Explaining Southern California's economy

Compton is latest California charter city to face bankruptcy

Gritty Compton Works To Escape Cycle Of Violence

David McNew/Getty Images

Compton is the latest Southland city to declare bankruptcy.

Compton could become the fourth city in California to head for bankruptcy, according to Reuters. The Los Angeles County municipality, just south of L.A., would join Stockton, Mammoth Lakes, and San Bernardino in confronting Chapter 9 protection. 

Compton's situation is extremely worrisome compared to much larger San Bernardino and Stockton, but it's not exactly surprising. Compton's current budget deficit, at $43 million, is substantially bigger than Stockton's $26 million but about the same as San Bernardino's $45 million. But Compton's population is only 93,000. San Bernardino's is over 200,000 and Stockton's is over 300,000.

And if you follow Reuters' reporting, $37 million of Compton's budget shortfall has materialized just since July 10, as financial officials and the city council have worked through severe revenue losses. 

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San Bernardino bankruptcy caught the bond market by surprise

Berdoo Bankrupt

Steven Cuevas / KPCC

San Bernardino city council voted to prepare a bankruptcy late Tuesday. The bind market was completely shocked.

You'd think a $3.7-trillion municipal bond market would watch over the cities that issue debt like a hawk. But of course, that can be tough when you're talking about something that big. And although ratings agencies like Moody's and S&P monitor the finances and prospects of default for thousands of cities, they don't always have a clue what's going on inside city hall.

Shocking as it may sound, right up until it voted to move toward a Chapter 9 declaration earlier this week, San Bernardino's bonds were rated "investment grade" — meaning that institutional investors and big mutual funds could buy them. Some of the city's bonds have been downgraded to "junk" status now, reports Reuters. But from the perspective of the bond market, San Bernardino didn't look like a city facing a fiscal crisis with effectively no money in the bank, the inability to meet its payroll, and a possible scandal brewing over whether the city has accurately represented its finances to the outside world.

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