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The New Normal: Municipal Bankruptcy



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Half a million Californians now live in bankrupt cities, as San Bernardino joins Stockton in declaring insolvency thanks to a $46 million deficit (a smaller city also declared bankruptcy this month). Lest anyone think this was a result solely of the 2008 housing bubble and financial crisis, Reuters reports that:

the city attorney general James Penman said San Bernardino’s city officials had been submitting false accounting documents for 13 of the last 16 years in an effort to hide the real financial situation of the city.

San Bernardino’s mayor since 2006, Patrick Morris, said he had never heard of allegations of fraud in the city’s accounting documents. So, felony malfeasance can be added to the deficit spending, unsustainable pension plans, and unresponsive government that, according to the Los Angeles Times, has left only the city only $150,000 in the bank. That means the city has less than one dollar in savings for each of its 209,000 residents. The Times goes on to note that the Chapter 9 filing will allow San Bernardino to renegotiate labor contracts, stall payments to creditors, and insulate the city from large lawsuit judgments. But the real fear is that if the city can’t make the next payroll, it will effectively shut down, including closing police and fire services.

Given the high profile bankruptcies in California this summer, the state might eventually decide, or be forced, to appoint emergency municipal managers, like those controlling four cities in Michigan. These modern day-dictators, which I wrote about on NRO a while ago, may increasingly become the norm, thanks to the repeated failing of democratic government in places like Detroit. Whether appointed by Republican legislatures (as in Michigan) or Democratic, they represent a loss of local sovereignty that seems acceptable in the face of government failure. Detroit still dances on the edge of bankruptcy, and states like Illinois are not far behind.

The big danger is that all this will become the new normal: failing cities, bankruptcies for locales with hundreds of thousands of citizens, dictatorial emergency managers. If we get used to that, and accept those remedies, we will have taken another giant step towards irreversible statism. Politics is indeed local: Failure starts at home.

UPDATED: Some comments pointed out that Cleveland has corrected many of its problems in recent years, and therefore should not be linked with Detroit. That’s a fair point, and I’ve removed the reference in the post.



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