CALIFORNIA BUSINESS MINUTE
Going Broke?
10-11-11
Hi, I am Tim Johnson and welcome to the California Business Minute.
Local governments have faced severe difficulties since the beginning of the
recession. Many cut services to balance budgets. However, some are in dire
straits. While municipal bankruptcy filings are rare, the concept is more
frequently being considered as local governments face a diversity of expenses
and falling tax revenues.
Nine cities and counties have been identified whose credit rating is Ba2 or
lower. These local governments have problems such as shrinking tax bases,
excessive liabilities and bad investments. The website 24/7 Wall Street has
identified nine local governments with the worst credit ratings in the nation
as assigned by Moody’s.
LOW CREDIT RATINGS
Central Falls, RI Caa1
Pontiac, MI Caa1
Jefferson County, AL Caa1
Harrison, NJ Ba3
Detroit, MI Ba3
Salem, NJ Ba3
Riverdale, IL Ba2
Strafford County, NH Ba2
Camden, NJ Ba2
All of these local governments have openly discussed filing and hired experts to
advise them. However, Central Falls, Rhode Island filed for Chapter 9 bankruptcy
earlier this year after it was unable to negotiate concessions from its workforce. However
Jefferson County, Alabama the largest county in the state averted filing because it received
concessions from bond holders. Also two local governments not on this list, Harrisburg,
Pennsylvania wants to file, but cannot due to state law and Boise County, Idaho filed, but
they have failed to meet requirements.
Meanwhile, Vallejo emerged from bankruptcy this summer after three years since it
filed. In a Wall Street Journal article (Sept. 16, 2011), Robert Stent, finance
director for the City of Vallejo said, that the city’s 2008 bankruptcy was the
result of inconsistent management, minimum staffing requirements and extraordinary
generous benefits for public employees. California Governor Jerry Brown has
signed legislation that will require all California municipalities to submit to
a neutral review of their finances or demonstrate a fiscal emergency before
seeking Chapter 9 bankruptcy.
I am Tim Johnson and this has been the California Business Minute.
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