SAN FRANCISCO--(BUSINESS WIRE)--North Las Vegas faces the same four factors common to the bankruptcies in Harrisburg, Stockton and Detroit, according to a new Fitch Ratings report.
Flawed financial decisions, rigid and escalating cost structures, revenue raising limitations and weak economic conditions - playing out over many years - contributed to all three recent bankruptcies and may indicate risk for similarly distressed cities like North Las Vegas.
Fitch currently rates North Las Vegas' general obligations 'B' with a Negative Rating Outlook.
'North Las Vegas, while not in default, is nearing insolvency, and Fitch's rating indicates that material default risk is present. The city's dire fiscal picture stems from a steep drop in revenues due to the severity of the recession coupled with multiyear contracted compensation increases,' said Matthew Reilly, Director. 'The city also faces a structural budget deficit, one-time expenses, and restrictions on certain revenue-raising measures.'
For Harrisburg, Stockton and Detroit, management's ability to avoid insolvency was constrained by financial decisions made years before that increased city liabilities without corresponding decisions on how to fund those obligations.
Reactions to deteriorating economic and financial conditions were slowed in those cities due to discord among management, political leaders or labor.
These cities were also unable to sufficiently shed costs to maintain the financial capacity needed to continue meeting their obligations.
Weak economic conditions in Harrisburg, Stockton and Detroit led to declining city revenues and contributed to overall fragility by limiting prospects for future revenue growth and increasing demands for city services.
Constraints on generating additional revenue due to legal restrictions, political unwillingness to increase taxes, practical limitations or a depressed tax base limited each city's ability to raise new revenues to meet financial obligations.
The full special report titled 'Default: Common Factors That Led to Bondholder Losses in Harrisburg, Stockton and Detroit' is available on the Fitch Ratings web site at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Default: Common Factors That Led to Bondholder Losses in Harrisburg, Stockton and Detroit