Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said municipal bankruptcies are set to rise as there's less stigma attached after several California cities opted to seek protection just weeks apart.
The City Council of San Bernardino, Calif., a community of about 210,000 east of Los Angeles, decided July 10 to seek court protection from its creditors. The move came within weeks after Stockton, a community of 292,000 east of San Francisco, became the biggest U.S. city to enter bankruptcy. Mammoth Lakes, Calif., also sought the shelter this month.
"The stigma has probably been reduced when you get very sizeable cities like Stockton or San Bernardino to do it," Buffett, 81, said in an interview today on "In the Loop with Betty Liu" on Bloomberg Television. "The very fact they do it makes it more likely."
Cities and towns across the U.S. have been strained by rising costs for labor, including pensions and retiree health benefits, while the longest recession since the 1930s crimped sales- and property-tax revenue.
"Once people find that the city works the next day, it makes it easier for the city council next time they have a problem with pensions -- or whatever it is -- just to say, 'well, we'll declare bankruptcy,'" Buffett said.
He said the nation isn't on the brink of hundreds of billions of dollars in defaults, as banking analyst Meredith Whitney predicted in 2010.
"I don't think we're at the precipice," Buffett said. "People will use the threat of bankruptcy to try and negotiate, particularly pension contracts, with their employees."
