Sept 19 Detroit, Chicago and three other U.S.
cities fell into financial distress for a variety of reasons,
according to analyses of financial data released on Thursday.
The Center for State and Local Government Leadership at
Virginia's George Mason University examined a handful of the
most troubled cities, along with Baltimore, which despite a
population drop and high poverty levels is on a solid financial
Detroit, which made the biggest municipal bankruptcy filing
in U.S. history on July 18, wound up in bankruptcy court due
largely to its steep population drop, cuts in state aid and
collapsing real estate values, the report said.
Chicago's issues leading to steep cuts to its credit ratings
are rooted in large measure in its high labor costs, while San
Bernardino in California is seeing tight times chiefly because
of a flawed city charter and inhospitable state politics, the
Detroit wound up in bankruptcy court because, while its
revenue is higher than other Michigan cities on a per capita
basis, there was not enough cash to cover services. High debt
and pension costs also contributed.
"Filing for municipal bankruptcy is a critical step for
Detroit to stop its hemorrhaging and to develop, in concert with
the state, a realistic plan to overcome its insolvency," the
The study noted Michigan's biggest city needs radical
changes to its physical borders and governance, as well as
shared services to succeed.
Chicago, meanwhile, faces "seemingly intractable labor
issues" that are impeding changes to rein in burgeoning pension
costs, according to the center. That in turn could fuel fears of
higher property taxes and derail economic expansion.
"The more of its budget the city must divert to meet
unsustainable pension obligations, the less it has to address
its goal of investments in the city's infrastructure, schools
and public safety - investments fundamental to the city's
economic future," the analysis said.
California's San Bernardino landed in bankruptcy court due
in some measure to a flawed city charter that was amplified by
an ingrained political culture, low state funding and economic
shocks. The city charter gives the mayor broad power to veto
ordinances, while at the same time granting the city attorney
broad discretion to ignore requests from the mayor.
"A weak charter combined with a negative political culture
made overcoming the economic shocks and state actions too steep
a hill for San Bernardino to climb," the center said.
Pittsburgh's fiscal decline came to a head in 2003 and the
state swooped in to help. While the city has made progress on
its finances, it still struggles with state laws that limit
revenue and require binding arbitration for public safety
unions, the center concluded.
Providence, Rhode Island, was held up as a city that is
making its way back to fiscal stability after loss of population
and industry had put it on the brink of bankruptcy. A shared
sacrifice approach that included spending cuts and tax increases
led the city toward recovery, the center's report said.