Detroit's bankruptcy has added urgency to the discussion of how state and local governments should respond when a municipality faces financial distress. The Motor City's revenue shortfall is unusually large, mirroring its sharp population decline, but Detroit isn't alone in its struggle to balance its books after years of poor fiscal management and excessive reliance on debt. Tenuous finances have pushed other municipalities to the brink of receivership or bankruptcy, often requiring state policymakers to decide whether to intervene and, if so, when and how.
A small number -- about 10 -- of the nation's 55,000 local governments and special tax districts file for Chapter 9 bankruptcy protection each year. In addition to Detroit, recent high-profile examples include Jefferson County, Ala.; Stockton and San Bernardino, Calif.; and Central Falls, R.I. While fiscal distress usually builds up over several years, a variety of events or factors can push local governments into financial crisis. In Jefferson County, it was a failed sewer project. In the California and Rhode Island cities, it was escalating public-pension costs. Detroit's situation was more complex, the result of decades of decline in its tax base and the restructuring of the automobile industry.