Growing number of cities in US declare bankruptcy

A spate of defaults has occurred in municipalities all over the country

The city of San Bernardino, California, declared bankruptcy on July 10, following similar moves in the past month by Mammoth Lakes and Stockton, also in California.

A fourth city, Compton, on the outskirts of Los Angeles, could be the next city to turn to bankruptcy protection.

City officials announced earlier this month that Compton could run out of money by summer's end, with $3 million in the bank and more than $5 million in bills due, reported the Los Angeles Times.

Before them it was Harrisburg, Pennsylvania, Jefferson County, Alabama, and Central Falls, Rhode Island - the list continues.

San Bernardino has burned through its reserves and is out of other ways to pay for its longstanding deficit spending. It faces a deficit of nearly $46 million.

"This problem has been coming for a long, long time," said council member Fred Shorett. "It's here now."

In past decades, many US municipalities declared bankruptcy. Since 1981, 42 cases were filed.

In December 2010, financial analyst Meredith Whitney told the TV program 60 Minutes that more than 100 US cities could go bust in the next year.

"There's not a doubt on my mind that you will see a spate in municipal bond defaults. You can see 50 to 100 sizeable defaults - more. This will amount to hundreds of billions of dollars' worth of defaults," she said.

According to Stephen Lendman, writer of How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War, until the 1930s, it was legally impossible for US cities to declare bankruptcy. The 1934 Bankruptcy Act changed things. Cities and municipalities were included.

Earlier rules became today's US Bankruptcy Code Chapter 9. It's available exclusively to cities and towns, he wrote in a recent article published on the website of The Centre for Research on Globalisation, an independent research and media organization based in Montreal.

In October 2011, Jefferson County declared Chapter 9 bankruptcy. Its debt exceeded $4 billion, which was the largest municipal filing in US history.

Along with many small towns, transportation and school systems, Pennsylvania's capital, Harrisburg, filed later.

In May 2008, Vallejo, California, declared it. Up to then, a California city that large never took this route. At the time, City Manager Joseph Tanner said: "This has been a long, frustrating process for everyone. There are no winners here tonight."

Vallejo's city council voted unanimously to approve Chapter 9 bankruptcy protection. Its finances were in shambles.

According to Lendman, Detroit hasn't gone bust but it's dying. Half or more working-age residents have no jobs. Those with jobs have low-paid, part-time or temporary ones.

For more than a century, Detroit was US industrial heartland. It drew workers from around the country for high-paying jobs with good benefits. However, in the last decade, half the population left.

Lendman noted that large and smaller US cities are troubled, short of bankruptcy. They include New York, San Diego, San Jose, San Francisco, Los Angeles, Detroit, Pontiac, Cincinnati, Honolulu, Washington, Newark, Camden, Paterson, Harrison and Salem, New Jersey, and Gary, Indiana.

In August 2011, Central Falls declared bankruptcy. Located north of Providence, it's Rhode Island's poorest municipality. In 2010, it entered receivership.

In March 2011, Boise County, Idaho, filed for protection. It did so to buy time to figure out how to pay creditors.

In October 2009, Prichard, Alabama, declared bankruptcy for the second time. Mayor Ron Davis just finished paying creditors from its 1999 filing. He released a statement saying other options weren't viable.

In 1994, Orange County, California, went bust. It's home to some of the countries most affluent communities. Bad speculative investments caused the bankruptcy.

China Daily-Reuters