Pages: 11

This introduction presents an overview of the key concepts discussed in the subsequent chapters of this book. The book discusses the “Municipal Fiscal Health” starts with definitions of “financial emergency”, “fiscal distress”, “fiscal stress”, “fiscal hardship”, and “fiscal health”. It also discusses the “Preventative Treatment and Federal, State, and Local Incentives for Unhealthy Municipalities” analyzes preventative practices and discusses an array of federal and state incentives for maintaining fiscal health and responding to fiscal illnesses, such as grants, tax advantages, administrative support. Fiscal hardships negatively affect the quality and availability of public goods and services and, consequently, the wellbeing of residents and businesses of the distressed municipalities. The city additionally implemented cost saving strategies, especially for EMS and fire, and doubled the budget to demolish the city’s abandoned buildings, among other cost saving actions. The crime condition became so bad that the city got involved in a major military style invasion.

Pages: 32

This chapter defines fiscal health and analyzes various degrees of fiscal illnesses, including fiscal distress, fiscal stress, fiscal emergency, and bankruptcy. It reviews the literature, discusses and defines different ways to measure fiscal health. It compares and contrasts a variety of fiscal ratios, examines their advantages and disadvantages, and defines and discusses credit ratings as measures of fiscal, economic, managerial, and demographic stability of a municipal government. The chapter also lays down the state monitoring and early warning systems of local government finances.

Pages: 28

This chapter analyzes an array of federal and state incentives available for distressed municipalities, such as grants, tax advantages, administrative support, and others. The chapter additionally reviews the actions localities take themselves to get out of fiscal distress, like expenditure cuts, local tax incentives, community partnerships, etc. Specifically, the chapter discusses preferential tax treatments, such as direct property tax relief mechanisms, creation of TIF districts, Enterprise Zones, Opportunity Zones, and others, and indirect incentives (economic development tax incentives) that can also have a revitalizing effect on blighted areas, such as New Markets Tax Credit (NMTC), the Job Creation Tax Credit, Mega Project Tax Credit, Historical Preservation Tax Credit, other tax incentives that target specific geographical regions or industries, direct infrastructure investments, special bond issuance provisions, and other incentives. The Chapter provides comparative analysis of States’ intervention programs.

Pages: 19

This chapter is devoted to the most critical cases of fiscal stress and specifically to municipal bankruptcies. In this chapter, we provide a distinction of Chapter 9 bankruptcy from other types of bankruptcy filings, offer a definition of fiscal emergency, review policies and the legal process of Chapter 9 bankruptcy, and review states’ approaches to municipal bankruptcy. We discuss different types of emergency managers and responsibilities they have.

Pages: 17

This chapter evaluates operating budgets during fiscal stress and bankruptcy. The chapter characterizes and classifies changes in the operating budgeting process during fiscal stress and bankruptcy, including the main approaches to budget cuts. It explains the negative consequence of reducing expenditures for communities, economic development, and businesses. This Chapter proposes main strategies of restructuring operating budgets and exits from fiscal emergency and bankruptcy, such as emergent strategy, fiscal stress minimization strategy and the strategy of social budgeting. We provide not only an analysis of budget cuts, but also highlight fiscal stress minimization strategies and social-oriented operating budgeting during bankruptcy and fiscal stress in municipalities.

Pages: 20

This chapter introduces a reader to public capital management and budgeting process during fiscal emergency and bankruptcy. The chapter depicts the current state and changes in public infrastructure conditions and public infrastructure needs and capital financing issues during fiscal emergency and bankruptcy, reviews potential consequences of infrastructure inefficiency, and includes recommendations for prioritization of capital projects, preventive maintenance, and administrative innovations during fiscal emergency and bankruptcy.

Pages: 20

Municipalities across the U.S. are facing unprecedented challenges caused by the COVID-19 pandemic. Revenues, especially in the beginning of the pandemic, were constrained as lockdowns reduced production and employment, dragging down both personal income and corporate profits, and, consequently, income tax revenues. Tumbling consumption squeezed sales tax revenues. Increases in pandemic-related expenses for social services, sanitation, etc. put a further strain on state and local budgets. Now, when lots of operations have been moved online, lockdowns, other restrictions, and simply changing habits and practices have seriously impacted the entire fiscal administration and budgeting systems. This chapter explores how the COVID-19 pandemic has affected U.S. state and local governments by examining the fiscal shocks these governments faced, and by providing estimations of revenue loss due to the pandemic. The chapter discusses municipal responses to the fiscal stress caused by the COVID-19 pandemic by exploring opportunities for innovation and explaining the budget balancing strategies that have been utilized. Finally, this chapter explains the increase of central government transfers to subnational governments and provides information about the American Rescue Plan Act, the Coronavirus State Fiscal Recovery Fund (CSFRF), the Coronavirus Local Fiscal Recovery Fund (CLFRF), and other COVID-related federal stimulus packages and regulations.

Pages: 5

This chapter introduces case studies of fiscal stress and bankruptcy practices in six U.S. municipalities: the financial distress situation in the city of Colorado Springs, Colorado, the financial stress (Act 47) in Pittsburgh, Pennsylvania, bankruptcy in Detroit, Michigan, Jefferson County, Alabama, Central Falls, Rhode Island, and Vallejo, California. The case study analyses discuss unique features and similarities between institutional, political, and organizational factors associated with fiscal stress and bankruptcy in all the selected municipalities. This chapter provides an introduction to the in-depth examination of budgeting challenges and approaches before, during, and after municipal bankruptcy in the selected municipalities.

Pages: 26

Although quite rhetorical, but a complete coincidence, in Chapter 9 of this book we study perhaps the most famous example of Chapter 9 bankruptcy, the one of Detroit, Michigan. In 2013, with an estimated 18.5 billion dollars in debt obligations, the bankruptcy case of the City of Detroit became the largest municipal bankruptcy in U.S. history. One of the so-called “rust belt” or “legacy” cities, Detroit’s economy has been heavily reliant on a single automotive industry with the three largest U.S. automakers, Chrysler, General Motors (GM), and Ford, located in the city and its suburbs. As car manufacturing became more automated and decentralized, and demand for American cars declined, so did the socio-economic position of the city. Detroit experienced a significant drop in population, which lowered by sixty percent since the 1950s. High gasoline prices and low demand for American cars in the early 2000s further exacerbated economic and demographic difficulties of the city. The city had the highest unemployment rate in the country at 15.1 percent in 2009 (Bureau of Labor Statistics Local Area Unemployment Statistics) and the lowest median home values among all large U.S. cities (Lincoln Institute of Land Policy, 2016). These and other factors resulted in low tax collections and years of a consistent budget deficit, substantial pension, and general obligation debt which eventually led to a bankruptcy filing on July 18, 2013.

Pages: 17

This chapter is the case study of a fiscal distress situation that occurred in Colorado Springs, Colorado during an economic downturn. We examine the financial and economic circumstances surrounding the city before, during, and after the decision was made to address fiscal distress. Colorado Springs had taken a lot of budget cuts to cope with lower tax collections by curtailing hundreds of vacant positions, encouraging early retirements, stopping collecting trash in its parks, canceling city buses on weekends and at night, reducing parks maintenance, and turning off a third of its streetlights. The economic well-being of communities in Colorado Springs declined during the economic downturn in uneven ways. The Great Recession and a reduction of municipal programs also led to increasing inequality at the neighborhood level. The capital infrastructure was deteriorating due to a decrease in public works and economic degradation. Colorado Springs financial, economic, and social situation was improved cardinally between 2014 and 2019. U.S. News named Colorado Springs one of the most desirable places to live in the United States in 2018 (US News, 2019). We discuss the factors that contributed to the betterment of fiscal conditions and a consequential exit from the fiscal emergency situation.

Pages: 18

This case study looks into the bankruptcy of Jefferson County, Alabama. Jefferson County filed a Chapter 9 bankruptcy petition in November 2011 with 4.23 billion dollars in debt. At the time of filing, it was the largest bankruptcy by any U.S. municipality until Detroit’s eighteen-billion-dollar bankruptcy in July 2013. The main factors leading to bankruptcy were fiscal mismanagement, a high level of financial risks, public corruption, and a staggering amount of outstanding debt. The majority of Jefferson County’s debt obligations began accumulating in 2003 when the Environmental Protection Agency (EPA) accused Jefferson County of dumping raw sewage into neighboring rivers. The county issued and refinanced several bond issues to repair and expand its sewer system over the next several years. The renovation contracts did not result in required repairs and more debt had to be issued to comply with EPA requirements. During bankruptcy, Jefferson County closed many county facilities, laid off over 500 employees, eliminated overtime and sick days, cut work hours to thirty-two per week for remaining hourly employees, instituted hiring freezes in many job classifications, and drastically reduced capital expenditures. Jefferson County emerged from bankruptcy after closing on about 1.8 billion dollars in new sewer warrants that were used to pay creditors.

Pages: 18

This chapter studies a long-lasting case of a fiscal emergency situation in Pittsburgh, Pennsylvania that received an official fiscal-emergency designation in the last days of 2003. The City of Pittsburgh had a deficit of over ninety million dollars in 2002, 2003, and 2004. The city implemented extreme budget cuts in 2003, laying off 446 employees, including nearly one hundred police officers. Cutback management and austerity urbanism practices led to staff shortages, deferred infrastructure spending, and the closing of city recreation centers and public swimming pools. Compared to the other studied cities Pittsburgh addressed fiscal emergency with a very formalized approached where every step was spelled out resulting in about 390 initiatives across the three recovery plans (2004, 2009, 2014). The recovery plans addressed various aspects of the city’s financial management, collective bargaining, and budgeting practices.

Pages: 18

Central Falls, the small suburb of Providence, Rhode Island with a population of 19,000 and only sixteen million dollars in annual revenues, faced eighty million dollars in unfunded pension and retiree health care debt in 2010. Deteriorating situation in Central Falls triggered the state adoption of a bankruptcy law in 2010 and appointing a receiver, who filed for Chapter 9 bankruptcy in August of 2011. As a consequence of bankruptcy and subsequent restructuring, local government employees lost their jobs, public pensions were cut by up to fifty-five percent, and property taxes went up. But, by 2014, Central Falls already had a 1.7-million-dollar budget surplus. The city’s conditions continue to improve to this day. In this chapter, we discuss the factors that contributed to success of the city and its exit from the bankruptcy.

Pages: 16

Years of unmanageable increases in personnel expenses and falling property tax revenues during the Great Recession of 2008–2009 were the major causes of bankruptcy of the City of Vallejo, California. The city’s general fund had operated at annual deficits during the three years prior to the fiscal year that ended on June 30, 2008. Over the two prior years, employee costs increased by eleven percent, while revenue growth remained at three percent. To mitigate growing per-unit employee costs, the work force was reduced by thirty-four percent, from 494 to 330 employees between 2004 and 2008. The police department alone was reduced by forty-seven percent. The city’s reserves were exhausted by the end of the 2007–2008 fiscal year. Vallejo projected the general fund deficit at seventeen million dollars for the 2007–2008 fiscal year. The city considered a number of proposals to improve its fiscal position, including increasing garbage franchise fees, selling surplus real estate, charging a fee for false 911 calls, and filing claims with the State of California. Vallejo applied for Chapter 9 bankruptcy on May 17, 2008, claiming it could no longer afford to pay the wages and benefits promised to its employees. Multiple initiatives ultimately contributed to improvement of the city’s fiscal situation and exit from bankruptcy. The most prominent reform was an introduction of the participatory budgeting process. Despite all its efforts, the city is not in the best fiscal shape, even today.

Pages: 25

The first half of the book was more theoretical in nature. The second half was devoted to case studies with specific examples of different degrees of fiscal stress in six various localities. The causes of the problems, the fiscal emergency or bankruptcy process itself, the steps taken to get out of the fiscal crisis, and the consequence of fiscal stress for communities, economic development and businesses were undoubtedly unique. But, at the same time, there were lots of commonalities between the studied cases. This chapter of the book addresses these common features and proposes a theory of financial management and budgeting during fiscal emergency and bankruptcy. A comparison of the budget reforms adopted during and after the fiscal stress situation or bankruptcy indicates that all six selected municipalities went through a similar three-stage process of recovery and restructuring. We call the municipal actions at the earliest stage preceding the crisis a “Haphazard Strategy”. The second stage during the peak of the crisis is characterized by the most radical actions taken to exit the bankruptcy, that we call the “Emergency Strategy”. The third and final stage that follows after crisis, we call the “Innovative Strategy”, which is a more problem-oriented, innovative step of recovery and restructuring efforts. The chapter additionally discusses and categorizes the common causes of fiscal troubles for observed municipalities.