Three California Cities File For Bankruptcy In Less Than Two Weeks

Stockton, Mammoth Lakes, now San Bernardino.

Three California cities that have filed for bankruptcy in less than two weeks.

Is the prediction by Meredith Whitney, aka the “Diva of Doom,” about a wave of municipal defaults finally coming to fruition?

From NBC Los Angeles on the MSNBC website this morning:

San Bernardino became the third California city in less than two weeks to file municipal bankruptcy protection Tuesday night when the city council voted to make the move in the face of a $45-million budget shortfall…

Officials in Stockton said their June decision to seek federal bankruptcy protection was the “only choice” for the city that was unable to reach finance agreements with creditors to address a $26 million budget shortfall…

On July 4, Mammoth Lakes sought bankruptcy protection from a $43 million court judgment, according to Bloomberg News.

NBC Los Angeles staff pointed out:

In the six decades since Congress created bankruptcy protection for cities, fewer than 500 municipal bankruptcy petitions have been filed, according to the United States Courts website.

As much as I hate to say it, it’s my belief there will be a lot more local governments filing for bankruptcy before this ongoing economic mess is all sorted out. And Whitney will eventually be vindicated about the wave of defaults (her timing was just off). I come across stories about distressed municipalities on a daily basis out in cyberspace. The city that’s grabbing the headlines the last couple of days is Scranton, Pennsylvania. From Perry Chiaramonte on the FOX News website Monday:

Employees of a Pennsylvania city, who have all seen their salaries cut to minimum wage as the mayor grapples with budget problems, are hoping a judge restores their paychecks in full.

Scranton Mayor Chris Doherty cut everyone’s pay — including his own — on Friday, saying the state’s sixth-largest city is broke because the City Council blocked his proposed tax increase. Doherty, a Democrat, warned nearly 400 police officers, firefighters and public works employees about his doomsday plan, prompting a Lackawanna County judge to order the city to pay full wages to all employees, citing that it is a violation of their contracts. Hours later, the payday envelopes went out, and, despite the judge’s order, they were light…

The city of Scranton has battled budget woes for years, but the problems reached a boiling point after the City Council blocked Doherty’s plan to raise taxes to cover a $16.8 million shortfall, opting instead to borrow money to cover the budget gap.

More to come (I’m sure)…

Sources:

“San Bernardino becomes 3rd Calif. city in 2 weeks to file for bankruptcy protection.” MSNBC. 11 July 2012. (http://usnews.msnbc.msn.com/_news/2012/07/11/12675262-san-bernardino-becomes-3rd-calif-city-in-2-weeks-to-file-for-bankruptcy-protection?lite). 11 July 2012.

Chiaramonte, Perry. “Pennsylvania city workers to take mayor to court over across-the-board minimum wage salaries.” FOX News. 9 July 2012. (http://www.foxnews.com/politics/2012/07/09/political-statemate-leads-to-city-workers-salaries-cut-down-to-minimum-wage-in/). 11 July 2012.

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Wednesday, July 11th, 2012 Bankruptcy, Defaults, Deficits, Government

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