Yesterday San Bernardino became the third city in California to declare Chapter 9 bankruptcy in three weeks. New California law requires cities considering bankruptcy to first submit to a "neutral evaluation" process, and several economists are hinting that San Bernardino could look a lot worse than either Stockton or Mammoth Lakes, the other two cities that have already filed for Chapter 9. That’s because of reported allegations that the city has been padding its budget numbers, prompting some to wonder whether it could be the “next Bell,” referring to that city’s misappropriation of funds uncovered in 2010.
Another catalyst for the San Bernardino’s apparent fiscal emergency is rising public pension costs. In San Bernardino, the city's pension obligations nearly doubled since 2007. In three years, those costs are projected to account for 15% of the budget.
For the city of about 200,000, what does that mean for all its debts? So far the news doesn’t seem to have impacted the market and it is exceedingly rare for cities to default on investment-grade municipal bonds, but could they? Do big investors fare better than small ones? And do they get paid?
How do you think municipal bonds affects city government?
Matt DeBord, KPCC business reporter; he writes the DeBord Report
Cate Long, municipal bonds contributor for Reuters