Following the inevitable transition of Harrisburg, PA into bankruptcy once the realization that the can can no longer be kicked down the road, it now appears that even the formerly "safe" Jefferson County, which was expected to avoid default, may itself devolve into a Chapter 9 (Jefferson County Democratic Lawmakers May Derail Debt Deal) following another political SNAFU. So while we wait on whether another $3.1 billion in muni debt will go toward the ultimate validation of M-Dub's thesis (if not calendar of events), the next city already prepping to go down the tubes is long-troubled epicenter of the credit bubble: Stockton, CA. Bloomberg reports, "Stockton, California, which declared a fiscal emergency in May, warned it may default on redevelopment agency debt issued in 2006, citing a shortfall in tax-increment revenue. Debt service will exceed available revenue by about $858,000 in the North Stockton project area, according to an Oct. 12 filing with the SEC." As expected, just like in any other house of cards, once the first one goes, the next ones down realize that those who default first (or among the first) default best, as there will be no money left for the stragglers. Expect to see many more cities biting the bullet and making a mockery of all those who in turn mocked the bearish muni thesis.
Standard & Poor’s downgraded the underlying rating on series 2006A and 2006B revenue bonds issued by the Stockton Public Financing Authority on behalf of the Stockton Redevelopment Agency to B from BB with a negative outlook in an Oct. 4 report, citing declines in assessed valuation for real estate in the redevelopment area. The redevelopment agency said it expects a 3.17 percent drop in values for fiscal 2012. “The city has experienced persistent negative economic effects of housing market stress and the recent recession in our view, but the declines in some economic indicators appear to be moderating,’’ the report said. The city, an agricultural center about 80 miles east of San Francisco, will reduce the shortfall with a $137,249 North Stockton cash surplus held by the trustee from reserve fund interest earnings and money released from a reduced reserve requirement after a 2010 bond-repurchase program, Stockton said in the filing.
Needless to say it will be ironic if the great muni scare strikes twice at just the same time it did back in 2010. Only this time, there will be one year less of can kicking available to insolvent municipalities.