9 Cities You Never Knew Went Bankrupt

We all know about the massive Detroit bankruptcy of 2013. The once great "Motor City" entered the record books as the biggest U.S. city ever to file for protection. The problems that caused the financial meltdown were numerous, and included a declining population, low tax revenues, high crime, massive unemployment, and of course, the Industrial Age giving way to the Information Age.

But what about other cities in the U.S.? You may not know it, but many more have filed for bankruptcy. Whether it came about through bad governance, or bad luck, the following nine cities all did the unthinkable, and filed for Chapter 9 bankruptcy.

1. Prichard, Alabama

Nicknamed "The City of Champions," Prichard did nothing to champion the cause of the South when it filed for bankruptcy in 2009. The problem was the city pensions fund. Back in 2003, the powers that be hired an actuary to do a full analysis of the city's pension plan; they were told, in no uncertain terms, that the funds would be depleted in the summer of 2009. By October of 2009, the city filed for bankruptcy, and the next few years became a living hell for city employees and pensioners. Budgets were not passed, pension checks were not sent out, and Prichard became the embodiment of mismanaged money and ineffective government.

2. Jefferson County, Alabama

Strike two for Alabama. Okay, so it's a county, not a city. But once again, very shoddy mismanagement of government funds, plus a whole lot of unnecessary expenses, led to the most populous county in the state of Alabama filing for Chapter 9 bankruptcy. First, the county authorized a massive and sweeping overhaul of the sewer system in 1996. The updates were needed, but the project was plagued with corruption, overspending, bribery, and a whole host of other problems. There was also meddling with some very risky bond-swap agreements, resulting in a huge amount of debt being piled onto an already heavily-burdened government. By 2008, Jefferson County debt was lowered to "junk" status by Standard & Poor's, and that led to outright bankruptcy in 2011. Of the $4.2 billion in debt, over $3.14 billion was directly linked to the disastrous sewer project.

3. Mammoth Lakes, California

A beautiful mountain town in the Sierra Nevada, this popular hotspot for skiers was forced to declare bankruptcy after a huge property deal became nothing short of an avalanche. It was all over the development of an airport, which was obviously supposed to be a big help for the town's tourism industry. But, after the deal with the developer turned sour, Mammoth Lakes was sued… and in turn owed the developer some $43 million in restitution. Considering the annual municipal budget for Mammoth Lakes was less than $20 million, they had no choice but to declare bankruptcy in 2012. However, it appears a settlement was reached after the fact, and the town is back on its feet, hopefully with no further plans for a massive airport.

4. Bridgeport, Connecticut

A victim of the deindustrialization of the United States (much like Detroit), Bridgeport suffered from heavy job losses during the '70s and '80s. As the jobs left, the urban center was abandoned in favor of suburban developments, and the decline spiraled from there. After several major upheavals, including a 19-day strike by Bridgeport teachers (over 270 of them were subsequently arrested and sent to jail), things started looking bleak. In fact, it got so bad that a proposal was outlined getting Las Vegas developer Steve Wynn to build a huge casino; how that would have helped is beyond comprehension. But, it fell through, and in 1991 the city filed for bankruptcy. However, despite the filing, the federal court declared the city to be solvent. A kind of "Sorry, deal with it" verdict.

5. Stockton, California

The housing bubble's burst left many towns, cities, and municipalities in dire straits; Stockton was one of those cities. However, there was also a great deal of government excess and financial mismanagement at the center of the Chapter 9 filing. But it was the massive decline in home prices, as much as 70% in some areas, that wiped out the tax base and left the city struggling to pay its debts. Over $1 billion of red ink was stacked up, including money owed to pension plans, civic improvements, and health care benefits. In 2013, the city filed for bankruptcy. Recently, an exit plan was formulated for Stockton and its 300,000 residents. If you have some time to kill, you can read about Stockton's Bankruptcy Plan of Adjustment.

6. Gould, Arkansas

One of the smallest places on our list, this modest town in Lincoln County, with just over 1,300 residents, filed for Chapter 9 Bankruptcy protection in 2008. At the time, the government owed over $900,000 to its creditors; a tiny sum, in comparison to the billions of dollars in debt accrued by the likes of Detroit and Jefferson County. But, with only $10 in petty cash, Gould had to declare bankruptcy. Finger-pointing began, and Gould mayor Juanita Stephens claimed the filing came as a result of poor bookkeeping, past lawsuits, and "an employee not having submitted payroll taxes." That's quite the burden to put on one employee.

7. Central Falls, Rhode Island

For the smallest city in the smallest U.S. state, the 2011 Chapter 9 bankruptcy filing was big news. It had been under state control since July of 2010, but could not find a way to resolve its bulging $80 million unfunded pensions and retiree health liabilities. Considering that the city had an annual budget of just $17 million, that's hardly surprising. And of course, the timing was right after the recession, making it even harder to rebuild and raise funds. "Everything was done to avoid this day," said state-appointed receiver Robert Flanders, Jr. "We tried in vain to persuade our retirees to accept voluntary reductions in their benefits." That's a tough pill for anyone to swallow.

8. Harrisburg, Pennsylvania

Perhaps the strangest case for a bankruptcy is the one of Harrisburg. It happened in 2011, but the wheels were put in motion in 2003, when the city borrowed over $125 million to rebuild and expand the city's already enormous trash incinerator. It had been shut down by the federal government due to toxic air pollution, but instead of simply starting afresh, the rebuild plan was put into action… and it started burning money faster than it ever burned garbage. After big delays, contractor problems, cost overruns, and of course, financial mismanagement, the incinerator was finally finished… but at a cost of over $288 million. It was too big a burden for the city to take, and Chapter 9 protection was the only course of action.

9. San Bernardino, California

Not many people in public office will come out and make definitive and unpopular statements. But two years before San Bernardino filed for bankruptcy, city manager Charles McNeely made a presentation to the council warning of impending financial ruin. "You're headed for trouble, it's a train wreck, you can't keep doing business this way," said McNeely. He was staggeringly accurate in his predictions, and yet everyone chose to ignore his warnings and go on doing the same old thing. That involved spiraling employee pay, benefit costs, and budgetary gimmicks, coupled with a sharp and continued decline in tax revenues. In August 2010, around two years after the McNeely prediction, San Bernardino had a $40 million budget deficit for the fiscal year, and filed for Chapter 9 protection. McNeely told everyone, and no one listened.

Has your town gone bankrupt? How'd it affect you?

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Guest's picture

Bad things do happen. There are unavoidable circumstances wherein even cities or counties have to declare bankruptcy, and to be faced with this kind of dilemma is truly unfortunate for the city’s residents. May this serve as a reminder for others. Thanks for this post.

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