Municipal Bankruptcies

Municipal Bankruptcies
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Municipal Bankruptcies

In 2010, the combination of a tax shortfall, cuts in state aid, and a pension fund debacle had left the small city with a shortfall of more than $3 million.

When it entered bankruptcy court in November 2011, Jefferson's was the most expensive municipal bankruptcy in U.S. history. Not surprising, considering that the $4 billion crisis managed to combine a sewer bond debacle, a JPMorgan-affiliated bribery scandal and a tax dilemma. By mid-2012, the county had laid off over 700 government workers.

Following the loss of two paper companies and a military base, the small city declared bankruptcy in 1999. A decade later, following pension fund troubles, the city was back in court.

Photo by TeaCas, Panoramio

Employers are supposed to withhold federal taxes from their employees' paychecks, and the City of Gould dutifully did so. They are also supposed to send that money on to the federal government. Gould, unfortunately, forgot that part, an oversight that led the small municipality to bankruptcy court in 2008.

Photo by Water tower nut,

In an attempt to pay off debts accrued by a former mayor, Moffett tried to raise revenue by going hog wild in the issuing of traffic tickets. That plan ground to a halt in December 2006, when a court declared that the town was an illegal speed trap. Two months later, Moffett was seeking bankruptcy protection.

Its green-energy recycling plant was supposed to burn trash to generate electricity. Instead, it burned money, generating $320 million in debt. Additional debt from its school system and employee pension system left Harrisburg struggling to regain its financial feet. Its 2011 petition for Chapter 9 was rejected, but the city is still trying to file for bankruptcy.

In 2008, Vallejo declared bankruptcy, citing exorbitant firefighter and police salaries. Following its filing, the city renegotiated contracts, and is now searching for new sources of revenue.

In June 2012 Stockton, Calif., became the biggest U.S. city in history to file for bankruptcy. At the same time, it also became the new face of America's national budget battle.

In California, cities like Stockton don't have the power to increase property taxes when property values drop, leaving them only one option to balance budgets: cutting labor costs. Over the past two years, the city has laid off 40% of its employees, 25% of its policemen, and 33% of its firefighters. Unfortunately, these layoffs have come at a high cost: Stockton currently has the nation's second-highest foreclosure rates, one of its highest violent crime rates, and a 20.1% unemployment rate -- more than double the national average. According to city officials, Stockton's public safety is at a "crisis level."