History of Municipal Bankruptcies Under Chapter 9

Municipal bankruptcies are covered under Chapter 9 of the bankruptcy code.  Chapter 9 was created in 1934 in the midst of the Great Depression.  Chapter 9 has many differences from corporate or personal bankruptcy.  First, states can determine if municipalities are permitted to file for Chapter 9.  If Chapter 9 filing is allowed the municipality cannot be forced to liquidate assets to cover debts, does not protect collective bargaining agreements, does not protect retiree benefit guarantees, and the bankruptcy judge has no ability to modify bankruptcy plans; he can only approve or reject a submitted bankruptcy plan. (source)

The list below contains a brief account of counties, towns, and cities that either filed for chapter 9 or came close to filing.  Note that there are other municipalities that file for chapter 9 that are not a county, town, or city.  These special municipalities are setup for special projects: hospitals, sewers, landfills, etc.  The list below is only of municipalities that can be found on a map.

New York City, New York.  April, 1975.  

Although New York City did not declare bankruptcy it did default on bonds in 1975.  By 1975 the city had experienced many years of deficit spending due to a generous welfare system that consumed 22% of the city’s budget.  The city continued to borrow money to help cover expenses.  By April of 1975 the city had accumulated $14 billion of debt with $6 billion being short term debt (due in less than a year).  Unable to borrow more money the city was unable to pay back bonds that were due and so it defaulted.  The city petitioned New York State and federal government for help.  To help raise money for the city, the New York State government created the Municipal Assistance Corporation (MAC) that would issue its own bonds.  The state placed pressure on government unions as well as New York banks to purchase MAC bonds.  The unions complied by purchasing $500 million in MAC bonds.  Gerald Ford initially stated he would veto any proposal by the federal government to aid the city.  By November of 1975 Ford had changed his mind and the federal government loaned $2.3 billion to the city for 3 years.  Conditions on the loan from the federal government included having the city pension fund use 40% of its assets to buy MAC bonds, NY banks must purchase $819 million in MAC bonds, the city must raise taxes and fees, and the city would have to balance its budget by 1978.  In the end the state was able to raise $2 billion in MAC bonds at 11% interest which was quite a bit higher than the municipal bond rate of 6.89%.  The MAC bonds were still not enough for the city to be solvent. The city cut 40,000 employees from a workforce of 300,000 and increased taxes.  The city was still unable to pay back creditors so it postponed payment of $1.6 billion of bonds for 3 years.  By 1978, three years later, the city balanced its budget, had paid back all delinquent bonds, and was able to borrow money again on the bond market.


Population: 7,400,000
Annual Budget: $12 billion ($1621 per capita)
Debt: $14 billion ($1891 per capita)
Cause: Social Services (welfare)
Resolution: Cut city employment, raised taxes, state and federal bailout
Sources: 1, 2, 3

Cleveland, Ohio.  December 15, 1978.

The City of Cleveland also did not declare bankruptcy but it too failed to pay back bonds when they became due.  By 1978 the city population had decreased by almost 25% from just eight years ago which caused city tax revenues to decline.  During the 1970’s the city borrowed money to cover deficits as it failed to cut spending despite declining tax revenue.  On December 15, 1978 the city was unable to borrow more money and it failed to pay $15.5 million in bonds due that day to six local banks.  The city defaulted.  In an attempt to raise money the city sold several assets: its sewage treatment facility for $32 million, its transit system for $8.9 million in 1975, and a power company whose sale was later rescinded.  By February, 1979 voters approved a 50% increase in the city income tax rate and in 1980 the governor of Ohio loaned $36.2 million to the city for 3 years which allowed the city to bay back the $14 million still owed to the banks.


Population: 573,000
Annual Budget: $90 million in 1971 ($158 per capita).  I could not find a budget for 1978.
Debt: $33 million ($58 per capita)
Cause: Decreasing tax revenues due to decreasing population
Resolution: Sell city assets, raise taxes, state bailout
Sources: 1, 2, 3, 4, 5

Lipscomb, Alabama.  April 19, 1991.

The town of Lipscomb had constructed a $3 million sewage treatment plant in 1979.  The project was financed by issuing bonds that were backed by taxes charged to property owners who were connected to the sewer system.  The city also raised money by issuing bonds that were backed by an increase in the town sales tax of 1%.  Over time the city experienced a 90% decrease in sales tax revenue as many businesses moved out of the town to neighboring areas.  By 1985 the town stopped making payments on the debt.  The creditor filed suit in 1987 and 1988 to collect delinquent payments from the city and was awarded a judgment of $120,000.  In 1991 the creditor again sued the town for delinquent payments, asking for the town to turn over keys to city hall, its three police cars, and some of its fire trucks.


Population: 2,800
Annual Budget: Unable to determine
Debt: $1.2 million ($423 per capita)
Cause: Sewage treatment bonds, declining tax base
Resolution: Could not determine the outcome.
Sources: 1

Bridgeport, Connecticut.  June 6, 1991.

Bridgeport filed for bankruptcy in June and the bankruptcy was dismissed by a judge in July making it one of the shortest bankruptcies in the list.  When Bridgeport filed for bankruptcy it was able to meet its expenses for the current fiscal year but the city was doubtful it would be able to do so the following year.  The bankruptcy judge determined that projections into the next year were too unreliable and dismissed the bankruptcy.  City employee salaries and benefits were the majority of the city spending causing the city to accumulate $220 million in debt.  The city was able to avoid bankruptcy the following year by union concessions of $10 million in payroll freezes, having city employees pay part of their health insurance saving another $10 million, and by aggressive tax collection of pass due property taxes bringing in another $10 million.


Population: 142,000
Annual Budget: $304 million ($2,141 per capita)
Debt: $220 million ($1,549 per capita)
Cause: Employee salary and benefits
Resolution: Bankruptcy dismissed.  City avoided bankruptcy with union concessions and aggressive tax collection
Sources: 1, 2, 3

North Courtland, Alabama.  December 9, 1992.

An employee of the city sued the city stating their 14 amendment rights were violated.   An award of $100,000 was decided for the employee.  The city did not have $100,000 to pay the employee which represented 40% of the city’s annual budget.  With a total debt of $187,000 of which $107,000 was debt from the lawsuit, the city filed for bankruptcy.  The city had portions of its tax revenue garnished to pay the award over years.


Population: 1,000
Annual Budget: $290,000 ($290 per capita)
Debt: $187,000 ($187 per capita)
Cause: Employee lawsuit
Resolution: Portion of city tax revenue’s was garnished to pay the award to the employee over years.
Sources: 1

Orange County, California.  December 6, 1994.

Orange county had relied heavily on interest income from investments compared to other California counties (12% for Orange county compared to the average of 3% for other California counties).  The treasurer of Orange County, Robert Citron, used a county fund of $7.6 billion as collateral to borrow money against.  He ended up borrowing $2 for every $1 in the fund increasing the size of the fund to $20 billion.  He then invested the money in interest rate derivatives which are financial instruments used to hedge against interest rates going up or down.  Using an astrologer and psychic, the treasurer bet rates would go down.  By late 1994 the fund had lost $1.64 billion and at that time the county now depended on 35% of their tax revenue coming from investments.  Around $910 million in bonds were due and the county was unable to pay them.  When the banks that loaned the county the money attempted to seize the money from the county’s deposit account the county declared bankruptcy.  The county then proposed a sales tax increase which was voted down.  It petitioned the stated for assistance but was denied.  The county proceeded to cut 1,000 county jobs and $200 million from the annual budget.  In addition, the county took $570 million from the transportation fund to help pay back the debt.  Other local governments had also contributed money (around $800 million) to the county investment fund and they withheld their demand for payment until the bank lawsuits were finished.  The county also borrowed $880 million in new bonds to pay back debt on existing bonds and to refinance some of the existing bonds.  Several banks were sued by the county resulting in Merrill Lynch being ordered to pay $430 million, First Boston $55 million, and KPMG Peat Marwick $75 million.  The county emerged from bankruptcy almost two years later in June of 1996.


Population: 2.567 million 
Annual Budget: $3.7 billion ($1,441 per capita)
Debt: $12 billion ($4,674 per capita)
Cause: Bad investments
Resolution: Reduction in county workforce, reduction in county spending, money diverted from transportation budget, renegotiated terms with lenders, penalties paid by banks.
Sources: 1, 2, 3, 4, 5, 6

Greene County, Alabama.  September, 1996.

When Greene County filed for bankruptcy in September of 1996 it listed liabilities of $154 million of which $152 million were claims made by 87 residents of the county equaling $1.7 million per resident.  I couldn’t determine what type of claims the residents levied against the county.  The bankruptcy plan was amended in 1997 which showed liabilities of only $3.4 million.  A dog track provided over 1/3 of the county’s revenue which began to suffer in the 1990’s due to a new dog track opening in Birmingham and a casino opening in Mississippi.  In 1988 the dog track had revenues of $98 million and by 1994 those revenues were down to $24 million.  The county owed the IRS $519,000 since it was not submitting withheld income taxes from county employees to the federal government.  Around $1 million in revenues was diverted from road and bridge programs to pay employee salaries.  Another $1.5 million was owed to other government agencies.


Population: 9,700
Annual Budget: Could not determine
Debt: $3,400,000 ($351 per capita)
Cause: Gambling revenues declining
Resolution:  Count not determine
Sources: 1

Westlake, Texas.  June 9, 1997.

Westlake was a town founded in 1956 when three large landowners formed the town to avoid having a local government.  The Town of Westlake did not provide government water, sewer, police, fire, or schooling.  In 1997, Westlake consisted of 250 residents on 4517 acres.  Ross Perot Jr. was one of the residents owning the Circle T Ranch.  He submitted a plan to develop the ranch into a western themed town with apartments, shopping, and golf courses.  Residents, along with the mayor, tried to fight the development.  Eventually the town board voted to remove the mayor, and de-annex several properties, including Perot’s ranch, from the town.  This de-annexation would reduce the size of Westlake to just 1414 acres with 160 residents.  Several lawsuits were filed and Westlake’s accounts of $2.5 million were frozen while the lawsuits were being settled.  This caused Westlake to file for bankruptcy since it could not pay its bills.  Once a judge granted certain government officials access to the funds to pay the town bills the bankruptcy was dismissed.


Population: 250
Annual Budget: Could not determine
Debt: Could not determine
Cause: De-annexation caused lawsuits which froze the town’s bank accounts.
Resolution: Bankruptcy was dismissed once accounts were unfrozen by a judge.
Sources: 1, 2, 3

Prichard, Alabama.  October 5, 1999.

It was difficult for bankruptcy officials to assess the financial situation of Prichard as very few records were kept of the city’s financial accounts and expenditures.  The city admitted to not making contributions to the city’s pension fund for years before the bankruptcy filing.  Income taxes owed to federal and state governments were also not paid by the city.  The city emerged from bankruptcy two years later and was ordered to increase its pension fund contributions by $16.5 million in order to make up for the years the city did not contribute to the pension fund.  Prichard appears on the bankruptcy list again since the city never implemented the increase in pension fund contributions.


Population: 33,000
Annual Budget: Could not determine
Debt: $3.9 million ($118 per capita)
Cause: Pension Fund, poor financial record keeping of city funds
Resolution: Ordered to increase pension fund contributions
Sources: 1

Desert Hot Springs, California.  December 18, 2001.

In 1990 the town of Desert Hot Springs rejected a plan by Silver Sage Partners to build a mobile home park in the town.  Silver Sage sued the town under the basis the town was discriminating against the poor which is illegal under the federal Fair Housing Act.  After lengthy court proceedings, Silver Sage was awarded $6 million, nearly 11 years after court proceedings began.  The town immediately filed for bankruptcy after the reward was announced.  In took three 3 years for the town to emerge from bankruptcy.  As part of the bankruptcy plan the town passed two tax increases and issued $12.8 million in 40 year bonds to pay Silver Sage $8.85 million as well as other creditors.  By 2012 the city had amassed $42.7 million in debt.


Population: 17,000
Annual Budget: $25 million ($1,471 per capita)
Debt: $8 million ($471 per capita)
Cause: City sued by developer under Fair Housing Act.  Developer awarded $6 million.
Resolution:  Increased taxes and borrowing by town to pay reward.
Sources: 1, 2

Millport, Alabama.  December 14, 2004.

Millport borrowed $2.081 million from the USDA in 1993 for a sewer and water system upgrade.  At the time of the bankruptcy filing, over 11 years later, the town still owed $2.010 million to the USDA.  The town had stopped payment of the bonds to the USDA for several years.  The town had also borrowed $1.3 million to renovate a civic center.  At the time of the bankruptcy filing the town had amassed debt totaling $3.5 million when its annual budget was a mere $750,000.  Money was even borrowed from the town clerk who was owed $20,000 by the town.  Factories had been closing or moving out of the area causing a declining population in the town.  This caused sales tax revenues to decline by 20% from 2000 to 2004.  The bankruptcy plan reduced debt from $3.5 million to $2.7 million by having 8% of monthly sales tax revenues for the next 40 years directed to the bondholders of the civic center loans ($1.3 million), along with a lien placed on the town hall, and the town was to make annual payments of $12,000 for the next 10 years to other creditors who were owed $120,000.  Penalties and interest were added to the money owed the USDA increasing this debt to $2.147 million.  No relief was given on this debt.


Population: 1,000
Annual Budget: $750,000 ($750 per capita)
Debt: $3.5 million ($3,500 per capita)
Cause: Declining population, jobs, and tax base coupled with a large USDA loan for a sewer and water system project.
Resolution: Restructured loan agreements where creditors receive portion of sales tax revenues.
Sources: 1, 2

Los Osos, California.  August 25, 2006.

In 1989 the California Central Coast Regional Water Quality board issued a building moratorium for a section of Los Osos.  No new construction was to take place due to the concentration of septic systems in Los Osos.  Almost all of the residents in Los  Osos use septic systems for sewage treatment.  The county proposed the building of a sewage treatment plant.  Many residents were upset at the cost of the plant so it 1998 an election was held that established the Los Osos Community Services District (LOCSD).  In August of 2005, LOCSD began construction on a sewage treatment plant. The location of the plant in the middle of Los Osos upset some residents so a recall election was held which removed three (3) council members.  After the recall election construction on the sewage plant was halted.  LOCSD filed for bankruptcy in August, 2006 with approximately $45 million in debts, fines, and claims.  In 2007 the county took over the construction of the sewage plant and LOCSD citizens approved a Proposition 218 (which requires a majority of voters to reject the proposal) property tax increase to help raise $127 million to cover some of the costs of the sewage plant.  The county also obtained $87.2 million in 40 years loans from the USDA for the project.  Based on the original project plans the estimated monthly sewage fee would be $50 per month.  Now the monthly fee is expected to be $200-$250 per month.  In March, 2011 the California state Water Resources Control Board awarded Los Osos a 30 year loan of $86.2 million towards the sewer project.  In July, 2011 the bankruptcy judge approved a plan where most creditors and contractors would only receive 35-40% of their owed money in relation to the sewage treatment plant.


Population: 14,500
Annual Budget: $4.3 million in 2012 ($297 per capita)
Debt: $45 million ($3,103 per capita)
Cause: Sewage Treatment Plant
Resolution: Property taxes increased, monthly sewage fees increased, creditors to receive 35-40% of owed amount.
Sources: 1, 2, 3, 4, 5

Moffett, Oklahoma.  January 31, 2007.

The town had setup a speed trap that generated 75-80% of town tax revenue.  In 2007 a judge ruled the speed trap illegal causing the town to declare bankruptcy.  At the time of the bankruptcy filing the town had amassed $200,000 in debt of which $95,000 was for two police cruisers.


Population: 178
Annual Budget: $290,000 ($1,629 per capita)
Debt: $200,000 ($1,125 per capita)
Cause: Town speed trap ruled illegal.
Resolution: Could not determine
Sources: 1, 2

Vallejo, California.  May 6, 2008.

Almost 80% of Vallejo’s general fund budget was spent on public salaries and benefits.  The next fiscal year, which started in July, would begin with Vallejo having no reserve funds as well as a budget shortfall of $16 million.  The city decided in May to file for bankruptcy before the next fiscal year began in order to avoid running out of cash.  Note that most municipalities file for bankruptcy after defaulting on a bond payment.  This bankruptcy was filed in anticipation of running out of money even though Vallejo was solvent at the time of filing.  The city proceeded to cut the workforce by 40% with a 50% reduction in the police force, and 42% reduction in fire fighters.  Pension contributions from the city were also reduced for new employees, payments to retiree health care plans were reduced, and the amount current employees had to contribute to the pension plan was increased.  Pension payment amounts for retirees and current employees were unchanged which means an estimated $195 million remains in unfunded pension liabilities.  A portion of the debt, in the amount of $50 million, was restructured with some creditors receiving reduced interest payments and other receiving only 50% of their original loan amount.  The city also passed a sales tax increase in November, 2011 to generate an additional $9.5 million a year.  The city emerged from bankruptcy nearly 3 years after filing and spending $10 million on legal fees during bankruptcy proceeding.


Population: 117,000
Annual Budget: $50 million ($427 per capita)
Debt: $78 million ($667 per capita)
Cause: Employee salary and benefits
Resolution: Reduced debt payments, reduction in city work force, reduction in city pension and healthcare contributions, increased sales tax
Sources: 1, 2, 3

Gould, Arkansas.  April 21, 2008.

The town had accumulated debt of $900,000 in loans from the Arkansas Natural Resources ($318,000), the USDA ($200,000), and other creditors for water and sewer improvements.  The town also owed the IRS $224,000 in income taxes for employees of the town who the town withheld money for income taxes but never sent the money to the IRS.


Population: 1,305
Annual Budget:  Could not determine
Debt: $900,000 ($690 per capita)
Cause: Accumulated debt for water and sewer improvements
Resolution: Could not determine
Sources: 1

Westfall Township, Pennsylvania.  January, 2009.

The town lost a lawsuit to a developer who had applied to build a 1500 unit housing complex and was denied by the town.  The developer, David Katz, sued the town under the federal Fair Housing Act and was granted an award of $20 million.  The town filed for bankruptcy once the award was announced.  The bankruptcy judge reduced the award to $6 million which the town was allowed to pay over 20 years in annual payments of $75,000.  The town also agreed to raise property taxes by $200 for the average homeowner.  Around 20-30 other creditors agreed to extend credit and payments as part of the bankruptcy plan.  One year later the town emerged from bankruptcy.


Population: 2,430
Annual Budget: $1 million ($412 per capita)
Debt: $6 million ($2,469 per capita)
Cause: Lawsuit award to housing developer of $6 million
Resolution: City raised property taxes, lawsuit award to be paid over 20 years in annual installments of $75,000, other creditors extended credit and/or postponed payment of debt by town.
Sources: 1, 2

Washington Park, Illinois.  July 6, 2009.

At the time of the bankruptcy filing the town listed assets of $50,000 and liabilities of $1,000,000 which included $450,000 owed to the Department of Employment Security and $300,000 owed to the former public safety chief.  The former public safety chief sued the town in 2000 after being fired.  He won the lawsuit and the court awarded him $165,000 for distress and humiliation.   The town had still not paid the award by 2009 and was accruing interest and penalties on the award.  Corruption in the town began to be exposed in 2006 when a town employee, Takisha Walker, was sentenced to three (3) in federal prison and ordered to pay more than $170,000 for the money she stole from town funds to cover personal expenses for herself and others.  In March of 2009, Dorothy Triplett, a former payroll clerk, was sentenced to 18 months in prison for stealing nearly $144,000 from the town in 2006 and 2007.  A few months after the bankruptcy filing another town employee was sentenced to three (3) years in federal prison and ordered to repay $370,000 that she admitted to embezzling from 2005 to 2007 causing the town employees’ pension fund to be underfunded.  An amount of $26,346 was shown to be owed to the pension fund at the time of the bankruptcy filing.


Population: 5,300
Annual Budget: Could not determine
Debt: $1 million ($189 per capita)
Cause: Lost lawsuit, rampant embezzlement by town employees
Resolution: Town employees fired and imprisoned, could not determine status of lawsuit award to former public safety chief.
Sources: 1, 2

Hamtramck, Michigan.  November 16, 2010.

In November, 2010 the city manager of Hamtramck, a suburb of Detroit, filed for bankruptcy citing a $3 million deficit with a budget of $18 million.  In November, 2010 the city manager of Hamtramck expected the city would only have enough cash for another two months prompting the city manager to file for bankruptcy.  Like Detroit the city was very dependent on the auto industry.  A General Motor’s assembly plant was located in the city and a tax sharing agreement existed between Detroit and Hamtramck where Detroit sent a portion of collected taxes to Hamtramck.  Detroit itself was struggling financially so in early 2010 Detroit said it had sent too much tax money to Hamtramck over the decades and so Detroit stopped sending the annual $2 million to Hamtramck.  The city was once home to 50,000 people but by 2010 the population had dwindled to 22,000 eroding the tax base.  Around 60% of the city’s revenue is spent on police and firefighter salary and benefits (75 current policemen and firefighters and 240 retired).  Before bankruptcy the city had attempted to negotiate a pay cut and increases in the health insurance premiums paid by employees but the unions for the police and fire would not agree to the terms.  The governor of Michigan dismissed the bankruptcy since Michigan law states that an emergency financial manager is the only person who is able to file for municipal bankruptcy.  On June 3, 2013 the Michigan governor declared a financial emergency for the city which could lead to the appointment of an emergency financial manager and eventually bankruptcy.


Population: 22,000
Annual Budget: $18 million ($818 per capita)
Debt:  Could not determine
Cause: Declining tax base, employee salary and benefits
Resolution: Initial bankruptcy dismissed.  Governor appointed an emergency financial manager.
Sources: 1, 2, 3, 4, 5

Central Falls, Rhode Island.  August 1, 2011.

From 1997 to 2009 at least 11 textile plans closed in the Northeast area including Elizabeth Webbing Mills in Central Falls which employed 280.  By 2011 the city had accumulated $21 million in debt from chronic deficit spending due to declining tax revenue and increasing salary, pension, and healthcare obligations to city employees.  The city is estimated to owe $80 million to employee pension and healthcare funds.  City unions rejected numerous offers by the city which included cutting pension payments in half.  Interestingly enough, just one month before the bankruptcy filing the Rhode Island state government passed legislation stating bondholders would be first in line for payment in the case of municipal bankruptcy.  This changed the general obligation bonds that were issued by the city from unsecured bonds to secured bonds.  In September, 2012 a bankruptcy plan was approved that increased property taxes by 4%, cut pension payout by 55% for those receive over $10,000 per year, and cut city payroll by 1/3 from 174 workers to 118.  Bond holders were to be paid in full.


Population: 19,000
Annual Budget: $17 million ($895 per capita)
Debt: $21 million ($1,105 per capita)
Cause: Declining tax base, employee salary and benefits
Resolution: Property tax increase, cut city employment, cut pension benefit for retirees
Sources: 1, 2, 3, 4, 5

Boise County, Idaho.  March 2, 2011.

Alamar Ranch was a mental health and drug addiction treatment facility for teens that was proposed by a developer to be built in Boise County.  County leadership did not reject the proposal but instead added many cost additions to the project making it unfeasible for the developer.  The developer argued the residents of Alamar Ranch would be classified as handicapped so the developer proceeded to sue the county under the federal Fair Housing Act stating the county was discriminating against handicap persons.  Alamar Ranch won the lawsuit and was awarded $4 million plus $1.4 million in attorney fees to be paid for by the county.  On February 22, 2011 the county offered to pay $3.2 million to Alamar Ranch.   The $3.2 million consisted of $1.9 million in cash immediately with the remaining amount to be paid from money raised by an increase of 3 points in the sales tax for the next 10 years.  If the amount paid after 10 years did not cover the $3.2 million then the remaining balance would be forgiven.  Alamar Ranch rejected this offer.  On September 8, 2011 the bankruptcy judge dismissed the bankruptcy filing since Boise County was meeting its current obligations.  The judge ordered the county to pay $2.5 million of the award by December and ordered the county to raise taxes to pay the rest.  In May, 2012 voters approved a 7 year property tax increase to help pay back the award.  The county borrowed $2.7 million to pay the rest of the award.


Population: 7,400
Annual Budget: $9.4 million ($1,270 per capita)
Debt: $5.4 million ($730 per capita)
Cause: Lawsuit awarded under Fair Housing Act to developer of rehab center.
Resolution: Raise property taxes, increased borrowing to pay lawsuit award
Sources: 1, 2

Jefferson County, Alabama.  November 9, 2011.

In 1996, the federal Environmental Protection Agency (EPA) accused Jefferson County of dumping raw sewage into the Black Warrior and Cahaba rivers.  The County began to borrow money to build a new sewer system.  The borrowed money was to be paid back from sewage connection fees and monthly sewage bills.  Original estimate for system was $1 billion.  Project costs escalated to $3.2 billion and monthly sewage bills increased by more than 3 times irritating residents.  The County continued to borrow money.  JP Morgan offered bonds with complicated interest rate swaps derivatives that made the county’s interest rate on the bonds a floating rate.  In 2008 rates went up which increased interest payments for Jefferson County.  A total of $3.2 billion had been accumulated in sewage debt of which $1 billion was owed to JP Morgan.  At the time of the bankruptcy filing total debts was listed at $4.23 billion.  The approved bankruptcy plan including county layoffs, and for most creditors to receive only 60% of their original loan amount from the county.  JP Morgan, which held $1.22 billion in Jefferson County bonds, was to be paid only $378 million which is only 31% of the original loan amount.  This drastic reduction included a $722 million fine against JP Morgan for its role in the credit default financing for Jefferson County.  The plan also called to increase sewer rates by 7.4% annually for the next four years.


Population: 658,000
Annual Budget: $686 million in 2011 ($1,043 per capita)
Debt: $4.23 billion ($6,429 per capita)
Cause: Debt related to construction of a sewage treatment plant which started based on EPA findings
Resolution: County laid off more than 1,000 works, debt repayments renegotiated to 60% of original amount, increase sewer rates by 7.4% annually for next 4 years.
Sources: 1, 2, 3, 4

Harrisburg, Pennsylvania.  October 12, 2011.

A new trash incinerator was approved by the city council and mayor in 2003 with an initial project estimate of $125 million.  The city borrowed money to build the incinerator.  At the time of the bankruptcy filing in 2011 the city listed total debt our $400 million with $340 million of the debt related to the incinerator project.  Harrisburg filed for bankruptcy in October, 2011 and during the preceding summer the Pennsylvania state legislature passed legislation preventing Harrisburg from filing for bankruptcy.  That legislation expired on July 1, 2013.  In February, 2012 a Pennsylvania district court dismissed the bankruptcy and the city was appointed a receiver to oversee the city’s finances.  Under Pennsylvania law only the receiver is allowed to file for bankruptcy.  The restructuring agreement call for the city to sell the incinerator for $130 million, lease some of the city parking garages for 50-60 years, auctioning off 8,000 Wild West artifacts collected by the previous mayor estimated at $2.7 million, asking police, fire and municipal workers to agree to pay freezes, and implement a court ordered doubling of the city’s income tax rate to generate an additional $5.1 million a year.  Bondholders would be paid in full by companies that insured the city’s bonds (Assured Guaranty and Ambac).  The bond insurance companies will receive payments from the leasing of the city parking garages.


Population: 50,000
Annual Budget: $65 million ($1,300 per capita)
Debt: $400 million ($8,000 per capita)
Cause: Massive debt related to building of a city trash incinerator
Resolution: Sell trash incinerator, lease city parking garages for next 50-60 years, pay freezes for city employees, and doubling of city income tax rate
Sources: 1, 2, 3, 4

Stockton, California.  June 28, 2012.

The City of Stockton provides lifetime healthcare benefits for municipal employees and one dependent regardless of how long the person was employed by the city.  Around 75% of the city’s budget was used for public safety payroll and to service debt along with 13% used for pension plan obligations.  The city has 350 police officers with an average salary of $93,000.  The average fireman’s salary was $110,000.  The median household income in Stockton is $50,000.  At the time of the bankruptcy filing Stockton had amassed $700 million in debt from civic improvement projects and past borrowing to continue to make pension plan contributions.  Before bankruptcy the city had stopped paying back pension obligation bonds which were unsecured bonds meaning no specific tax revenue was tied the repayment of these bonds.  The city has 2,400 retirees and the city continued to make current pension plan payments of $30 million a year while defaulting on debt owed to bondholders.  The Assured Guaranty Corp insured the pension bonds and it, along with other creditors, are objecting to Stockton’s bankruptcy.  City has stopped paying health insurance premiums for half of the city retirees.  The city has cut the police force by 25% and salaries by 20%.


Population: 296,000
Annual Budget: $521 million ($1,760 per capita)
Debt: $700 million ($2,365 per capita)
Cause: Employee salary and benefits
Resolution: Default on bondholder payments, cut police staff by 25%, cut salaries by 20%, stopped paying health insurance premiums for retirees
Sources: 1, 2, 3, 4, 5, 6, 7, 8, 9

Mammoth Lakes, California.  July 3, 2012.

A company called Mammoth Lakes Land Acquisition (MLLA) wanted to be build a $400 million hotel and condominium project near the airport in the Town of Mammoth Lake.  The town agreed to the development as long as MLLA agreed to make improvements to the airport.  In 1997 the town decided it no longer wanted the development so it prevented MLLA from building the development.  MLLA sued the town and was awarded a settlement of $30 million in 2008.  By 2012 the award had grown to $43 million with interest and legal fees.  The town could not pay the award so it filed for bankruptcy in 2012.  The bankruptcy was dismissed a little over four (4) months after the town had filed.  An agreement had been reached between MLLA and the town where the town agreed to pay MLLA $29.5 million over 23 years at a fixed interest rate of 5.17%.


Population: 8,000
Annual Budget: $18 million ($2,250 per capita)
Debt: $43 million ($5,375 per capita)
Cause: Lawsuit settlement to developer who sued town after being denied permission to build.
Resolution: Lawsuit award agreed to be paid to developer over 23 years.
Sources: 1, 2

San Bernardino, California.  August 1, 2012.

In 2008 the city of San Bernardino had revenues of $133 million.  The real estate crash of 2008 caused the revenues of the city to drop to $120 million by 2012.   By then approximately 73% of the city’s general fund was being used for the city’s public safety payroll.  The city cut its workforce by 20% which included a reduction in the police force from 350 to 264.  Labor cuts of $10 million annually were also negotiated by the city with labor unions.  The city was still unable to make the required payments to the pension fund and retiree health care fund.  In April, 2012 the city stopped making payments to the pension and retiree health care funds.  At the time of bankruptcy the city had amassed $55.9 million in bond debt of which $50 million was borrowed to make payments to the pension system.  The city had an annual bill of $31.2 million for the pension fund and $2.22 million for the retiree health care fund.  In April, 2013 the city agreed to resume payments into the pension fund and retiree health care fund but not make payments on bonds.  A bankruptcy plan is still being developed and the city has still not addressed the $33 million it did not pay into the pension fund from April 2012.


Population: 209,000
Annual Budget: $120 million ($574 per capita)
Debt: $56 million ($268 per capita)
Cause: Employee salary and benefits
Resolution: Workforce reduction, pay cuts, stopped payment on bonds, did not pay into pension fund for over a year.
Sources: 1, 2, 3

Detroit, Michigan.  July 18, 2013.

In 1950 Detroit had a population of 1.8 million but by 2013 the population had dwindled to 700,000.  Property tax revenues have declined by 20% since 2008 and income tax revenues by 30% since 2002.  The city has 10,000 employees and supports 20,000 city retirees.  Approximately 38% of city spending is on servicing debt related to pension and benefits.  Debt at the time of the bankruptcy filing was estimated to be $18 billion which includes $9.2 billion owed to pension and healthcare funds for retirees.  Since 2008 the city has spent $100 million more each year than it has received in revenue.  The city mayor has reduced the city work workforce by 1,800 from 2009 to 2011.  Negotiations were attempted asking for a 20% reduction in city contributions to retiree health plans as well as suspending payments into the pension fund for one year to save $65 million.  This offer was rejected by the union.


Population: 700,000
Annual Budget: $3.1 billion ($4,429 per capita)
Debt: $18.5 billion ($26,429 per capita)
Cause: Declining population and tax revenues, employee salary and benefits
Resolution: Reduction in city workforce, bankruptcy plan still being developed.
Sources: 1, 2, 3, 4, 5, 6

Hillview, Kentucy.  August 21, 2015.

In 2002 the city signed a contract with Truck America, a truck driver training school, giving the school permission to lease a 40 acre plot of city land along with the agreement to purchase the plot in the future. Truck America started building on the land but in 2005 the city evicted them from the plot violating the contract which would have allowed Truck America to purchase the plot. There are various reports on why Truck America was evicted including a better offer for the land as well as Truck America not making the required lease payments. The trucking company sued and was awarded $11.4 million in damages which has now reached over $15 million with interests since the city has not made any payments. The city has been appealing the award but lost their last appeal and decided to declare bankruptcy in the hopes of reducing the award.


Population: 9,000
Annual Budget: $3.0 million ($333 per capita)
Debt: Between $50 million and $100 million ($5,555 per capita using $50 million)
Cause: City sued for violating a land contract with Truck America
Resolution: City files for bankruptcy in an effort to reduce or not pay lawsuit award.
Sources: 1, 2, 3

And, of course, a gratuitous trend chart:

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