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Wed July 18, 2012
Could Compton Become California's 4th City To Go Bankrupt?
Financial troubles are surfacing in another California city: Compton, just south of Los Angeles, is in trouble. Just like Stockton, Mammoth Lakes and San Bernardino, Compton's bills are too big and its income too small.
Last week, Standard and Poor's, Compton's credit rating agency, put the some of the city's bonds on credit watch. S-and-P cited problems with alleged waste, fraud and misuse of city dollars, and blamed city officials for failing to turn over documents that might clear up questions.
Now the agency wants the city to complete an independently audited financial statement. But that's going to be harder to get, according to the Los Angeles Times. Compton's independent auditor quit and would not approve the city's financial statements. It's not clear if another auditor was hired.
S-and-P warns Compton is flush with red ink: the city has a deficit greater than $40 million dollars.
Now city council members and the mayor are facing a tough choice. Reuters says Compton's comptroller and treasurer informed the elected officials last night if current spending continues, the city will run out of money September 1. They'll have to think about defaulting on bonds or even consider bankruptcy.
In San Bernardino, city officials were stunned to learn they'd been operating in a deficit for years because they'd been given faulty documents showing they were profitable. In Stockton, critics blame high spending on wages and capital projects for the city's distress. And Mammoth Lakes was brought low when the city lost a multi-million dollar court judgement, notes Businessweek.
The reasons for Compton's danger aren't fully clear - but the precipice is.