In the last few months numerous California cities have filed for bankruptcy. As one of the states suffering the most with foreclosure and debt troubles, many municipalities have not been able to meet their financial obligations. This week, one of the nation’s top credit rating agencies, Moody’s, reported that more California municipal bankruptcies are expected in the coming months.
Bailing Out Or Buckling In?
There is some controversy as to whether all of the municipal bankruptcies are helping local economies or simply running from their problems. As one of the nations’ largest issuers of municipal bonds California cities debt troubles are putting bondholders at risk, a threat that could easily spiral into larger economic problems. Using bankruptcy as a strategy to avoid obligations to bondholders is likely to shake the investment community, resulting in further problems with debt and an unstable lending environment.
Moody’s reports that it will continue to assess the financial position of all California cities, as well as a few other high-risk states. Although the tone set by the Moody’s report is quite ominous, the California state treasurer’s office holds the opinion that three bankruptcies among some 482 cities is nothing to be alarmed over. In fact, treasurer spokesman Tom Dresslar said, “No city’s going to blithely skip into bankruptcy court to avoid its obligations,” and called the report “a little hyperbolic.”