The Most Cash-Strapped Cities In The US
If you think Greece and Spain are swamped with debt, think again. Right now, seven American cities have their municipal bonds rated below investment grade. Their debt is seen as more worthless than that of the so-called PIIGS.
Among US cities whose debt has been declared by Moody's Investor Services as below-investment grade are Harrisburg, PA and Woonsocket, RI. Fitch Ratings also included four more cities namely Detroit and Pontiac in Michigan; Harvey, IL; and Littlefield, TX. On the other hand, Standard and Poor's has Central Falls, RI as belonging to the basement as well.
All seven cities named above are struggling with the recession. Many people in these places are unemployed and can't pay their property taxes. Operating expenses continue to go up; pension and debt payments don't go away. And because their credit just keeps getting worse, the cost of borrowing money for projects just goes higher.
Cities are probably going to have to feel the effects of the recession for another couple of years. Central Falls, RI, for example has been recently placed under receivership and Moody's slashed its rating to C – the lowest possible rating before a default. A court-appointed lawyer is now handling the city's finances. Based on and S & P report, Central Falls is having difficulty meeting its pension fund obligations and deficits above 20% of budget in the current fiscal 2010 and fiscal 2011 due to state aid cuts and increases to pension costs abound.
Harrisburg, PA rating just got down three levels to B2 — five steps below investment grade. Compare this to Greece's government debt rating at A3, which is still investment grade. The PA capital city's controller Dan Miller has already been urging bankruptcy. Since 1937 only 245 municipalities out of over 80,000 have filed for Chapter 9. And cities have to comply with many strict conditions, such as gaining an endorsement from the state proving insolvency to the court, in order to qualify for bankruptcy.
Many experts say that for the economy to really recover, unemployment rates have to go down. Employers hired significantly more people in April and May, but the jobless rate is still around 9%. And that means taxpayers will have a hard time paying their taxes.