Detroit has added its name to a growing list of US cities that have filed for bankcruptcy, with debts of more than $18bn as a municipal fiscal crisis spreads from state to state.
In 2012, three California cities – Stockton, Mammoth Lakes and San Bernardino – also sought protection from creditors.
A federal judge in April 2013 ruled that the Californian city of Stockton should be allowed to restructure its debt over fears that the city could not afford to ensure “basic public safety.
Community leaders put the Californian resort town of Mammoth Lakes into bankruptcy in July 2012 after being ordered by a state court to pay $43m to its biggest creditor, Mammoth Lakes Land Acquisition. The town announced a settlement with the company the following month and in November won dismissal of its bankruptcy case after settling the development lawsuit.
Crisis-hit San Bernardino, a city of 210,000 located 65 miles east of Los Angeles, declared bankruptcy in August 2012, saying it was overwhelmed by pension liabilities and did not have the cash to keep up payments to Calpers, America’s biggest public pension system with assets of $256bn.
The San Bernardino case has been mired in disputes about the scope of documents the city must provide to its creditors. A late August hearing will determine whether the city of San Bernardino is eligible for Chapter 9 protection.
In 2011, Jefferson County, Alabama, filed a Chapter 9 bankruptcy petition, citing $4.23bn in debt, after it was unable to repay money it borrowed to upgrade its sewage system because of corruption and poor management. In June 2013, commissioners sought a compromise that calls for paying creditors a little more than half the money they’re due and raising sewer rates. The county hopes to exit bankruptcy by December.
Jefferson county’s bankruptcy supplanted Orange County, California, as the largest municipal bankruptcy. Orange County entered court protection in 1994 after losing $1.7bn on interest-rate bets.
Other municipals have not been able to use Chapter 9 to seek protection from their creditors.
Pennsylvania’s capital city, Harrisburg, filed for bankruptcy in October 2011 in the face of $300m in debt, which arose from a costly trash incinerator programme. Soon after, the state passed a law allowing it to take control of the city’s finances.
The Securities and Exchange Commission in May this year charged Harrisburg with securities fraud for misleading public statements when its financial condition was deteriorating. The city reached a settlement with the federal agency and agreed to enhance its financial disclosure policies.
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