When Failure is an Option: Municipal Bankruptcies

• In Event: SESSION 4C: Public and Governmental Issues

Abstract

The recent economic downturn has exposed significant flaws undermining the fiscal health of numerous local governments and municipalities across the country. Years of questionable spending on expensive civics projects and unsustainable benefits packages for retirees and public workers have weakened the ability of many municipalities to weather the fallout from plummeting revenue streams. This paper identifies many municipalities that have elected to file for Chapter 9 bankruptcy protection and discusses its effect on crime, government services, unemployment as well as reductions in pensions and healthcare. While the bankruptcy rate for municipalities is still relatively small compared to the private sector, the potential for a wave of new filings is a real concern due to stricter accounting guidance and increasing borrowing costs for governments in the coming years.

Author

• Joshua McElroy, UT Tyler