Courtesy of Mish.
As part of a growing trend, Compton California is on the verge of bankruptcy. When it files (and it will eventually), it will become California’s 4th city to do so.
The Huffington Post reports Compton Will Run Out Of Funds By September 1
Compton, Calif. could be the fourth city in the Golden State to seek bankruptcy protection.
At a city council meeting Tuesday, officials announced that Compton is set to run out of funds by Sept. 1. Compton, which has only 93,000 residents, faces a deficit of $43 million after having depleted a $22 million reserve, reports Reuters.
“I have $3 million in the bank and $5 million in warrants due in the next 10 to 12 days,” said city treasurer Doug Sanders during the live-streamed city council meeting. “By then, the council will have a decision to make: don’t pay the bonds, default on them, or have a serious talk about bankruptcy.”
Standard & Poor’s put Compton’s revenue bonds on a negative credit watch last Friday, citing concern over allegations of “abuse of public moneys” and fraud, reports the Los Angeles Times.
S&P also warned that unless they receive independently audited financial information from Compton, the city’s ratings — already at BB, or “junk” status — could be withdrawn or suspended.
Compton may not be able to meet S&P’s demands in time. The city’s independent auditor, Mayer Hoffman McCann, recently declined to sign off on the city’s financial statements and quit the account entirely, reports the Times. The firm stated that they couldn’t get anyone at the mayor’s office to cooperate with the audit inquiry.
What’s to Consider?
Compton is clearly broke so there is noting to consider. The LA Times has more grim details in Compton on brink of bankruptcy.
City officials announced that Compton could run out of money by summer’s end, with $3 million in the bank and more than $5 million in bills due.
A longer-term problem is a $43-million deficit that the city amassed after years of improperly using money from water, sewer and retirement funds to balance its general fund. Compton will have to pay the money back at a time when it has no reserves and has been frantically cutting costs.
The state of these cities underscores the complexity of the fiscal crisis roiling California municipalities this year, with Stockton and Mammoth Lakes already in Chapter 9 bankruptcy. While ballooning public pensions and falling property tax revenues have hit many cities hard, bad accounting practices and improper use of funds have also taken a toll.
In many cases cities resorted to these measures because they could not balance their books or raise revenues but were loath to make cuts.
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