According to the website Governing, municipal bankruptcy remains relatively rare. A Governing analysis estimated that only one of every 1,668 eligible general-purpose governments (counties and cities) filed for bankruptcy protection over the past five years. One of the reasons for this low level of bankruptcy filings is that states must have in place laws authorizing municipal bankruptcy before a municipality can take advantage of Chapter 9. Only about half of the states have enacted such laws. The state then must approve of the municipality entering bankruptcy. States that have not enacted such laws often have other measures providing financial relief.
The cause of most municipal bankruptcies can frequently be attributed to the accumulation of large amounts of debt, usually from one or more of the following:
- Unfunded pension liabilities
- Unfunded health care benefits
- Mismanagement
- Over-budget capital projects
- Reduced state and federal aid
- Reduced tax revenues
Municipal bankruptcies are handled at the federal level, so constitutional issues prevent the judge from dictating how a municipality is run. Thus, the judge cannot mandate actions such as tax increases, budget cuts, asset sales or the removal of local politicians.
I think that there should be a mandatory requirement for all politicians, including the ones in Washington, D.C., to take, and pass, a course on fundamental accounting before being allowed to take office. It seems that no one understands the basic concept that if you spend more than you take in, year after year, you will eventually end up like the city of Detroit--bankrupt!
What do you think?
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