When a City Files For Bankruptcy

While economists believe there are small signs of a recovering economy, there are currently 5 cities in our nation that would beg to differ as they’ve had to file for various forms of bankruptcy. A myriad of issues from ill-advised fiscal decisions, cash-poor budgets, to low tax receipts and high retiree obligations.

What happens to a city and it’s residents when it falls into bankruptcy?

Jefferson County, home to Alabama’s largest city of Birmingham, sought reorganization of finances in 2011 under Chapter 9 of the federal bankruptcy code. The county was more than $4 billion of debt and the unable to raise taxes. The Supreme Court ruled against a local income tax, forcing county officials to try to convince state Legislature to authorize another tax or warn of new cutbacks in the county budget.

California has seen its share of cities file bankruptcy and there are indicators that it won’t stop at three. Stockton, the largest city in the United States for file for protection, was the first. It was followed by the small town of Mammoth Lakes, and third, San Bernardino. The San Bernardino filing will surely raise concerns to other cities in the state who have financial woes.

Next in the lineup though comes from Scranton, PA. The city of Scranton just made an unprecedented decision to cut pay for it’s municipal workers to minimum wage – $7.25 per hour.

The Scranton problem seemed to crop up fairly quickly, while San Bernardino has been wallowing in bad financial decisions and accounting errors, as well as a lack of revenue growth, increases in pension and debt costs for years. San Diego County, where San Bernardino resides, has the third highest foreclosure rate in the country.

While these reports are bad for the individual states, they are also bad news for the United States as a whole, but it actually is much farther reaching than that. Globally we are seeing economies collapse all around us.