State’s cities are on fiscal edge, firm says

So far this year, three California cities have filed for bankruptcy protection, and it’s likely they will be joined by at least a few others in the not-too-distant future.

That’s not merely journalistic speculation. Moody’s Investment Service, which closely monitors state and local governments for the huge municipal bond industry, issued an unusual public warning the other day that other California cities may be headed down the same path.

“To summarize,” Moody’s said, “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.”

Moody’s named a number of cities whose fiscal health it will review and implied that some sort of blanket downgrading of local municipal bond issues may result — a step that could slam the brakes on governmental borrowing.

Moreover, the distress is not confined to cities, since dozens of school districts are already on state fiscal watch lists and one, Inglewood Unified, was just placed under direct state supervision as a condition of an emergency loan to stave off insolvency.

Each city or school district in bankruptcy or flirting with insolvency is a different case, of course. The city of Mammoth Lakes, for instance, filed for bankruptcy after losing a huge lawsuit over a development project.

But Mammoth Lakes aside, there are also common factors, including a sluggish economy, the state’s seizure of redevelopment funds on which many cities had become irresponsibly dependent, overly ambitious spending (and borrowing) for civic improvements, and unsustainable pay and benefit packages for employees.

Underlying those errors of judgment was a tendency of elected city councils and school boards to make expedient decisions without fully weighing the long-term consequences, while either paying too much attention to what hired administrators were telling them, or too little.

A case in point is Atwater, a small San Joaquin Valley city near Merced that has taken the first step toward bankruptcy by declaring a fiscal emergency. A detailed history of Atwater’s problems in the Merced Sun-Star reveals that City Council members ignored warnings that the city’s water and sanitation systems were deeply in the red, refused to make necessary rate adjustments and constantly shuffled city managers.

Sadly, a refusal to weigh long-term consequences and act responsibly when those consequences surface is not confined to California’s cities and school districts. It infects the state capital as well, which is why state budgets have run up multibillion-dollar deficits and political leaders are now desperately seeking voter approval of new taxes and threatening fiscal Armageddon if they are rejected.

Dan Walters covers state politics for the Sacramento Bee.

Dan WaltersOp EdsOpinion

Just Posted

Niners quarterback Jimmy Garoppolo led a late-game comeback against the Packers, but San Francisco lost, 30-28, on a late field goal. (Courtesy of San Francisco 49ers)
The Packers beat the Niners in a heartbreaker: Don’t panic

San Francisco is no better and no worse than you thought they were.

For years, Facebook employees have identified serious harms and proposed potential fixes. CEO Mark Zuckerberg and COO Sheryl Sandberg have rejected the remedies, causing whisteblowers to multiple. (Eric Thayer/The New York Times)
Facebook’s Problems at the Top

Whistleblowers multiply, but Zuckerberg and Sandberg don’t heed their warnings

Dominion Voting Systems, a Denver-based vendor, is under contract to supply voting machines for elections in San Francisco. (Kevin N. Hume/Examiner file)
Is San Francisco’s elections director impeding voting machine progress?

Open source technology could break up existing monopoly

Health experts praised Salesforce for keeping its Dreamforce conference at Moscone Center outdoors and on a small scale. (Kevin N. Hume/The Examiner)
Happy birthday, Marc Benioff. Your company did the right thing

Salesforce kept Dreamforce small, which made all kinds of sense

Packers quarterback Aaron Rodgers proved to be too much for the Niners in a Week 3 loss to Green Bay. It was San Francisco’s home opener for the 2021 season. (Courtesy of the San Francisco 49ers.)
Week 3 NFL roundup: Packers victory over 49ers caps off a stellar Sunday

By Tyler Dunne New York Times Here’s the Week 3 roundup of… Continue reading

Most Read