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

If you find our journalism valuable and relevant, please consider joining our Examiner membership program.
Find out more at www.sfexaminer.com/join/

Just Posted

San Francisco Police Officer Nicholas Buckley, pictured here in 2014, is now working out of Bayview Station. <ins>(Department of Police Accountability records)</ins>
SF police return officer to patrol despite false testimony

A San Francisco police officer accused of fabricating a reason for arresting… Continue reading

Riordan Crusaders versus St. Ignatius Wildcats at JB Murphy Field on the St. Ignatius Prepatory High School Campus on September 14, 2019 in San Francisco, California. (Chris Victorio | Special to the S.F. Examiner)
State allows high school sports to resume, but fight is far from over

For the first time since mid-March 2020, there is hope for high… Continue reading

A nurse draws up a dose of the Moderna COVID-19 vaccine at the Mission neighborhood COVID-19 vaccine site on Monday, Feb. 1, 2021. (Kevin N. Hume/S.F. Examiner)
SF expands vaccine eligiblity, but appointments ‘limited’

San Francisco expanded eligibility for COVID-19 vaccinations Wednesday but appointments remain limited… Continue reading

The now-shuttered Cliff House restaurant overlooks Ocean Beach people at Ocean Beach on Tuesday, Feb. 23, 2021. (Sebastian Miño-Bucheli / Special to the S.F. Examiner)
History buffs working to keep Cliff House collection in public view

Funds needed to buy up historic building’s contents at auction

Perceived supply and demand in the Bay Area’s expensive rental market can play a big part in determining what people pay. (Shutterstock)
Bay Area rental market is rebounding — but why?

Hearing about people leaving town can have as big an effect as actual economic factors

Most Read