Earlier this year, the city of Stockton, California, defaulted on its
debt and filed for bankruptcy. For analysts at ratings agency Moody’s,
it marked a growing trend in local governments. Cities, which have
historically been nearly flawless on their obligations, are opting to
default on their debt because of
financial
troubles.
In a report issued Wednesday, Moody’s rated the debt of 30 cities,
towns, villages, counties, and school districts as “speculative grade,”
up from 25 last year. A speculative-grade rating for a local government
means, at best, its debt is risky and, at worst, it could end in
default. 24/7 Wall St. looked at 13 of the riskiest local governments
that may be on the verge of bankruptcy.
In an interview with 24/7 Wall St., Moody’s Managing Director and Chief Credit Officer of U.S. Public Finances, Anne
Van
Praagh, explained that the number of cities, counties and towns that
default on some or all of their debt is growing. She attributes this to
“a significant amount of credit pressure, sluggish economic recovery,
and cities not being able to grow out of their problems this time
around.” She added that many cities see defaulting as the only way to
avoid total economic disaster.
Perhaps the best example of this is Stockton. Even in bankruptcy, the
city opted not to pay off its debt. The city was one of the most
seriously affected by the housing crash. Stockton
bonds are currently rated Caa3 by Moody’s, tied with Jefferson County, Alabama for the worst rating issued to a local government.
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