Moody’s will review California cities’ credit

More than two dozen California cities could face credit downgrades by one of the nation’s top credit rating agencies. Moody’s Investors Service said it will review the ratings of bonds in 30 California cities, according to The Associated Press (AP).

Moody’s said the review is necessary because “California cities operate under more rigid revenue raising constraints than cities in many other parts of the country,” according to a statement from the agency. It said that meant California cities would likely recover more slowly than cities in other states.

A credit downgrade would make it harder and more expensive for the cities to borrow money and fund infrastructure projects. The agency said it has already downgraded eight municipal pension obligation bonds.

Cities under review include Azusa, Berkeley, Danville, Fresno, Inglewood, Oakland, Sacramento, Santa Ana and Santa Barbara. The agency will examine falling tax revenue and increased spending, among other factors.

California is the nation’s largest issuer of municipal bonds. In August, Moody’s issued a report predicting more municipal bankruptcies and defaults in the state, warning that some cities are turning to bankruptcy as a way out of tough financial straits.

Since June, three California cities — Stockton, San Bernardino and Mammoth Lakes — have filed for bankruptcy. More recently, Atwater declared a fiscal emergency as it too considers bankruptcy.

Overall, however, municipal bankruptcy is rare. Since 1980, less than 0.5 percent of all localities issuing debt have gone through bankruptcy, according to a report from the Pew Center on the States. That rate remained unchanged even during the Great Recession, which officially ended in 2009.