing budget gaps. While raising the specter of such bankruptcies, the firm also noted that "the vast majority of rated municipalities that are under distress in California and across the nation will not resort to bankruptcy."
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Three California cities -- Stockton, San Bernardino and Mammoth Lakes -- have filed for bankruptcy so far this year. Moody's said they are not likely to be the last.
"To summarize, we expect ... more bankruptcy filings and bond defaults among California cities reflecting the increased risk to bondholders as investors are asked to contribute to plans for closing budget gaps," the report said.
It noted that the municipal bond market has long been characterized by low default rates and relatively stable finances, an outlook that is beginning to change as bankruptcy becomes a tool for cash-strapped cities. That requires Moody's to reassess the financial position of all California cities "to reflect the new fiscal realities and the governmental practices."
The report also noted the potential for ratings downgrades to fiscally distressed cities, counties, school districts and special districts throughout the state.
Lower bond ratings will increase borrowing costs for those entities at a time when many of them are struggling financially because of a steep drop in tax revenue.
"In the current environment, as more municipalities approach the economic or political limit to raising taxes or adjusting spending, we expect an increase in defaults and bankruptcies over the next few years," the report said.
Because of that, Friday's report is raising alarm in many California cities where leaders fear that a crisis of confidence in the municipal bond market could hinder their ability to borrow for needed projects.
"Every city in the state is looking on with some concern," said Dave Vossbrink, spokesman for the city of San Jose. "Governments of all kinds borrow money, usually to build infrastructure that lasts a long time. It's like getting a mortgage to build roads, a sewage plant, whatever it might be. If the investment community perceives greater risk, you may not be able to borrow as much for public purposes."
San Jose has shuttered libraries and laid off police officers to cut costs, and residents voted overwhelmingly this summer to cut the pension benefits they give city workers. But while the city is taking steps to reassure investors of its fiscal health, there is frustratingly little it can do to control larger fears about the municipal bond market, Vossbrink said.
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Three California cities -- Stockton, San Bernardino and Mammoth Lakes -- have filed for bankruptcy so far this year. Moody's said they are not likely to be the last. They are all run by Democrats.
America's top ten poorest cities
What do they all have in common? All ten have either never elected a Republican or have not elected one in at least 20 years.
1) Detroit, MI (1st on the poverty rate list) hasn't elected a Republican mayor since 1961;
2) Buffalo, NY (2nd) hasn't elected one since 1954;
3) Cincinnati, OH (3rd)... .......................since 1984;
4) Cleveland, OH (4th)... .......................since 1989;
5) Miami, FL (5th) has never had a Republican Mayor;
6) St. Louis, MO (6th).... ........................since 1949;
7) El Paso, TX (7th) has never had a Republican Mayor;
8) Milwaukee, WI (8th)... ........................since 1908;
9) Philadelphia, PA (9th).........................since 1952;
10) Newark, NJ (10th)... ..........................since 1907.
This is the list of Nine American Cities Going Broke all run by Democrats
9. Camden, NJ
8. Strafford County, NH
7. Riverdale, IL
6. Salem, NJ
5. Detroit, MI
4. Harrison, NJ
3. Jefferson County, AL
2. Pontiac, MI
1. Central Falls, RI
Wake up America
I can't wait till the pacs and the Repubs start running ads like this...America---WHICH OBAMA ARE YOU VOTING FOR....and then show IN HIS OWN words how he has changed his position depending on the political winds...John Kerry wind surfing come to mind. Obama is so toast....the Chick-fil-A turnout shows that Americans are tired of PC, tired of lies, and tired of Christians being pillaried for their moral beliefs...those that by word and deed Obama has shown that he cares nothing about..just the little fringe groups that he hopes to cobble together...bye, bye Obama, America will speak this election in massive volumes that even you can understand.
So, how's all those 'green' laws and support those that don't help workin' for ya!