Bond & Ratings Agencies Expect More Cities to Go Under

For the second time in as many business days, a major credit-rating agency said it expects more municipal bankruptcies and bond defaults - particularly in California, where cities have less flexibility to raise revenue or cut spending and face little intervention from the state.

On Monday, Fitch Ratings said in a report that it "anticipates an increase in defaults and bankruptcies, although it does not expect them to be widespread."

It said that recent bankruptcy filings by Stockton, San Bernardino and Mammoth Lakes "reflect perhaps the most difficult local government fiscal environment in the U.S.," adding that "fiscal crises are more likely in states that, like California, lack flexibility on both revenue raising and spending control."

In a similar report Friday, Moody's Investors service said it expects "more bankruptcy filings and bond defaults among California cities" and is considering "across the board adjustments of debt ratings for California cities to reflect the new fiscal realities and the governmental practices in addressing them."

Tom Dresslar, a spokesman for the California treasurer's office, said "recent developments merit concern," but the fact that three California cities out of 482 have declared bankruptcy this year "is not evidence of a looming stampede into bankruptcy court."
Causes for concern

In their reports, Moody's and Fitch cited reasons why they believe California cities will continue to face fiscal pressure: ...

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