10 Cities That Have Declared Bankruptcy

The legal, political, and financial world is abuzz with the news that Detroit has declared bankruptcy. Disputes are ongoing as to whether the declaration is in keeping with the Michigan State Constitution, while business analysts have applauded the move, saying it is necessary for Detroit’s fiscal recovery. But while declaring bankruptcy is certainly an unusual move for a city, it is not an unprecedented one. Detroit has made headlines because it is the largest American city to declare bankruptcy, but it is far from the only municipality to do so. As of June 2012, more than 600 cities, towns, and counties had done the same since the procedure first became legal for municipalities in the 1930s. Here is a list of the 10 most notable American cities to declare bankruptcy.

1. Stockton, CA – Until Detroit declared bankruptcy, Stockton (pop. 291,707) was the largest American city to go bankrupt. The city based its spending, salaries, and borrowing on growing developer fees and property taxes, but when the housing market went bust, the city’s financial situation quickly spiraled out of control.

 

Image from http://commons.wikimedia.org/wiki/File:Fox_California_Theater_-_Stockton,_CA.jpg

2. Bridgeport, CT – Unlike many of the cities on this list, Bridgeport declared bankruptcy well before the recession in 2008. In 1991, Bridgeport (pop. 141,686) made history by being the first major city to take this course of action. The move was made largely so that Bridgeport could renegotiate labor contracts that put a huge financial strain on the city.

3. Vallejo, CA – Before Stockton made the same move, Vallejo (pop. 115,942) was the largest California city ever to declare bankruptcy when it did so in 2008. By 2005-2006, the city was running deficits in excess of $3-4 million over its annual income. Unfortunately, the city lost another $8 million in legal fees while filing for bankruptcy.

4. Harrisburg, PA – The city (pop. 49,528) declared bankruptcy in 2011, largely because its grossly outdated trash incinerator required extensive repairs. After making the repairs, the city found itself $317 million in debt. A federal court declared the move illegal, however, because while the city council approved the move, the mayor did not.

5. Prichard, AL – Prichard declared bankruptcy for the second time in 2009. (The first was in 1999.) Though the city was once a thriving municipality in the 1960s, population decline and a smaller middle class caused the city’s pension plan to completely exhaust itself. After pensioners sued the city, officials declared Chapter 9 bankruptcy.

6. Central Falls, RI – Central Falls (pop. 19,376) may be the smallest city in Rhode Island, but it is still one of the biggest municipalities ever to declare bankruptcy when it did so in 2011. Once home to a thriving textile industry, the city was forced to close 11 textile plants between 1997 and 2000. Unfortunately, the financial restructuring involved massive cutbacks, including closing a community center, reducing library funds, laying off city workers, and greatly reducing pension payments.

7. Desert Hot Springs, CA – Despite being a glamorous resort city (pop. 16,582) with mineral water springs, 41 spas, and 330 days of sunshine a year, Desert Hot Springs was $8 million in debt when it filed for bankruptcy in 2000. Significantly, it was the first municipality in California to file for bankruptcy since Orange County did so in 1994.

8. Westfall, PA – Westfall declared bankruptcy in 2009 after several large scale lawsuits were waged against the city, including a $20 million lawsuit with a land developer after the city stopped a building project with a projected 1,500 residences. At the time, the city’s annual revenue was approximately $1 million.

9. Moffett, OK – Though not technically a city, the circumstances surrounding Moffett’s 2007 bankruptcy declaration are so unique, the town made a spot on the list. Just a few weeks earlier, the Oklahoma Legislature had passed a bill which prohibited the town from issuing speeding tickets along a 4 mile area on U.S. Highway 64. Because these tickets produced 78% of the town’s annual income, it was forced to declare bankruptcy. In addition, the mayor had made purchases that the board of trustees was unaware of.

10. San Bernardino, CA – If you need evidence that the economy is not hot in California, San Bernardino is the fourth California city on the list. Due to significantly decreased property values and sales tax, the city was operating on a huge deficit, with expenses exceeding income by approximately $45 million.

Though these 10 cities were forced to declare bankruptcy, they are still in existence and supporting their citizens today. It is a positive sign for Detroit that the city can use this declaration as an opportunity to restructure and move into the future with financial stability. In time, this declaration of bankruptcy will make them stronger than they have been in many years.