By Michael Connor, Reuters
U.S. cities and other local governments stung by sour regional economies and deep housing crises are most at risk of becoming the next Stockton. But they will do all they can to avoid following the California city into federal bankruptcy court. Stockton, just 85 miles (135 km) east of San Francisco, is on the verge of bankruptcy after its housing boom went bust. Officials of this city of nearly 300,000 people say the court filing for Chapter 9 bankruptcy is likely by Friday afternoon. When that happens, Stockton will become the largest U.S. city to file for bankruptcy protection from its creditors.
That protection will come at a steep price. The economic and social fallout will last for years. After the Chapter 9 bankruptcy filing, Stockton will find it hard — if not impossible — to tap America’s US$3.7 trillion municipal bond market. Although Stockton is poised to make history as the largest U.S. city to file for bankruptcy, it is unlikely to be the last. Roughly 90,000 U.S. cities, counties, towns and other local governments are still battling fallout from America’s Great Recession, which ran from December 2007 through June 2009. Beyond Detroit and other high-profile governments mired in financial crises, institutional investors, traders and analysts worry that Providence and Woonsocket in Rhode Island and Scranton, Pennsylvania, may also be at risk. Moody’s Investors Service focused heavily on local governments in Michigan, Rhode Island, New York and New Jersey last fall when the credit rating agency published a list of speculative-grade credits, including Camden and Salem in New Jersey, and the Philadelphia School District. Moody’s cited high unemployment in New York’s Gloversville, and several years of budget deficits in East Greenbush, a suburb of New York’s capital of Albany. Boom, Bust and Maybe Bankruptcy Many of the Eastern and Midwestern governments listed by Moody’s have deteriorating local industries or other enduring economic problems.