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US Cities Bond Rated Lower Than Greece

From CNN’s Money.Com:

America’s 7 junkiest cities

By Hibah Yousuf, staff reporter

June 1, 2010

NEW YORK (CNNMoney.com) — Think Greece and Spain are drowning in debt? Look a little closer to home. Seven U.S. cities recently had their municipal bonds downgraded below investment grade. Their debt is now, junk, considered more worthless than that of the so-called PIIGS [the economies of Portugal, Italy, Ireland, Greece and Spain].

"America’s short-term budget crises, long-term growth perspectives and needs for austerity are similar [to Greece]," said Matt Fabian, managing director at Concord, Mass.-based consulting firm Municipal Market Advisors.

Last quarter, Moody’s Investor Services declared the debt issued by Harrisburg, Penn., and Woonsocket, R.I., to be junk, or below-investment grade. Meanwhile, Fitch Ratings currently has four other cities in the basement — Detroit and Pontiac, Mich.; Harvey, Ill.; and Littlefield, Texas — while Standard and Poor’s has one — Central Falls, R.I.

For the record, according to the 2000 US Census the population of Littlefield is 45.8 % Hispanic/Latino. Central Falls, whose high school has been much in the news lately, has a 48% Hispanic/Latino population.

These seven cities are struggling under the weight of the recession. Residents are unemployed, and without a job, they can’t pay their property taxes, which are the foundation of local budgets. And cities’ operating expenses continue to soar; pension and debt payments don’t go away. And as their credit gets worse, the cost of borrowing for municipal projects — such as sewer plants and roads — just gets more expensive…

Things are particularly tough for Central Falls, R.I., a town of about 19,000 people near Pawtucket. Moody’s just slashed its rating to C — the lowest possibility before default — after the city was put under receivership last week. It now has a court-appointed lawyer managing its finances and future.

Central Falls cannot afford its pension fund and is facing deficits that could "be above 20% of budget in the current fiscal 2010 and fiscal 2011 due to state aid cuts and increases to pension costs," according to S&P.

Four hundred miles southwest, things aren’t much better. Moody’s knocked the rating on Harrisburg, Penn.’s general-obligation bonds three notches to B2 — five steps below investment grade. To put that into perspective: Moody’s rating on Greece’s government debt sits at A3 — still investment grade. And while S&P has slashed Greece’s debt to the junk class last month, its rating is only one notch below investment. Fitch’s rating on the troubled nation’s debt still holds just above speculative grade.

The financial state of Pennsylvania’s capital is so fragile that city controller Dan Miller has been urging bankruptcy. That is a measure so rare and complex that only 245 municipalities out of over 80,000 have filed for Chapter 9 since 1937. Plus, to qualify, cities have to meet several strict requirements, including gaining an endorsement from the state proving insolvency to the court.

Still, the scenario is beginning to look more and more appealing as the city is insolvent and on the line for a nearly $300 million incinerator.

Is a “$300 million incinerator” a poetic term for another union contract?

The city issued bonds for the trash plant on behalf of the Harrisburg Authority, a municipal agency. But last month the authority, which is carrying an estimated $282 million in outstanding debt, announced it would not make a $425,000 payment to bondholders in early May…

While most cities will make it through the slump without turning to bankruptcy, some will find it unavoidable…

A bankruptcy typically gives cities leverage to talk down unsecured creditors, such as vendors that supply materials for road construction or other city operations. It also provides some room to maneuver in contractual labor commitments, which are the most costly to budgets, allowing cities to hit the reset button with unions representing government employees by bargaining pay rates. That’s what the city of Vallejo, Calif., did when it went bust in May 2008

Of course the unions will fight bankruptcy to the taxpayers’ dying breath.

After all, a contract is a contract.

This article was posted by Steve on Tuesday, June 1st, 2010. Comments are currently closed.

3 Responses to “US Cities Bond Rated Lower Than Greece”

  1. Liberals Demise says:

    No surprise here.
    Especially with the Latino (illegals) stats thrown in.

    Urban renewal in reverse at high speed.

  2. proreason says:

    Some financial commentators are predicting a crash in Municipal Bonds.

    I’ve been approached recently about buying some and when I looked into them, they were junk.

    Buyer beware. Just because Municipal Bonds have been the next safest investment to Treasuries for a hundred years, at least, doesn’t mean that a dedicated destroyer of America like The Moron can’t bring them down to his level……worthlessness.

  3. Right of the People says:

    They left out Dearbornistan, MI.


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