California, where three municipalities have filed for bankruptcy since June, is working on an early-warning system to prevent more by detecting signs of financial trouble, state Treasurer Bill Lockyer said, according to a Bloomberg News report yesterday. He compared the goal to stress testing, "where we try to determine what are the right metrics to cause red flags, alarm, some form of friendly discussions with experts, external advisers about what might be done to avoid a potential crisis." Stockton, San Bernardino and Mammoth Lakes have sought chapter 9 protection, stoking investor concerns that more will follow as municipal finances worsen and bankruptcy’s stigma fades. Lockyer said he doesn’t expect the trend to continue. The early-detection system is a collaboration among the treasurer’s office, the controller, the Legislature and officials in Los Angeles and San Diego, Lockyer said. Lawmakers would have to approve the plan, he said.
