City of Compton May Declare Bankruptcy by September: Officials

The City of Compton, a city of 93,000 people located on the outskirts of Los Angeles, must decide by September 1 whether to seek bankruptcy, according to its two most senior financial officials.

Such a move would see it join a growing number of deficit-hobbled California cities that have used the filing to restructure onerous debt loads.

Compton, which has an accumulated $43 million deficit and has depleted what had been a $22 million reserve, will run out of cash to make its payroll on September 1 at its current cash consumption rate, city comptroller Steven Ajobiewe told the city council during a July 17 meeting.

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A bankruptcy filing would follow one by San Bernardino, which on July 9 became the third California city this year to seek restructuring of its liabilities. Earlier, Stockton and Mammoth Lakes also said they would file.

Compton’s problems escalated on July 13 when credit rating agency Standard & Poor’s said it may cut Compton’s BB long-term and underlying ratings for its lease revenue bonds.

S&P cited a decision by Mayer Hoffman McCann, the city’s independent auditors, to resign rather than sign off on Compton’s 2011 financial statement.

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The city council added to Compton’s accumulated deficit on July 10 when it adopted a $161 million budget with a $9 million projected deficit.

The red ink grew to $10 million during the council meeting, when city maintenance officials said they needed to make $1 million in immediate repairs to the city’s water system to bring them up to code and avoid fines from LA County health officials.

Mayor Perrodin was more optimistic than his financial staff that the city could avoid bankruptcy, although he noted similarities between Compton and San Bernardino, which has a population twice that of his city.

Unemployment is worse in Compton than San Bernardino, he said, although both have seen property taxes fall precipitously due to rising home foreclosures.

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[Editor’s Note: According to 2010 census data, Compton is 65 percent Hispanic, 32.1 percent black, and 0.8 percent white.]