Methods:We identified a set of eight possible factors that may serve as predictors of municipal insolvency in the United States. We then identified cities with populations of at least 15,000, which were in fiscal distress, which yielded a list of 42 cities that have had either municipal bankruptcy filings since 2008 or below investment grade rated bonds since 2007, or both. We viewed the circumstances in each of these cities leading towards their financial predicament in relation to these factors and the governance structure of each state.
Results: Union density and unfunded pension liability were the two most prevalent factors, followed by the amount of intergovernmental aid (as a proportion of total state revenues) available to cities, and a triggering event. Understanding the circumstances that lead to fiscal distress, as well as factors that can predict municipal insolvency, can assist in determining available options to avoid bankruptcy and/or state interventions. Implications for practice and policy will be advanced. In particular, the practical effects of state governing laws and procedures on municipal options for relieving fiscal distress will be brought to light, providing a framework for determining viable state responses for resolving municipal fiscal distress.
Key Words: municipal insolvency, municipal bankruptcy, unfunded pension liability