I asked about this on local SEO forums but no one was responding. Little did I know that I'll get my answer from some prominent local bloggers. Its like they read my mind. lol
Technograph is one of my daily reads. And I saw that they had an article about blocking political ads. The link in the post lead me to Newmedia.com. It all then confirmed my theory that lead to me asking the question on the SEO forums. If only I das seen that post earlier, I would not have asked the question on the forums and waited for days with no answer. Mr. Carlo Ople is also included on my reader but its his other blog that I often read.
I had a similar situation happen to me. Starting last December, my blogs dramatically decreased CPC. And now to add to the casualty, my main money-blog seems to have been penalized by G. My SE traffic virtually disappeared. And that blog's total traffic is was cut down by around 80%.
If this works well, I might block local ads like Ayosdito all together. If I can pinpoint that they are the source of those 1-cent and 2-cent clicks. I don't care if my ads will now be less targeted and my CTR will decrease, I'd rather have readers stay on my blog than leave with just one cent going into my pocket.
Anyway, thanks again to Technograph and Newmedia.