The worst-performing part of the municipal market is drawing buyers as bankrupt Stockton, California’s attempt to stick investors with a loss heightens the appeal of debt backed by revenue from services such as water and electricity.
When Vallejo , California, filed for bankruptcy in 2008 after failing to win union pay cuts, Councilwoman Stephanie Gomes said officials around the U.S. would have their eyes trained on the city of 120,000.
Jefferson County, Alabama, can’t fully repay $205 million in general-obligation bonds without raising taxes, the county’s bankruptcy lawyer said, threatening investors with losses not seen in the U.S. since the Great Depression.
The near-failure by U.S. states to fund rising retiree health-care costs for millions of government workers threatens to produce budget crises similar to the one that pushed Stockton, California, to take a step toward bankruptcy last week.
State and local governments are likely to avoid bankruptcy through spending cuts, even as their financial stress mounts, according to panelists at a Securities Industry and Financial Markets Association seminar.