High unemployment numbers and some of the worst real-estate foreclosure rates in the country have rocked the city of Stockton and back in May the city had to declare a fiscal emergency. The local government’s financial position seems to be going from bad to worse, as officials recently announced that due to a shortfall, the city may have to default on redevelopment agency debt issued in 2006. Stockton’s RDA notified the Municipal Securities Rulemaking Board that projected increases in tax increment revenues were likely to miss the mark due to weak property assessments, which means it would be difficult to pay bondholders. The Wall Street Journal reports:
“A local redevelopment agency acknowledged that it is struggling to keep current on $87.7 million of debt it sold in 2006. The city, a former farming center that aspired to become an exurb of the Bay Area, guarantees some of those agency bonds. […] For the current fiscal year which began July 1, the city's budget deficit was $37 million, amounting to about one-fifth of its general fund revenues.”
Real estate values have continued to fall in Stockton and the RDA expects to see a 3.17 percent drop in values for fiscal 2012. A report from Standard & Poor’s comments that “The city has experienced persistent negative economic effects of housing market stress and the recent recession in our view, but the declines in some economic indicators appear to be moderating.” Stockton’s redevelopment agency tax allocation bonds have been put on a list for a negative credit watch, which means that further downgrades could occur. The S&P also cites legislation eliminating redevelopment as a factor that “further deteriorates already weakened credit characteristics.”
The financial troubles of the city’s RDA could have a negative impact on the city’s overall budget as well (despite already being strained) because it could require as much as $6 million from the city's general fund through June 2012. The Wall Street Journal points out that “That's because the redevelopment agency "may no longer have the cash flow" to reimburse the city for some administrative costs, the presentation said. The city also guarantees two of the agency's bond deals, and if the agency can't make its debt payments, the money will come from the general fund, the presentation said.”
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