Standard & Poor's said in a report Monday that Stockton's eligibility for bankruptcy will likely have an impact on other local governments in distress.
"To the extent that Stockton emerges from bankruptcy with significantly lower long-term fixed costs - Judge Klein has signaled that pension contributions could be up for discussion - other troubled local governments may decide to risk the fiscal and economic damage that often accompanies bankruptcy," the report said.
S&P said a change to Stockton's pension benefits as part of its plan to adjust its debt could make bargaining units in other cities more willing to negotiate before filing for bankruptcy.
This would possibly allow "a government on an unsustainable trajectory to restructure some of its liabilities without having to file for bankruptcy."
However, the firm said the city's actions so far, such as imposed haircuts on payments to employees and debt holders, have already harmed service levels and its image.
"We believe that the stigma of bankruptcy is unlikely to abate regardless of the outcome of Stockton's process and that Chapter 9 filings will likely remain very uncommon," S&P said.
Standard & Poor's said beside Stockton, it expects the credit quality of most other California cities to remain stable, with Chapter 9 filings unlikely to become a trend.
Nationally, it said the case is the same.
"We believe that municipal bankruptcies nationwide will remain unlikely to occur outside a very small minority of the obligors we rate because of the financial, reputational, and economic effects that come with bankruptcy," S&P said.
