I was shocked to hear on NPR this evening that Jefferson County Alabama, where Birmingham is located, is on the verge of bankruptcy. Listening to the radio, I thought, this is truly a sign of the times.
The reality that municipalities are suffering all across America is made all the more real when one reads this history of bankruptcy among cities and towns. During the Great Depression, some 2,000 cities defaulted on their debt obligations. When they pleaded for a federal bailout all they got was sympathy. President Roosevelt then pushed through regulations for Chapter 9 of the U.S. Bankruptcy Code which would allow municipalities to declare bankruptcy for the first time.
Since 1980, thirty-two cities and towns have declared bankruptcy. Most notable of these were Bridgeport, Conn., population 140,000, which declared bankruptcy in 1991. And, in the nation’s biggest municipal bankruptcy, Orange County, Calif., sought protection from its creditors in 1994 after city officials made a series of bad investments.
Some experts believe the warning signs are clear: unfunded pension liabilities, an anemic economy, costly infrastructure repairs and falling property values, all add up to the likelihood of an increasing number of municipal bankruptcies in the near future. [Read More]