Wednesday, March 9, 2011
City in Bankruptcy
While the banking industry has recovered from the recent economic downturn, Vallejo, Calif., is still in bankruptcy since filing for chapter 9 protection in May 2008, the New York Times reported today on some aspects of city life under bankruptcy. The police force has shrunk from 153 officers to 92 and calls for any but the most serious crimes go unanswered. Residents who complain about prostitutes or vandals are told to fill out a form. Three of the city's firehouses have also been closed to try and shore up the city's finances. Nationally, there is growing concern about the state of municipal finance. The U.S. has nearly $3 trillion in municipal bonds outstanding. Though some are backed by specific projects like airports and toll roads, most are general-obligation bonds; local taxes are used to pay the interest on those bonds before other expenses. Detroit is in financial trouble because of its shrinking population, as are any number of towns in the former steel region of Western Pennsylvania. Many former industrial cities are burdened with governments that are out of proportion to their shrunken tax bases. Local budgets were stretched even before the recession; now, diminished tax receipts coupled with public employee pension liabilities have threatened their ability to balance budgets.