SACRAMENTO, California (AP) ― One of the nation’s top credit rating agencies announced Tuesday that it will review dozens of California cities for possible downgrades amid mounting concern over municipal bankruptcies and bond defaults.
Moody’s Investors Service will scrutinize the ratings of various types of bonds in 30 California cities. The agency also announced that it already had downgraded eight municipal pension obligation bonds.
“California cities operate under more rigid revenue raising constraints than cities in many other parts of the country,” Eric Hoffmann, who heads Moody’s California local government ratings team, said in a statement. “Combined with steeply rising costs, these constraints mean that these cities will likely recover more slowly than their peers nationally, even if the state’s economic recovery tracks the nation’s.”
Cities under review include Danville, Santa Monica, Sacramento and Fresno. Moody’s will examine an array of factors, including falling tax revenue and increased spending.
Any downgrades would increase borrowing costs for cities and could hinder their ability to borrow for infrastructure projects.
The announcement follows an August report in which Moody’s predicted more municipal bankruptcies and defaults in California, the nation’s largest issuer of municipal bonds. Moody’s warned that some cities are turning to bankruptcy as a new strategy to tackle budget deficits and abandon obligations to bondholders.
Three California cities ― Stockton, San Bernardino and Mammoth Lakes ― filed for bankruptcy over the summer, although Mammoth’s filing was the result of losing a lawsuit.
Last week, the agricultural city of Atwater declared a fiscal emergency and became the latest embattled community to consider bankruptcy.
Moody’s, which rates 95 California cities, said it also will review San Francisco and Los Angeles for upgrades.
