Eight New Cities on the Verge of Bankruptcy

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Detroit is the largest municipal default in the history of the US.
The city owes $9.2 billion in pensions, $1.9 billion to creditors and is $18.5 billion in debt.

The city's infrastructure is collapsing. Almost half of its streetlights are not working and aren't being repaired.

The average time for Detroit police to respond to an emergency is just under an hour. Crime has spiked. Many in the city have resorted to carrying firearms for their personal protection.

The city bankruptcy epidemic is likely to spread around the country, resulting from years of overspending on wages and pensions in order to keep public employee unions happy and city politicians re-elected.

We take a look at eight U.S. cities on the verge of bankruptcy:

Washington, D.C.

City

Population:

Deficit through 2012:

Budget in Fiscal year 2012:

Annual Budget Shortfall:

Deficit per Capita:

2011 Unemployment Rate

Washington, DC

599,657

$322 million

$9.6 billion

3.4%

$537

11.1%

Mayor Vincent Gray said, "My budget will inflict some pain, it's a tough budget and I won't represent it as anything else." Still Gray's budget will leave D.C. in the red and as tough as he reports it is, it isn't nearly tough enough to make any dis lasting difference.

The city council just passed what they call a "Living Wage" that has cost the District 2,000 jobs and maybe more.The "Living Wage" forces employers to pay a minimum wage of $12.80 per hour, instead of $7.25 national minimum wage. This won't help the city's finances as more businesses migrate to neighboring Virginia and Maryland.
The unemployment rate for D.C. will likely go even higher than 11%.

Camden, NJ

City

Population:

Deficit through 2012:

Budget in Fiscal year 2012:

Annual Budget Shortfall:

Deficit per Capita:

2011 Unemployment Rate

Camden, New Jersey

517,234

$28 million

$138 million

20.2%

$54

11.1%

Mayor of Camden, Dana Redd in her 2011 budget proposal called for severe budget cut backs that led to nearly one-sixth of all city employees losing their jobs. This included almost 50% of the police force and 33.3% of the fire department. Public employee unions claimed the mayor's cuts would turn the city into a, "living hell". The truth is Camden in many ways is in even worse financial shape than Detroit.

Cincinnati, Ohio

City

Population:

Deficit through 2012:

Budget in Fiscal year 2012:

Annual Budget Shortfall:

Deficit per Capita:

2011 Unemployment Rate

Cincinnati, Ohio

331,285

$60 million

$1.2 billion

20%

$181

8.7%

In the City of Cincinnati mums the word when it comes to the city's budget.
Mayor Mark Mallory's lack of any statements concerning the deep troubles in his city led many to believe his intention is for the city to file for bankruptcy.

Making matters worse is the latest news that Moody's has downgraded the city from an Aa1 rating to an Aa2 rating. Although the rating is still the third highest rank given by Moody's, a new warning of another possible downgrade has given many cause for concern.

San Diego

City

Population:

Deficit through 2012:

Budget in Fiscal year 2012:

Annual Budget Shortfall:

Deficit per Capita:

2011 Unemployment Rate

San Diego

3 million

$56.7 million

$2.8 billion

2%

$19

10.2%

San Diego is in a deep hole.

Even with severe cuts to public and higher education sectors and even with fire engine cutbacks, San Diego remains fiscally unstable.

Blackouts plague the fire stations. Thousands of blackouts moved through different stations to save $11.5 million in the current fiscal year. Recreation center hours were cut back to 20 hours a week. Almost 80 full-time positions were cut, saving $6.5 million. The city proposed 6% pay cuts for employees across the board and has permanently cut 120 full-time positions.

San Jose, California

City

Population:

Deficit through 2012:

Budget in Fiscal year 2012:

Annual Budget Shortfall:

Deficit per Capita:

2011 Unemployment Rate

San Jose

894,943

$115 million

$2.5 billion

4.6%

$128

10%

San Jose Mayor Chuck Reed said, "Whether or not we declare an emergency, we're in an emergency. We just laid off police officers. Last year, we laid off firefighters. We've closed libraries, community centers. We are in an emergency and we need to take action."

Reed also looks to close the deficit by reducing services and controlling the cost of retirement.

San Francisco

City

Population:

Deficit through 2012:

Budget in Fiscal year 2012:

Annual Budget Shortfall:

Deficit per Capita:

2011 Unemployment Rate

San Francisco

808,976

$380 million ($480mil for '12-'13, $642mil for '13-'14)

$6.8 billion

5.5%

$470

9.7%

San Francisco Mayor Edwin Lee saved $20.2 million by enacting a hiring freeze.

The mayor's $6.8 billion budget proposal is aimed to close a $380 million shortfall caused by growth in employee benefit costs and loss of revenues from the state and federal governments. Whether or not this is enough to "right the ship" is anybody's guess. It could be too little too late!

Los Angeles

City

Population:

Deficit through 2012:

Budget in Fiscal year 2012:

Annual Budget Shortfall:

Deficit per Capita:

2011 Unemployment Rate

Los Angeles

9.8 million

$457 million

$6.9 billion

6.6%

$46

13.3%

Mayor Antonio Villaraigosa has initiated huge cuts to the police and fire departments, while also cutting the Recreation and Parks Department.

Los Angeles cut 10% from homeless programs, as well as permanent cuts to city spending.

The California cities mentioned here are not the Golden Statecities teetering on the brink.

Baltimore

City

Population:

Deficit through 2012:

Budget in Fiscal year 2012:

Annual Budget Shortfall:

Deficit per Capita:

2011 Unemployment Rate

Baltimore

599,657

$745 million

$2.2 billion

15%

$50

9.4%

Baltimore Mayor Stephanie Rawlings-Blake knows she has a serious problem. To better understand her dilemma she hired a specialist to discern what the problems are and how to address them.

Then she promptly spent $650,000 for video cell phones for the city councill. According to Census data the median income in the city is $40,000, and 22 percent of the city's residents live in poverty.

The city is plagued with 16,000 vacant properties. Baltimore has the highest property taxes in Maryland — twice as high as in neighboring Baltimore County. With the city hemorrhaging 5% of its residents annually to neighboring Baltimore County there simply isn't enough income to match revenues with the growing budget deficit.

Try as they may, the numbers are not working for any of these eight cities.

It is impossible for them to pay pensions and keep up with normal maintenance to the infrastructure with the revenues they receive.

Combine their high taxes and unemployment with loss of population and jobs spell doom for these cities. Many more are waiting in the wings.

So stay tuned!

City bankruptcies have the potential to roil municipal bond markets. Read what the Detroit bankruptcy means for municipal bonds.

Which city is next? Vote below and enter your email address to receive Money Morning’s Daily Insights

Join the conversation. Click here to jump to comments…

  1. William Fry | July 23, 2013

    You need to check the math on Cincinnati, I do not think 60 million shortfall is any where near 20% for them. Maybe the govt is doing the figuring however and it could be right, according to the govt.

  2. H.Craig Bradley | July 24, 2013

    PARTY ON FOR NOW

    None of these cities mentioned can actually go bankrupt and discharge their debts and pension obligations in court unless and until they are accepted in Federal Bankruptcy Court. Until then, they just have financial problems and will slowly bleed-out. City services will suffer and taxes will probably continue to go up for a few more years.

    Remember, it took DEE'-Troit 60 years to get to the stage where they actually defaulted on their bonds (debt) and formally went bankrupt in court. Over that long period of time, there were many incompetent mayors and city councils. The the talk went on and on. Everybody partied. Now their party is over. Expect the same in each of the listed candidates for municipal bankruptcy.

  3. Susie Cambria | July 24, 2013

    Sorry, Charlie, but DC is not even close to bankruptcy. Take a look at the FY 2012 CAFR http://cfo.dc.gov/node/292422 and the FY 2014 proposed budget (final books are not finished) http://cfo.dc.gov/node/289642 . The city has money in the bank and is on the right path to making all the savings accounts full.

  4. John Lindsay | July 24, 2013

    The population figure that you are using is for Camden County rather than the City of Camden. The city has a population of 77,344 as of the 2010 Census.

  5. Just1fan | July 26, 2013

    LA's population is 3.8 million, not 9.8 million. Don't get it twisted.

  6. IDon'tThinkSo | July 27, 2013

    Hate to tell you all this but once again a city is being scammed into buying another stadium it can't afford and this one's on your list of possible bankrupts…

    DC apparently has tentatively agreed to go halvsies on a 300 million new stadium for the soccer team (DC United) to keep them from moving. Who knows where they'll get the money but apparently RFK isn't good enough for a soccer team that few outside the DC soccer community have heard of.

    Meanwhile Metro (ie how the working stiffs get to and from their jobs) is over capacity on all its lines and breaking down like crazy and if you travel past rush hour in the evenings you better figure on it taking you over an hour to get out of the District of Corruption to your Metro stop in Maryland or Northern VA (hardly anyone who works in DC lives there)

  7. Dennis Harford | July 27, 2013

    If you peruse the local papers you will also include the City of Chico, California. Mismanagement of funds, obsene city management salaries and pensions, et al.

  8. blwfreemarket | July 27, 2013

    Does it surprise anybody that ALL these cities, including Detroit, are democratic strongholds??? Vote for Obama and go bankrupt. What a legacy!

    • Robert J | July 28, 2013

      To blame one party over the other I is foolish. Everyone has had a greedy hand in the mess this country faces. And nothing will change until the people i.e..the people that pay for it, the US tax payer say no more. change the system or let this greedy monarchy fall like every other one throughout history. It's time for change. my young children can't afford what's in store for them if it doesn't

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