American municipalities suffer plague of bankruptcies, as tax base erodes and debts mount

February 2014ECONOMYAcross the country, from Vallejo, Calif. to Detroit, Mich., some cities that cannot repay their debts have taken the extreme step of declaring municipal bankruptcy. Cities file for bankruptcy under Chapter 9 of the Bankruptcy Code. Yet before a city can declare Chapter 9 bankruptcy, the city must establish it is eligible to do so according to state law. Chapter 9 bankruptcy is relatively rare. We’ve listed the cities and towns that have filed for Chapter 9 bankruptcy since 2008 on the map below.

According to bankruptcy attorney Karol Denniston, when a city owes money to its employees, pensioners, and creditors, these debts constitute a contract — similar to a business taking out a loan. If the debts cannot be repaid, a municipality may consider bankruptcy as a last resort to negotiate reduced financial liabilities. But unlike individuals and corporations, cities are not always allowed to declare bankruptcy. Bankruptcy is a federal process. In turn, a state must give its cities, towns, counties, and other municipalities — governmental administrative districts like irrigation authorities or hospital districts — the right to petition the federal government to restructure their debts. Without permission from the state, the federal government granting a bankruptcy petition for a municipality would violate a state’s authority and therefore, the 10th amendment. Some states, like Arizona and Washington, expressly grant municipalities the right to file for bankruptcy. Many other states establish conditions that must be met before a town can declare it is bankrupt. These conditions may involve an evaluation of the city’s finances or may require permission from a state governor. Illinois, Colorado, and Oregon have particularly restrictive laws that only allow specific types of municipalities or even specific districts to file for Chapter 9. Georgia and Iowa prohibit cities from declaring bankruptcy, though Iowa has an exception to the law for municipalities that become bankrupt for reasons beyond their control. A number of states haven’t written any specific law that determines whether or not a municipality can declare bankruptcy. Since cities in those states aren’t granted the right to file for Chapter 9, they cannot legally do so. –PBS
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This entry was posted in Apathy, Anger, Mistrust, Disillusionment, Austerity, Bank Run, Banking Crisis, Bankruptcy, Boom and Bust Cycles, Civil Unrest, Class Division, Depression and Anxiety, Economic Collapse, Economic Hardship or Loss, Fiat Money Printing Fiasco, Financial market turmoil, Hierarchal Control, Political Corruption, Social Meltdown, Struggle for Survival, The Pyramid Model, Unemployment rising, Unsustainable Debt Burden, Widening gap between rich and poor. Bookmark the permalink.

4 Responses to American municipalities suffer plague of bankruptcies, as tax base erodes and debts mount

  1. Dennis E. says:

    This is a trap under the illusion that Americans will have more free time and mothers can stay home or you can. It may have been possible 50 or so years ago but the income median was lower and so was the tax rate. It is the welfare state in disguise.
    And that is my opinion……….
    P.S. Those who have the drive will get a job and go…….. Those who quit will get poorer…….and left behind……….

  2. Dennis E. says:

    Oh Lord, my previous blog was for another subject……….. But, the tax base is eroding……….It is being reported that over 2 million more jobs will be lost allegedly under Obama care. They seem to be working towards a European Model.
    Our city just posted in the paper that our funds used to help clean up the city from an adverse weather event such as snow storms and hurricanes were getting low.

    You must be able to help your self in the future and some neighbors……..

  3. Banks are not the problem. The problem is not hard to find if one would only look in the voting mirror.

    • James says:

      @gwnail, your inference is that it’s our (the voters’) fault. In national elections, the candidates are pre-chosen by the elite, and there is really no difference between the two major parties. The media purposely divides the electorate into the left/right camps and the guv likes it that way to distract us and keep us warring among ourselves. Otherwise, we would formulate a unified opposition to government and revolt. Voting one way or the other will not change the greed and corruption that exists and results in the terrible banking laws that are full of loopholes. HSBC was convicted of drug money laundering and got a small fine and no criminal prosecutions. JPMorgan was fined a small fraction of the dollar amount of damage caused by their real estate derivative fiasco that ruined many homeowners with foreclosures (although the threat of criminal charges remain on that).
      So don’t blame the voters. Until we get real campaign reform that prevents politicians from accepting money from outside their voting districts and overturning the Supreme Court decision on Citizens United, little will change.

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