Dan Walters

By Dan Walters
dwalters@sacbee.com
Published: Monday, Oct. 22, 2012 – 12:00 am | Page 3A

So far this year, three California cities have filed for bankruptcy protection, and it’s likely they will be joined by at least a few others in the not-too-distant future.

That’s not merely journalistic speculation. Moody’s Investment Service, which closely monitors state and local governments for the huge municipal bond industry, issued an unusual public warning the other day that other California cities may be headed down the same path.

“To summarize,” Moody’s said, “we expect … more bankruptcy filings and bond defaults among California cities, reflecting the increased risk to bondholders as investors are asked to contribute to plans for closing budget gaps.”

Moody’s named a number of cities whose fiscal health it will review and implied that some sort of blanket downgrading of local municipal bond issues may result – a step that could slam the brakes on governmental borrowing.

Moreover, the distress is not confined to cities, since dozens of school districts are already on state fiscal watch lists and one, Inglewood Unified, was just placed under direct state supervision as a condition of an emergency loan to stave off insolvency.

Each city or school district in bankruptcy or flirting with insolvency is a different case, of course. The city of Mammoth Lakes, for instance, filed for bankruptcy after losing a huge lawsuit over a development project.

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