Stockton, CA Next Muni Default Domino To File

Tyler Durden's picture

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.

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mayhem_korner's picture

Harrisburg - POP!

Stockton - POP!

It's like the first few kernels of a jumbo Redenbacher bag in the microwave.  :D

HelluvaEngineer's picture

Harrisburg was "fixed" by the Governor.  Same will happen here.

mayhem_korner's picture



"Fixed" is the new statist term for wealth transfer.

TruthInSunshine's picture

15 years ago, the U.S. had Steve Jobs, Johnny Cash & Bob Hope.

Today, the U.S. (and the EU) have no jobs, cash or hope, bitchez.

MachoMan's picture

It was clever the first time...  and I wouldn't say it's being beaten to death yet...  but, please stop saying it.

anony's picture

It would be best if your advice is ignored as many may not have seen it the first time around.

There is no way I can read all the material here and on other blogs. There isn't enough time in a month to get through even one web site's post and comments.

It's still clever, I haven't seen it before, and if it appears again, I'll just presume that someone else gets to see it for the first time.

No harm, no.....


mayhem_korner's picture



Are you curled up in a basement somewhere waiting for the The Wizard of Oz to come out on VHS?

Carlyle Groupie's picture

"It's like the first few kernels of a jumbo Redenbacher bag in the microwave."

LOL. I liked that.

Hey guess what kids. This is one situation you will never see in China.

'merika muni's; time to chew on that poison pill. Ask Meridith, she'll tell ya!

Thanks! From China. Peace be with you.

brew's picture


lolmao500's picture

It's all bullish. Look :

U.S. municipal defaults fell in the last quarter to 12, totaling $126 million, from 18 a year earlier and 24 in the same period of 2009, according to the Distressed Debt Securities Newsletter.


Any date for the default being official?

malikai's picture

We're in for quite the comedic juggling act here. Munis, Europe, BAC, etc. It will make for some good television, but the sore asshole part we're all going to feel sorta turns me off to the fun.

Saxxon's picture

Right up the road from my fair burg.

Tax revenues are one buboe they cannot hide.

No position.

buzzsaw99's picture

Were I the Jefferson County authorities I would pay only a token amount.

dwdollar's picture

Norman, Oklahoma had a 10-15 million dollar deficit planned for next year. The general fund has about 25-30 million left in it. I imagine this is the typical story all across this country. Time is running out... Major cuts will have to be made for 2013.

dwdollar's picture

About the only news that covers it is the OU paper from time to time. You can look at here though...

buzzsaw99's picture

i guess you meant for me to read through the 2013 budget pdf. :yawn:


the city of norman has money coming out its butt. they projected a shortfall last year then found a million bucks they didn't even know they had. right now they are arguing how to fund a new animal shelter, with the $3M extra bux in the safety fund, or pass another bond measure. it goes for a vote soon. if there were any municipal bond i would be willing to hold through this depression would be ou or the city of norman. the only problem they have is wanting to spend like a drunken californicator.

dwdollar's picture

I agree, IF the education bubble holds. They'll be able to raise taxes to whatever in order to survive.

buzzsaw99's picture

ain't it the truth? they want to tax themselves to death around here. i swear we are being run by big city liberals.

buzzsaw99's picture

that would make a good halloween mask.

tarsubil's picture

What a profile. Public management consultant, political science professor, policy analyst, all kinds of feel good boards and councils, and to top it all off a methodist named rosenthal. They didn't mention if she was a ginger and a jersoyian too.

Manthong's picture

Maybe the animal shelter in Norman can help feed the folks in Stockton and Harrisburg.

TruthInSunshine's picture

Stockton just needs some 'animal spirits,' and everything will turn around for them.


buzzsaw99's picture

they'd just get mange and end up in the incinerator.

BooMushroom's picture

The article says Stockton is a farming kind of place.  It's not.  It's a city, with a large minority population.  The kids have never seen a pig or a chicken or a rabbit, and even wouldn't know that they were for food.  The idea of a Dad getting up in the morning and going to work every morning is as foreign to them as sitting around all day and getting paid to drink and smoke is to us.

Sequitur's picture

Match inching closer to the fuse . . . .

WonderDawg's picture

The fuse has been lit, the only question is how long is the fuse?

PulauHantu29's picture


On Sunday October 23, 2011, 2:20 pm EDT

Anyone whose interest has been piqued by Occupy Wall Street and similar protests, here’s another reason to support their cause.

On Wednesday, the government released data from 2010 paychecks . This includes numbers from payroll taxes that have been reported to the Social Security Administration. They paint a disturbing picture.

The data showed that in 2010, there were fewer jobs and they paid less. One exception is people making more than $1 million annually. This increased by 20 percent from 2009.>>

It goes to the soaring inequality we are seeing worldwide.

LawsofPhysics's picture

None of this is sustainable so why worry, just hedge accordingly.

mayhem_korner's picture



A colleague of mine argues adamantly that municipalities cannot default because "state law says so."  I think she is infested with logic antibodies...

ZackAttack's picture

Well, there's a partial truth in there. Not all, but a number of state constitutions require taxes to be raised if necessary to pay GO bond coupons.

mayhem_korner's picture



What happens when the debt exceeds the recoverable tax base?  Take your time...

BooMushroom's picture

Furlough Fridays become Door-to-door confiscation day?

Chuck Walla's picture

Anyone who thinks states can outlaw default is An obvious Obama voter.

LawsofPhysics's picture

Yes, sort of like outlawing plate techtonics and bad weather.

chumbawamba's picture

Can we outlaw stupid while we're at it?  Thx.


Johnny Lawrence's picture

Before we declare all muni bonds to be bad, I'd like to know how long there have been problems in Harrisburg and Stockton.  I wouldn't doubt if these cities have been knee-deep in fiscal problems for years.  This was very true for Central Falls, RI, which was in financial problems for decades.

mayhem_korner's picture



Not all muni bonds are bad.  All that needs to happen is to quarantine all munis in NY, New England, the deep south, MI, CA, AZ and NV.  Otherwise, the default prospects for the rest of the country are probably < 15%.  It's quite bullish.  :D

chumbawamba's picture

Stockton has been on a downward trajectory for years.  It's a city that really belongs in Detroit.  However, that being said, I wouldn't count it out.  I've seen a lot of tantalizing signs of growth there in the past couple years.  Lots of businesses have moved out that way to take advantage of the rock bottom rents.  I5 (the main artery of California state) cuts right through Stockton.  It's also got a port by way of the California Delta that opens up to the Pacific.  Being in the middle of vast tracts of farmland, lots of agricultural products terminate there.  It has lots of industry currently sitting dormant that will have lots of relevance in a new economy.  Stockton may go under for now but I think it can come back as a strong center of commerce after the fall.

Just FYI.

I am Chumbawamba.

Boxed Merlot's picture

Hunger will probably not be an issue in Stockton as you've pointed out. Weather, topography, (14' above sealevel), agriculture and central location between major travel routes (I5 and the infamous Hiway 99 straddle our east and west borders) including goods to / from the Port of Oakland and the (Uncle Warrens)railroad activity all contribute to it's future economic viability.

Personally, the "strength" of diversity has been overplayed in the community and has created division and subsequent suspicion, isolation and economic contraction.

Rather than "celebrating" our individual racial / cultural "uniqueness", a return to promoting common social goals of security, integration and prosperity would be a better exercise.

Until we can get a handle on the mortgage bifurcation madness and the ensuing 65-75% decline in local residential RE values, Our struggles will continue. The culprits of this debacle have yet to provide restitution to the aggrieved, (individually and collectively-as tax collections show), though they were made whole over 3 years ago.

Seek Justice, Love Mercy, Walk Humbly.

Jena's picture

The drought of the last few years hit the Central Valley (and Stockton, by extension) hard.  The growth you speak of may be due to the recent relief of that drought.  Let's hope it holds.  Seeing the miles and miles of dead farmland was heartbreaking.

The water wars between Western States in the years to come will be ugly, but inevitable.

BooMushroom's picture

"The Drought" meaning "The EPA making it illegal to use the water in the delta, to protect an invasive spieces bait fish with no inherent value."


Yeah, that was rough.   but the data say Stockton is a crappy place to live anyway:

Jena's picture

The EPA's suck-balls policy made the worst of a bad situation, meaning the diminished water from the actual drought went to protect the delta smelt rather than grow crops, yeah.


Great site, by the way.

Vlad Tepid's picture

The inherent value of the Delta Smelt is to give a convenient excuse for Delta area farmers to shut down the pumps sending their water to the infertile desert called the South Valley.  Those welfare-billionaire farmers dried up Tule Lake a generation ago to make the desert bloom with water intnesive crops like cotton and alfalfa, dried up the Stanislaus River before it reaches the Bay (or the Delta) and now they want to reach into Nature's Switchboard for the California water system and dry up the only natural irrigation farming system in the state?  Fuck them. 

Everytime a Delta conservative farmer type starts to think they might be being robbed, these K Street types sidle up to them with this "Surely you wouldn't support a FISH," argument. 

tarsubil's picture

Can't the Fed just give them some loans to cover their payments?

buzzsaw99's picture

or swap for some old road equipment (at brand new 2012 prices)?

ZackAttack's picture

What do you think Build America Bonds were?

mayhem_korner's picture

What do you think Build America Bonds were?


A voluntary means of debt enslavement.