Moody’s warns of mass Calif. municipal bankruptcies

Aug. 18, 2012

By Chriss Street

The klaxon horn went off Friday evening for California municipal bondholders when Moody’s Investors Services issued a report stating that the plummeting financial condition of many California counties, cities, school districts and other government agencies will soon result in a large numbers of municipal bankruptcy filings.  Concerned about their own potential liability for providing high ratings that encouraged conservative elderly Americans to invest in risky bonds, Moody’s announced they will undertake a wide-ranging review of municipal finances because of the growing insolvencies.

The Moody’s report comes just two days after we reported, “California sales tax revenue nosedives 33.5%.”  Stock brokers have often recommended California municipal bonds as very safe investments, due to historically low default rates and relatively stable finances.  But Moody’s said that outlook is changing after the Chapter 9 Bankruptcy filings of Stockton, San Bernardino and Mammoth Lakes.

Moody’s is especially concerned with the growing attitude among many cash-strapped cities that filing bankruptcy to avoid paying bondholders is politically more advantageous than cutting spending.  As a result, Moody’s will reassess the financial condition of all California cities, which issue about 20 percent of the municipal bond volume nationwide, “to reflect the new fiscal realities and the governmental practices.”

Other states

The Moody’s report said the credit rating service will also examine the outlook for municipal bonds in other troubled states.  Robert Kurtter, managing director of public finance at Moody’s, would not say which states they will review, though Kurtter mentioned Michigan and Nevada as possibilities.

Tonight’s report noted that many cities across the nation are in financial distress, but emphasized that a greater share of bankruptcies are expected to come from California.  Local officials were quick to try to downplay this grim forecast.  Chris McKenzie, executive director of the League of California Cities, responded: “Moody’s has an obligation to review changing circumstances, but we would just suggest that their assessment of the framework and ground activities is perhaps exaggerated.”

Tom Dressler, spokesman for California State Treasurer Bill Lockyer, cautioned against overacting to only three bankruptcies from California’s 482 cities: “No city’s going to blithely skip into bankruptcy court to avoid its obligations.” He called the report “a little hyperbolic.”

California cities in crisis

Moody’s detailed that more than 10 percent of California cities have already declared fiscal crises, with the most troubled areas lying inland in the middle of the state and east of the Los Angeles area.  Mr. Kurtter said the declarations of emergency were “a reflection of the broader fiscal stress in the state” and went on to warn that Moody’s may find that, for all California cities, “across-the-board rating revisions are possible following a review of our ratings on California cities over the next month or two.” Chris McKenzie acknowledged that such a move “would have a terrible impact on taxpayers.”

Moody’s highlighted growing doubts that cash-strapped cities are willing making good-faith efforts to pay their bond debts in full.  Former U.S. Treasury official Paul Rosenstiel, a principal at the DeLaRosa & Co municipal bond investment-banking firm in San Francisco said, “Credit analysis is based on the ability to pay and the willingness to pay.  Investors have historically assumed that cities are willing to pay their debts because they want continued access to the bond market.… What is being considered is whether the willingness to pay is something that needs to be factored in more than in the past — and if so, how would you measure it?”

California cities already pay higher interest rates to borrow money from municipal bond investors because the state has the second lowest bond rating in the nation; only Louisiana is lower.  But if any city’s credit rating is cut to the “junk bond” level, rates would rise so high that the city would be forced to file bankruptcy.  Most cities already are financially deteriorating because of a steep drop in tax revenue.

The Moody’s report is raising alarms for city leaders who fear it may trigger a market panic.  “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.”  Mr. Vossbrink emphasized that San Jose has cut laid off cops and closed libraries.  Residents also recently voted to cut public pension benefits for city workers, but those cuts may not be enough prevent a downgrade.

Moody’s said it will conduct in-depth financial stress tests for all California cities in the coming weeks and issue appropriate downgrades in September.  The timing of the Moody’s downgrades may be especially devastating for the California state budget.  Gov. Jerry Brown kicked off his drive this week to save the state’s solvency by encouraging voters to pass an $8 billion tax increase initiative on the November ballot.  But bad press and rising bankruptcies are sure to undermine voter support.

Chriss Street and Paul Preston Co-Host
“The American Exceptionalism Radio Talk Show”
Streaming Live Monday Through Friday at 7-10 PM
Click Here to Listen: 
http://www.mysytv.net/kmyclive.html

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  1. Bob
    Bob 18 August, 2012, 09:14

    Whenever the crooks on Wall St or the corrupt politicians have some very bad news they always break it on a Friday, often one preceding a holiday weekend. So this must really be bad.

    Reply this comment
  2. us citizen
    us citizen 18 August, 2012, 10:50

    Its always bad in CA. The dems have run this state into the ground with their over spending, and their hand outs to the illegals.

    Reply this comment
  3. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 August, 2012, 11:31

    Most cities already are financially deteriorating because of a steep drop in tax revenue.

    Who wants to pay a 10%-12% SALES tax, which is going to fund multi million dollar public employee pensions???? No one, not when Amazon and ebay will charge 0% sales tax ship for free.

    Stick the fork in Clown and his Toadies, they’re done, as is this state, they have run it into the ground by fraud, cronyism and mismanagement.

    Reply this comment
  4. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 August, 2012, 11:34

    The dems have run this state into the ground with their over spending, and their hand outs to the illegals.

    Only the dems??? Who voted for SB400 the cause of this spending meltdown?? Here, let me help you, SB400 sailed through the Senate on a 39-to-0 vote and passed the Assembly 70-to-7. That looks like the Repub and Dems working together to throw every man woman and child in this state under the bus.

    Reply this comment
  5. Mike J
    Mike J 18 August, 2012, 12:48

    Hi Rex,
    I heard Amazon will start charging California residents sales tax soon. Is that true?

    Reply this comment
  6. DeeDee the Wonder Bird
    DeeDee the Wonder Bird 18 August, 2012, 13:34

    This isn’t a bipartisan problem any more.. Governor Brown allowed the state pension plans to pay full wages for the LIFETIME of retiring employees.. NO private sector business would even THINK of doing this.. Now look where we are.. the cities and state cannot sustain this, and bankruptcy is the only way out. Incidentally.. the same governor now wants to increase taxes to continue to pay for it.

    Reply this comment
  7. Queeg
    Queeg 18 August, 2012, 15:54

    Do you ever have a good day?

    Reply this comment
  8. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 August, 2012, 16:04

    Teddy, if I could meet you in person for 10 seconds I would b**ch slap you- and your sock puppets- into next week 🙂

    HTH!

    Reply this comment
  9. Queeg
    Queeg 18 August, 2012, 16:15

    Poodle the heat…it’s the heat…your cracking….been showing signs of bizarro for about two weeks….

    Never ever promised you violence….you need an official CWD time out like Bezee….remember him?

    Reply this comment
  10. The Rt Rev Ted Steele
    The Rt Rev Ted Steele 18 August, 2012, 16:31

    i just think it’s funny to see that the clown thinks all his enemies are me ! i like it !!!!

    Reply this comment
  11. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 August, 2012, 16:36

    I agree with this guy 100%;

    August 18, 2012 The Election Is Irrelevant by Jim Rogers (a pure capitalist).
    As far as I’m concerned, the election is irrelevant. One happens to be from Boston and one from Chicago, and whoever wins, their friends are going to do well, but other than that America is not going to do well. There’s very little difference in any of these guys. None of them understands the problem. These are the guys that got us into trouble. You expect them to get us out?

    Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times and is a regular guest on Bloomberg and CNBC. After attending Yale and Oxford University, Jim Rogers co-founded the Quantum Fund, a global-investment partnership. During the next 10 years, the portfolio gained 4200%, while the S&P 500 rose less than 50%. Rogers then decided to retire – at age 37.

    BAM!!!!!!!!!!!!!!!!!!!!! This guy knows his sh**!

    Reply this comment
  12. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 August, 2012, 16:38

    Never ever promised you violence….you need an official CWD time out like Bezee….remember him?

    Teddy, If I fake b**ch slap your fakesock puppet is that really “violence” 🙂

    BOOM!!!!!!!!!!!!!!

    Reply this comment
  13. The Rt Rev Ted Steele
    The Rt Rev Ted Steele 18 August, 2012, 16:42

    Poodle— you want to slap me?

    mmmmmmmmm

    spooky……

    Reply this comment
  14. The Rt Rev Ted Steele
    The Rt Rev Ted Steele 18 August, 2012, 16:47

    rex the wonder poodle

    i am not so sure that you ought to be promoting violence out here man– seems like a bad idea… I would think that the folks who run this blog might take some action against you…..what do YOU think ??

    Reply this comment
  15. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 August, 2012, 17:02

    Steals, I am not so sure you want to be promoting violence on sock puppets out here, just seems like a bad idea…..I would think the folks who run this blog might block you and the sock puppets, or take some action against you what do YOU (as in YOU and your SOCK PUPPETS) think??

    BAM!!!!!!!!!!!!!!!!!!!!!!!!!!!! 😉
    The sky is falling!!!!!!!!!!!!! 🙂

    Spooky indeed.

    Reply this comment
  16. Wayne Lusvardi
    Wayne Lusvardi 18 August, 2012, 19:01

    Thank you for this report Chriss Street

    The “Unknown Unknowns” have now shifted to “Known Unknowns”

    Reply this comment
  17. Ridem' low
    Ridem' low 18 August, 2012, 21:39

    Drinks are on the house till the house burns….

    Reply this comment
  18. Rex the Wonder Dog!
    Rex the Wonder Dog! 18 August, 2012, 23:19

    This is the END, with no credit the state and it’s subdivisions HAVE to play ball, which means no more cronyism deals.

    Reply this comment
  19. wendy davis
    wendy davis 19 August, 2012, 02:31

    The pension plans seem to be the #1 complaint, and the 2nd is the democrats who provide food, shelter, healthcare and education to people who are here illegally. Investments is what the pension funds were counting on to grow in amount. The 2008 crash and the market which has run amok has ended any chance of that happening. Even 401Ks took tremendous hits, many of which were categorized as low risk, balanced with the necessary funds to not lose significant value.

    Politicians are saying anything it takes to get elected. Being elected gets them and their friends into a place in this life that provides open doors to vast riches. They are making promises they cannot keep yet they are keeping them via a shell game.

    When it was an employee’s market, when jobs were plentiful, to get the brightest and best, offers were made that included generous benefit packages. Pension plan, some of which is deducted from paychecks regularly, was one of those benefits. It’s a contract. Or is it a bait and switch?

    Calif is nickle and diming the middle class and there is no money left to spend on Main Street. The deal to never tax the rich seems ludicrous at this junction. No one else has a dime. All that cash just sitting there while people commit hari kari after then unemployment benefits run out. Banks not lending to anyone at all, after bailouts were turned into bonuses so generous and salary hikes so obscene in light of the collapsing economy, that one could just decide to stop caring at all.

    There is evil afoot alright and it has nothing to do with the farmworkers and their kids, the pensioners or the unions (who gave us a 5 day week, got kids out of factories, insisted on compensation for ruining ones health and standards. That it impacts profit is nonsense because it should never hav been profit. Profit driven is what the nation has become. The loss of comraderie and diversion from the mundane to the ridiculous has become the tune on these boards. Provocateurs are left to ruin threads by the moderators, enticing emotional subjects and making personal attacks and ultimately ending the conversation.

    It’s a sad time in history.

    Reply this comment
  20. Tax Target
    Tax Target 19 August, 2012, 04:47

    Its about damn time Kalifornsky’s credit cards were taken away!

    Reply this comment
  21. Tax Target
    Tax Target 19 August, 2012, 04:48

    Maybe we should Moonbeam one of those credit counselor 800 numbers….

    Reply this comment
  22. Queeg
    Queeg 19 August, 2012, 07:44

    Teddy…the Poodle got tiny brown stained, spikee, little teeth….get a tetnus shot and some West Nile biotics!

    Reply this comment
  23. CalWatchdog
    CalWatchdog Author 19 August, 2012, 08:19

    Mike J: Yes, on Sept. 15 Amazon starts charging sales tax on California residents.

    http://www.news10.net/news/article/205430/2/Californians-must-soon-pay-sales-taxes-on-Internet-purchases?odyssey=tab%7Ctopnews%7Cbc%7Clarge

    — John Seiler

    Reply this comment
  24. The Rt Rev Ted Steele
    The Rt Rev Ted Steele 19 August, 2012, 08:25

    it’s true Queeg—- and now the poodle is threatening to assault me……I think Wendt Davis is correct…….

    Ironic? Even though the economy says no— repubs through hatred will re elect the President. Strange times indeed.

    Reply this comment
  25. Queeg
    Queeg 19 August, 2012, 09:49

    Teddy…maybe some compassion…..if you had to live in a tin box in the toxic mining town Randsburg at temps of 108 degrees and have to blog in your boxers and Kmart flip flops…..tough…and the ice truck ain’t hit town in ten days……ugly!

    Reply this comment
  26. the Rt Rev Ted Steele
    the Rt Rev Ted Steele 19 August, 2012, 10:18

    compassion– yes— it is wise.

    Reply this comment
  27. Rex the Wonder Dog!
    Rex the Wonder Dog! 19 August, 2012, 12:08

    When it was an employee’s market, when jobs were plentiful, to get the brightest and best, offers were made that included generous benefit packages
    Wow, what a load.

    #1- there has not been an “employee’s market” in over 25 years in CA. Since 2000, when the boom was rolling, private sector wages and comp was/is/will be FLAT as a pancake and still is, even declining. So claiming there was some great “employees market” in the private sector for jobs is pure BS.

    #2- Gov has never, EVER, hired the “bets or brightest”. Gov jobs, including virtually ALL the high paying gov jobs, are filled through cronyism and nepotism. They do not hire based on objective criteria, and they do that for a reason, so they can connect in their family and friends. How else does a guy like LAPD Police Chief Charlie Beck get 5 family (count’em- 5) members working in sworn positions at LAPD???? When the hire rate is 1 out of every 300 applicants???? Do the math and odds of that. They are millions to one.

    Reply this comment
  28. Rex the Wonder Dog!
    Rex the Wonder Dog! 19 August, 2012, 12:10

    it’s true Queeg—- and now the poodle is threatening to assault me……

    No I am not threatening to “assualt” you Teddy, I AM GOING TO KILL All “YOUR SOCK PUPPETS”!!!!

    Is it even legally possible to kill a gimmick account???????? We need a legal opinion here 😉

    Reply this comment
  29. Rex the Wonder Dog!
    Rex the Wonder Dog! 19 August, 2012, 12:13

    There is evil afoot alright and it has nothing to do with the farmworkers and their kids, the pensioners or the unions (who gave us a 5 day week, got kids out of factories, insisted on compensation for ruining ones health and standards
    Once again Wendy is blowing smoke.

    Public unions NEVER gave us “a 5 day week, got kids out of factories, insisted on compensation for ruining ones health and standards”. The only thing public unuons have given us is a $200K+ GED edcuated gov employee, paid for on the backs of the poor and middle class.

    FAIL Wendy!

    Reply this comment
  30. Queeg
    Queeg 19 August, 2012, 14:08

    On a roll in Randsburg. Poodle at it hard…

    Winds then dust comes up in the late afternoon.

    Better get to the general store for your Wonder bread and baloney value pack.

    Reply this comment
  31. Rex the Wonder Dog!
    Rex the Wonder Dog! 19 August, 2012, 18:06

    Teddy, I am going to KILL off your sock puppet 🙂

    Reply this comment
  32. Rex the Wonder Dog!
    Rex the Wonder Dog! 20 August, 2012, 00:26

    Mike J: Yes, on Sept. 15 Amazon starts charging sales tax on California residents.

    No more Amazon shopping for me……Ebay all the way.

    Reply this comment
  33. Queeg
    Queeg 20 August, 2012, 07:45

    Poodle greed in Randsburg….who would have known!

    Reply this comment
  34. Edward Steele, Chief Investigator
    Edward Steele, Chief Investigator 20 August, 2012, 08:51

    Rex– the word “kill” is not useful rhetoric. That kind of rhetoric is exactly what this site is NOT about. Grow up.

    Reply this comment
  35. Queeg
    Queeg 20 August, 2012, 09:08

    Edward……he is capable of remorse…..but…..sleep with both eyes open!

    You can borrow my Portuguese Water Dogs for protection…..

    Reply this comment
  36. Rex the Wonder Dog!
    Rex the Wonder Dog! 20 August, 2012, 11:51

    Teddy-I have a contract out on your sock puppets 🙂

    Reply this comment
  37. Rex the Wonder Dog!
    Rex the Wonder Dog! 20 August, 2012, 11:52

    Portuguese Water Dogs are no match for a Rotti Teddy!

    Reply this comment

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