California Muni Bankruptcies, A Spreading ‘Disease’

“In California, we have a disease, and the disease is spreading,” spoken by David Kotok, the chief investment officer with Cumberland Advisors at the State & Municipal Finance Conference which was hosted by Bloomberg Link in New York.

Kotok is referring to municipal bankruptcies in California.  Three cities have filed and a fourth city, Atwater, is preparing a vote on whether or not to declare a fiscal emergency.  That would allow bankruptcy to follow.  They would join other California cities such as Stockton, San Bernardino and Mammoth Lakes who have already filed for bankruptcy.

In August, Moody’s Investor Service indicated that cities in California may be looking at “across-the-board rating revisions”.

According to David Crane who is a public policy speaker with Stanford University and a prior special advisor to Governor Arnold Schwarzenegger, these bankruptcies are “largely a self-inflicted wound… Nobody forced legislators and council members to make promises — unfunded promises amounting to hundreds of billions of dollars — to their benefit, to their political benefit.”

Businessweek.com