SACRAMENTO - One of the nation's top credit rating agencies announced Tuesday that it will review dozens of California cities, including Long Beach, for possible downgrades amid mounting concern over municipal bankruptcies and bond defaults.
Moody's Investors Service will scrutinize the ratings of various types of bonds in 30 California cities. The agency also announced that it already had downgraded eight municipal pension obligation bonds.
"California cities operate under more rigid revenue raising constraints than cities in many other parts of the country," Eric Hoffmann, who heads Moody's California local government ratings team, said. "Combined with steeply rising costs, these constraints mean that these cities will likely recover more slowly than their peers nationally, even if the state's economic recovery tracks the nation's."
Faced with ongoing deficits, Long Beach has cut its budget every year for the past decade, most recently slashing another $12.9 million from the general fund for the fiscal year that began this month.
While employee pension reforms are expected to save money, city officials are still projecting shortfalls in the next two years.
Other nearby cities under review for possible downgrades are Downey, Huntington Beach, Torrance and Redondo Beach.
Moody's will examine an array of factors, including falling tax revenue and increased spending.
Any downgrades would increase borrowing costs
The announcement follows an August report in which Moody's predicted more municipal bankruptcies and defaults in California, the nation's largest issuer of municipal bonds. Moody's warned that some cities are turning to bankruptcy as a new strategy to tackle budget deficits and abandon obligations to bondholders.
Three California cities - Stockton, San Bernardino and Mammoth Lakes - filed for bankruptcy over the summer.