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Helping or Hurting? The Efficacy of Municipal Bankruptcy
Abstract
Local governments facing extreme fiscal stress have few options. One that has historically been rare is filing for Chapter 9 bankruptcy. The limited number of cases has prevented systematic study of municipal bankruptcy. But given the results of bankruptcy for individuals, there are reasons to believe that bankruptcy can provide a financial fresh start for local governments. This research leverages six municipal bankruptcies in the years immediately following The Great Recession to explore the effects of bankruptcy on local government financial health. It employs a variety of empirical approaches to generate a counterfactual for the bankrupt governments and assess the effects of bankruptcy: synthetic control, propensity score matching, staggered difference‐in‐differences, and an event study. The results show that bankruptcy is associated with no declines and some meaningful improvements in financial health. These findings suggest that Chapter 9 bankruptcy may provide extremely stressed local governments with a potential path forward.
... Short-term solvency captures the immediate period, medium-term solvency captures a budgetary cycle, and long-term solvency captures the time frame associated with long-lived assets or debts (e.g., the 30-year maturity of a municipal bond). These dimensions are also noncontingent: solvency or insolvency in one dimension does not imply anything about solvency in another dimension (Abott & Singla, 2021). Numerous systems attempt to measure municipal financial health, but there is no one best approach (Brown, 1993;Johnson et al., 2012;Kloha et al., 2005;Wang et al., 2007). ...
... These indicators are typically constructed using government-wide, accrual-accounting-based information from government audited financial statements (Jimenez, 2020). Research on retrenchment, cutbacks, and Chapter Nine municipal bankruptcy has validated these metrics as measures of financial health (Abott & Singla, 2021;Gorina et al., 2018;Stone et al., 2015). Following Stone et al. (2015), we use the term financial condition when directly referring to the indicators. ...
State‐imposed limitations on local government taxation and expenditures (TELs) are a common part of American federalism. But the consequences of TELs are the subject of debate. Are TELs institutional constraints that harm local governments? Or are TELs institutionally irrelevant veils easily pierced by political actors? This research uses the removal of an assessment restriction in Minnesota to evaluate the effect of TELs on the financial health of local governments. It finds that TEL removal had no effect on the financial health of Minnesota cities. Additional tests demonstrate that the results are not driven by a lack of bindingness in the TEL, by increases in property tax rates, or by new non‐property tax revenue. It concludes that TELs are closer to institutionally irrelevant than to meaningful constraints. States regularly impose tax and expenditure limitations (TELs) on their local governments. Many have argued that these limitations harm local government finances by restricting local autonomy. We find little evidence of that harm. Minnesota local governments saw no discernable improvements to their financial health following the removal of an assessment restriction. When focusing only on local governments that were likely bound by the TEL, we still find no clear effect of removing the TEL. We also show that nonproperty tax revenue generation was unaltered by the policy change. State‐imposed TELs may have little to no effect on the financial health of local governments. States regularly impose tax and expenditure limitations (TELs) on their local governments. Many have argued that these limitations harm local government finances by restricting local autonomy. We find little evidence of that harm. Minnesota local governments saw no discernable improvements to their financial health following the removal of an assessment restriction. When focusing only on local governments that were likely bound by the TEL, we still find no clear effect of removing the TEL. We also show that nonproperty tax revenue generation was unaltered by the policy change. State‐imposed TELs may have little to no effect on the financial health of local governments.
... Anecdotal evidence does exist, however. In Vallejo, California, the city council was mostly voted out of office following the city's bankruptcy filing (Abott & Singla, 2021;Davidson, 2018). Moreover, Mayor Lori Lightfoot was denied a second term in the City of Chicago following a barrage of stories focusing on the city's budget deficit and pension problems (Shields, 2023). ...
This study investigates how information about municipal credit ratings influences voters' evaluations of incumbent mayors. Through an original survey experiment, we assess the impact of credit rating downgrades and crime rate increases on citizens' perceptions of mayoral performance. Our findings reveal that information on both issues significantly affects voters' evaluations, with negative news about public finance and crime rates leading to decreased support for incumbents. Notably, the effects of credit downgrades are nearly as substantial as those of crime increases despite public finance being a more complex and less salient issue. Additionally, we observe that voters with varying political knowledge respond similarly to changes in municipal credit ratings, suggesting that such information serves as a useful heuristic in local elections. Our study underscores the importance of accessible financial information in promoting accountability in local governance.
... Scholarship on the consequences of fiscal hardship tends to focus on measuring the fiscal health of state and local governments (Abott and Singla 2020, 2021a, 2021bBrown 1993;Gordon 2018;Moldogaziev and Guzman 2015) or the effect of bankruptcy (eligibility) on municipal borrowing costs (Moldogaziev and Guzman 2015;Moldogaziev, Kioko, andHildreth 2017, Yang 2019). The topic of municipal bankruptcy remains underexplored. ...
This comparative case study explores the capital budgeting before, during, and after municipal bankruptcy in three U.S. local governments: Jefferson County, AL; Central Falls, RI; and Vallejo, CA. This in-depth examination of capital budgeting challenges reveals a pattern across all cases—a significant decrease in capital spending on infrastructure and maintenance before and during municipal bankruptcy. In fact, the mismanagement and underinvestment in capital infrastructure were some of the causes of municipal bankruptcy in all three local governments. The comparison of the reforms adopted after the bankruptcy shows that all three local government went through a similar two-stage process of recovery and restructuring, employing the emergent strategy to exit the bankruptcy and the problem-oriented innovative strategy to recover. These results show that even though all three local government significantly decreased spending on capital investments and maintenance as part of the emergent strategy, investment in public infrastructure during the recovery, and reconstructing became a priority across all selected cases.
... Like many other state fiscal monitoring and intervention systems, takeovers typically fail to address the root economic problems of troubled municipalities. State intervention programs should instead aim to loosen local budget constraints by directing funds to troubled local governments, providing a means to reduce or remove existing debts, or allowing local governments more flexibility to borrow to support operations (Abott & Singla, 2021). Regardless, our findings also indicate that takeovers enable states to meaningfully alter the trajectory of local fiscal operations, which may be desirable under certain circumstances. ...
Many states possess the authority to intervene in local fiscal emergencies, in some cases curtailing decision‐making powers of local officials through the appointment of an emergency financial manager. Previous research recognizes that these managers can push through unpopular reforms that may improve financial health but come at the expense of local control and democratic accountability. We assess financial outcomes following eight recent state takeovers relative to a matched counterfactual comprised of similarly distressed general purpose local governments. The staggered difference‐in‐differences analysis shows emergency managers improve budgetary solvency and increase fiscal reserves. These enhancements are achieved through significant reduction of general fund expenditures. Several long‐term indicators show deterioration in financial health after state intervention reflecting a significant decline in long‐term assets. Overall, municipalities subjected to a state takeover did not realize significant long‐run improvements in financial health indicators relative to counterfactual governments. This article is protected by copyright. All rights reserved.
Local elected leaders make decisions that affect service delivery and quality of life. But budgetary constraints mean that cities cannot indefinitely expand and improve services. Maintaining fiscal balance may be prudent, but doing so can impair service delivery. How are elected officials incentivized to make those trade-offs? Do voters actually care about the financial health of their city government? This research examines these questions in two ways. First, it uses data on elections, local finance, and the political environment in 44 large city governments to demonstrate a relationship between signals of financial health and voter support for incumbents in local elections. Second, it tests those findings using an experimental design that manipulates two dimensions of the political environment, crime rate, and financial health via credit rating. Both demonstrate that voters in local elections hold elected officials accountable for changes in financial health.
This research provides a comparative analysis of eight state online dashboard systems that track and assess fiscal health of local governments in California, Massachusetts, Michigan, New York, North Carolina, Ohio, Washington, and Utah. The eight chosen states represent a population of states that both monitor local government fiscal health and run an online dashboard system The goal of this article is to offer practical guidance for practitioners on states’ online dashboard systems used to assess municipal fiscal health and provide a list of top best practices. Specifically, we address such questions as (1) who should administer the online dashboard systems, (2) what financial indicators should be present, (3) what environmental factors should be incorporated, (4) how many years of prior financial data should be included, (5) what financial stress risks should be accounted for, (6) what supplementary resources for use of systems should be present, and (7) which entities should collaborate in establishing and managing online dashboard systems.
This research explores the relationship between form of government and corruption using national municipal level data (1990 to 2020) using competing theoretical models; the principal‐agent model and the professionalism‐performance model. The principal‐agent model suggests that the additional scrutiny provided by the electoral process will lead to lower risk of corruption under the mayor‐council form of government. The professionalism‐performance model suggests that the professional training and incentives in place in the council‐manager form will lead to a lower risk of corruption. However, it is difficult to examine the impact of form of government on incidence of corruption because there may be underlying community characteristics, such as population and poverty levels, that drive both the selection of form and corruption. Using propensity score matching and other propensity score methods to reduce the impact of confounding factors, this analysis finds robust evidence that the council‐manager form reduces the risk of corruption, supporting the professionalism‐performance model.
This article is protected by copyright. All rights reserved.
This chapter amplifies the definition of fiscal sustainability by examining each of its parts: revenues, expenditures, debt, and employee benefits. It emphasizes that this definition is a long-run definition, with the components measured in present value terms. It discusses why the concept is important and identifies the structural pressures that affect a local government’s sustainability: structural, intergovernmental, and cyclical. It then disaggregates these pressures into sub-components. These components include suburbanization, changing consumption patterns, demographic changes, and changing mobility patterns. It also notes the importance of federal and state aids on sustainability as well as business cycle pressures. It then delineates the requirements that long-run fiscal sustainability must meet, including minimizing economic distortion, attempting to raise aggregate community welfare, equity considerations, and environmental sustainability. It finally discusses the concept’s relationship with Tiebout models and equity considerations.
The fiscal decision of one local government may spill over to other localities, and such externality could justify and inform policy making by a higher‐level government. Theories of municipal bond market contagion postulate that once a local government files for bankruptcy, localities sharing similar characteristics will be perceived negatively by creditors and charged a higher interest rate. In this article, empirical examination of the second‐largest municipal bankruptcy in American history shows no support for general contagion based on geographic proximity. That is, nearby localities did not pay a higher interest rate after the bankruptcy. However, case‐specific contagion formed around borrower‐ and bond‐specific characteristics contributing to the bankruptcy: general‐purpose borrowers and general‐obligation bonds experienced increased borrowing costs after the bankruptcy. These findings have implications for states considering granting authorizations for municipal bankruptcy or providing financial assistance to struggling localities, as well as for local governments planning to access the municipal bond market.
Emergency financial management is a relatively recent and unique form of municipal governance that is designed to address local fiscal crises by concentrating the decision making power in the hands of a temporarily appointed chief executive. In this paper, we examine practices of emergency financial management in three Michigan cities in the Detroit metropolitan area to understand the role of emergency financial managers in helping the cities to address chronic fiscal distress. Through the analysis of data from comprehensive annual financial reports, we show that emergency financial management tends to produce budgetary-level improvements in fiscal condition. We also discuss policies that can assist emergency financial managers in bringing longer-term fiscal health to struggling cities.
During and after the Great Recession, many local governments were compelled to declare fiscal emergencies, lay off workers, and cut services while others weathered the recession without needing to take such actions. In this paper, we construct a measure of fiscal distress using comprehensive annual financial reports, budgets, and media coverage and then use it as a dependent variable to model fiscal distress as a function of past financial performance and socio-economic environment. The empirical models show the relative importance of fiscal reserves, debt, and revenue composition in predicting local fiscal distress.
This book unpacks the urban development process, identifying the players and processes that contribute to periodic construction booms. Debunking the notion that booms occur to accommodate growth or are propelled by a natural process of creative destruction, it develops novel theories about how real estate markets are “performed” through historically and locally-specific professional practices. The book focuses on three main causes of overbuilding in commercial real estate: financial instruments and regulatory changes that boost liquidity in global capital markets; the practices of local intermediaries that help construct demand for new assets; and local government policies that provide incentives for development while simultaneously removing the detritus from earlier waves of expansion. To illustrate the interplay between these dynamics, the book documents the case of Chicago's downtown during the “Millennial Boom,” roughly 1998 through 2008. Relying on market data and interviews, it shows how the city's recovery from the recession of the early 2000s was a relatively jobless one and did not upend the secular trend of population loss. Moreover, modest innovations in building technology did not suddenly afflict older buildings with a case of mass obsolescence. This period of frenzied commercial construction was instead a response to the availability of public and private finance validated by the brokered and subsidized preferences of existing occupants for more modern premises. The book ends with policy proposals to slow capital circulation and alter the professional practices associated with speculative overbuilding.
Keywords: urban development, real estate, financialization, Chicago history, urban planning, development finance, urban politics, capital markets
The postwar U.S. has experienced an extremely sharp rise in consumer bankruptcies. What happens to these consumers financially after filing for bankruptcy? Do filers catch up with their non-filing peers, stay at a constant distance or fall further behind over time? This question is investigated empirically using a new set of financial and bankruptcy data obtained from a large national random survey of bankruptcy filers and non-filers. Along some simple financial dimensions, such as car ownership, bankruptcy filers are not disadvantaged compared to non-filers. Along more complex indicators, such as total income and net worth, filers catch up over time but it takes between a dozen and two dozen years. The theoretical justification for allowing consumers to file bankruptcy is to afford debtors a fresh start, in essence, a restoration of financial well-being. Results suggest the U.S. bankruptcy system does not immediately provide consumers with a fresh start; the average filer takes many years to restore their financial well-being.
MatchIt implements the suggestions of Ho, Imai, King, and Stuart (2007) for improving parametric statistical models by preprocessing data with nonparametric matching methods. MatchIt implements a wide range of sophisticated matching methods, making it possible to greatly reduce the dependence of causal inferences on hard-to-justify, but commonly made, statistical modeling assumptions. The software also easily fits into existing research practices since, after preprocessing data with MatchIt, researchers can use whatever parametric model they would have used without MatchIt, but produce inferences with substantially more robustness and less sensitivity to modeling assumptions. MatchIt is an R program, and also works seamlessly with Zelig.
Building on an idea in Abadie and Gardeazabal (2003), this article investigates the application of synthetic control methods to comparative case studies. We discuss the advantages of these methods and apply them to study the effects of Proposition 99, a large-scale tobacco control program that California implemented in 1988. We demonstrate that following Proposition 99 tobacco consumption fell markedly in California relative to a comparable synthetic control region. We estimate that by the year 2000 annual per-capita cigarette sales in California were about 26 packs lower than what they would have been in the absence of Proposition 99. Given that many policy interventions and events of interest in social sciences take place at an aggregate level (countries, regions, cities, etc.) and affect a small number of aggregate units, the potential applicability of synthetic control methods to comparative case studies is very large, especially in situations where traditional regression methods are not appropriate. The methods proposed in this article produce informative inference regardless of the number of available comparison units, the number of available time periods, and whether the data are individual (micro) or aggregate (macro). Software to compute the estimators proposed in this article is available at the authors' web-pages.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
American consumer bankruptcy provides for a Fresh Start through the discharge of a household’s debt. Until recently, many European countries specified a No Fresh Start policy of life-long liability for debt. The trade-off between these two policies is that while Fresh Start provides insurance across states, it drives up interest rates and thereby makes life-cycle smoothing more difficult. This paper quantitatively compares these bankruptcy rules using a life-cycle model with incomplete markets calibrated to the U.S. and Germany. A key innovation is that households face idiosyncratic uncertainty about their net asset holdings (expense shocks) and labor income. We find that expense uncertainty plays a key role in evaluating consumer bankruptcy laws.
The small city of Central Falls, Rhode Island filed for Chapter 9 bankruptcy in 2011, with five other cities. The case could have easily been overshadowed by the insolvency of other sizable jurisdictions. Instead, Central Falls’ case is particular in both the treatment of bondholders and pensioners – one class of creditors was completely protected, while the other suffered deep cuts. The purpose of this article is to examine the method used to distribute losses in Central Falls’ case, and consider the effects of special protections for bondholders, on both the bondholders themselves and other parties to municipal bankruptcy.
Municipal bankruptcy has historically been an extremely rare event. However, with the onset of the global financial crisis in 2007, many cities in the United States were under fiscal stress, coinciding with an uptick in the number of bankruptcies. This study leverages the proximity and similarity of three Chapter 9 filings in the State of California – the Cities of San Bernardino, Stockton, and Vallejo – to assess the relationship between fiscal stress and bankruptcy. In particular, it explores whether these three cities were explicitly under more fiscal stress than other, comparable cities in California. Using two models for fiscal health, the study finds that while the bankrupt cities were clearly under duress, the existing models of fiscal health did not indicate that the stress experienced by the bankrupt cities was demonstrably more extreme than the conditions faced by numerous other cities. The study concludes that models of fiscal health are unable to account for political or managerial choices that may be driving decisions to file for bankruptcy protection. In addition, the study suggests that the existing models do not account for certain factors that may drive the bankruptcy decision including issues relating to unfunded liabilities to pensions and other post-employment benefits.
This article updates cutback management theory and challenges austerity urbanism theory by showing that local governments practice pragmatic municipalism-protecting services with a balanced response to fiscal stress. Using a 2017 national survey of 2,341 U.S. municipalities and counties, the authors identify four responses-no specific action, cuts, revenue supplements, and deferrals. Structural equation models show that cuts are higher in places with older infrastructure and more unemployment but not in places with more poverty. Supplemental responses are higher in places with professional management and higher education. Deferrals are higher in places with more debt but lower in places with older infrastructure. Localities with less fiscal stress take no specific action. Most governments combine cuts, supplements, and deferrals; this balanced response is associated with more fiscal stress, more citizen engagement, and higher levels of unionization. These results show that local governments practice pragmatic municipalism, not austerity urbanism, when responding to fiscal stress.
Post-recession urban restructuring in the U.S. has involved national and state governments pushing budget problems to the local level, with municipalities implementing a variety of responsive reforms. Although the term “austerity” has often been used to characterize these reforms, others have argued municipal responses to fiscal stress have been largely “pragmatic”. Disagreement therefore exists about the extent to which austerity is a post-recession tendency across U.S. urban governance. However, there is a consensus that extreme municipal fiscal stress is linked to austerity restructuring. But can cities who have experienced extreme fiscal stress avoid austerity restructuring? This paper draws on research that examined bankruptcy-related reform in the City of Vallejo, California. In 2008, Vallejo became the first municipality to file for Chapter 9 bankruptcy after the financial crisis. During and after its bankruptcy, the City has faced extreme budget problems, making it a prime candidate for austerity restructuring. However, research shows that Vallejo undertook a set of post-bankruptcy reforms—controlling labor costs, revenue raising, managing risk, participatory budgeting—that are not collectively characteristic of austerity or pragmatism. In conclusion, the paper reflects on the political and ideological factors that shaped Vallejo’s post-recession restructuring and how the City’s core fiscal problems have avoided resolution.
Municipal takeovers are a state policy ostensibly designed to address urban fiscal crises by “temporarily” taking over local government, suspending local control, and implementing sweeping austerity measures. Although framed as “apolitical,” takeovers have the capacity to reshape local democracy. These changes radically rearrange how decisions are made, who has access to decision makers, and, ultimately, who is in power. Using a policy-centered approach, we compare the cases of Camden, New Jersey and Flint, Michigan, illustrating how variations in policy design and localized implementation reshaped the local political landscape in different ways. While the Camden takeover institutionalized the emergent “community development regime,” Flints’ grassroots activists and community-based organizations destabilized the emergent regime.
Despite significant coverage in the financial press in recent years, financial engineering by city governments via the use of financial derivatives such as interest rate swaps remain an understudied area of urban financial policy. Indeed, press accounts and other case or conceptual urban studies research emphasizing the downside of these transactions are some of the only sources of information on these instruments. These stories and studies often allude to or speculate on a more basic question: Why would a government choose to enter into a complex financial instrument like a debt-related derivative? This research posits three exploratory hypotheses—financial health, financial experience and/or financial sector influence, and governance structure—culled from media accounts and the urban studies literature on the use of debt-related derivatives by city governments in the United States. It empirically explores these hypotheses by examining the various fiscal, financial, and issuer characteristics of the largest 50 U.S. cities and their choice of whether to use debt-related derivatives. The research finds that the characteristics of government most associated with debt-related derivative use are declining financial condition, increased financial experience and/or financial sector influence, and prior use of interest rate swaps.
Although there are strong theoretical arguments about both the benefits and costs of decentralization in the federalism literature, there is little on how second-order fiscal decentralization effects the financial health of state governments. This study examines this question and adds to the understanding of state-and-local fiscal relations. Using financial indicators that measure several dimensions of financial condition, the research estimates the effect of revenue and expenditure decentralization on state fiscal health. It finds that while state financial condition is unaffected by revenue decentralization, there is a curvilinear relationship between expenditure decentralization and long-term state financial condition.
Since the 1990s, some urban universities have served as neighborhood anchors with an interest in revitalization. Current theory suggests anchors adopt ‘shared value’ approaches, leveraging resources for mutually beneficial improvement in the community. This study explores assumptions in contemporary anchor frameworks and uses a survey to examine how 22 U.S. universities approach their roles as anchor institutions. The study finds that the universities tend to prioritize place-based initiatives, while contemporary frameworks are more normative and highlight socioeconomic practices. Based on reported strategies, the author proposes an alternate typology that accounts for the ways universities most commonly describe anchor approaches, complementing contemporary theory.
About 500 municipalities have declared bankruptcy since Congress passed the Municipal Bankruptcy Act in 1937. Based on the experiences of these municipalities and the municipal bankruptcy literature, this paper develops a theory of why municipalities go bankrupt and discusses various ways to prevent other municipalities from going bankrupt. The paper identifies three-dimensional factors that may make municipalities go bankrupt: long-term and short-term, political and economic, and internal and external perspectives. The paper ends with an observation that government failure in the form of municipal bankruptcy can be reduced by strengthening the audit powers of the states and by utilizing more municipal bond and liability insurance policies.
An unfunded expenditure mandate occurs when governments are required to provide a good or service by a higher level of government without an accompanying revenue source. There are no empirical studies providing causal evidence on the fiscal influence of intergovernmental mandates. This article examines Florida's 1990 constitutional Amendment 3, which sought to limit unfunded state mandates on municipal and county governments. The synthetic control method, an empirical technique for drawing causal inferences from case studies, estimates the effect of Amendment 3 on state expenditures and total transfers to local governments. The results indicate that state expenditures increased by an annual average of 9.5 percent, while state transfers to all local governments were unaffected. However, the municipalities protected by Amendment 3 saw intergovernmental revenue from the state decrease by 10 percent annually, which suggests that remaining mandates likely targeted special districts, encouraging the fragmentation of local public service delivery.
This paper exploits the variation occurring from the different timing of divorce law reforms across the United States to evaluate how unilateral divorce changed family violence and whether the option provided by unilateral divorce reduced suicide and spousal homicide. Unilateral divorce both potentially increases the likelihood that a domestic violence relationship ends and acts to transfer bargaining power toward the abused, thereby potentially stopping the abuse in extant relationships. In states that introduced unilateral divorce we find a 8–16 percent decline in female suicide, roughly a 30 percent decline in domestic violence for both men and women, and a 10 percent decline in females murdered by their partners.
This study examines the relationship between managerial networking and the fiscal health of city governments in the United States that faced a serious budget crisis during and immediately after the Great Recession. Do public managers’ ties with external stakeholders help improve the fiscal health of these cities? Or do these ties bind city officials to decisions that further exacerbate the fiscal difficulties of their governments? These questions are answered using data from a survey of municipal governments across the United States with a population of 50,000 or more, and financial data from Comprehensive Annual Financial Reports (CAFR) covering more than 200 cities and for three fiscal years. Using instrumental variable regression to address possible common source bias and simultaneous causation, there is strong evidence that an external networking orientation is associated with a decline in city government fiscal health, whether the measure used is perceptual or CAFR-based.
Der Beitrag untersucht die Beziehung des Networkings von Managern und der fiskalischen Verfassung von Stadtverwaltungen in den Vereinigten Staaten, die sich mit einem Haushaltsnotstand im Zuge der letzten Weltwirtschaftskrise konfrontiert sahen. Helfen die Netzwerke von Führungskräften in der Verwaltung, die Finanzprobleme dieser Städte zu überwinden? Oder binden diese Netzwerke die Verwaltung an Entscheidungen, die die Haushaltsprobleme weiter verschärfen? Diese Fragen werden mittels Daten eines Surveys von Kommunalverwaltungen in den Vereinigten Staaten mit mehr als 50.000 Einwohnern sowie Finanzstatistiken (Annual Financial Reports), die mehr als 200 Städte über drei Jahre hinweg erfassen, beantwortet. Basierend auf Regressionen mit instrumentellen Variablen, die Methodenbias- und Kausalitäts-Probleme adressieren, finden wir einschlägige Belege dafür, dass externes Networking mit fiskalischen Problemen assoziiert ist, unabhängig davon, ob Einschätzungen oder Finanzstatistiken als Messgrundlage benutzt werden.
Note: Um die Übersetzungen der Zusammenfassungen übersichtlich und einfach verständlich zu gestalten, wurde bei allen personenbezogenen Bezeichnungen immer das generische Maskulinum verwendet, das sowohl Personen des männlichen als auch des weiblichen Geschlechts einschließt.
Translation credit: Alexander Kroll of Florida International University and Johanna Smyth
This paper estimates the effect of Chapter 13 bankruptcy protection on financial health using a new data set linking bankruptcy filings to credit bureau records. Our empirical strategy uses the leniency of randomly assigned judges as an instrument for Chapter 13 protection. We find that Chapter 13 protection decreases an index measuring adverse financial events such as civil judgments and repossessions by 0.323 standard deviations and increases the probability of being a homeowner by 13.2 percentage points. Chapter 13 protection has little impact on open unsecured debt but decreases the amount of debt in collections by $1,333. © 2017 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
I analyze the effect of fiscal stress on local government fiscal structures. In 1994, sudden investment losses of nearly $1.7 billion led to Orange County's default on debt obligations and bankruptcy. This event study provides a descriptive analysis of one of the most extreme fiscal crises in recent decades. I use a synthetic control methodology to measure the impact of the investment losses and find the investment losses resulted in Orange County total revenue falling by 12 percent, cash and securities by 66 percent, and total expenditure by 11 percent, while total debt increased by 17 percent.
Financial condition analysis is a critical task for public managers, but it is still unclear which indicators are the most salient measures of financial well-being. The financial health of Detroit, Michigan is unequivocally poor, providing an interesting case to evaluate the financial condition indicators that currently exist. We calculate the key financial indicators using data from Detroit over the last 11 years. We find the indicators fall into three groups: those that show no sign of impending financial crisis, those that show a steady worsening financial condition, and those that demonstrate a substantial change immediately prior to filing bankruptcy.
Recognizing that cross-sectional data are often insufficient to address the identification problems associated with estimating the effect of government taxation or spending, economists engaged in public finance research often utilize longitudinal data that span the period over which a policy change occurred. As economic data have proliferated over the last decade, uses of the difference-in-differences design and its variations have become more numerous. Nevertheless, published research that invokes difference-in-differences commonly fails to present evidence and reasoning that enable the reader to properly evaluate the causal claims under investigation. In this paper, we examine the threats to internal validity that exist when using difference-in-differences for causal inference and review variations of the design that can be used to address these threats. Next, we survey the public finance literature in order to examine the ways that these threats are addressed in practice. We conclude by proposing a number of recommendations for researchers to consider as they implement difference-in-differences as an empirical strategy.
Consumer bankruptcy is one of the largest social insurance programs in the United States, but little is known about its impact on debtors. We use 500,000 bankruptcy filings matched to administrative tax and foreclosure data to estimate the impact of Chapter 13 bankruptcy protection on subsequent outcomes. Exploiting the random assignment of bankruptcy filings to judges, we find that Chapter 13 protection increases annual earnings by $5,562, decreases five-year mortality by 1.2 percentage points, and decreases five-year foreclosure rates by 19.1 percentage points. These results come primarily from the deterioration of outcomes among dismissed filers, not gains by granted filers.
The years from 2011 to 2013 were remarkable in municipal bankruptcy terms. During those years, several cities and counties took the rare step of filing for bankruptcy under Chapter 9 of the Bankruptcy Code. When Detroit filed for bankruptcy in July, 2013, it became the largest city measured by both population and outstanding debt to file for Chapter 9.The recent filings challenge the conventional wisdom that Chapter 9 is poorly tailored to the rehabilitation needs of larger cities and counties. Those who have written about Chapter 9 in the past twenty years have treated Chapter 9 and state intervention in municipal financial affairs as freestanding alternatives rather than as complementary components of a comprehensive municipal financial recovery plan. These authors compare municipal bankruptcy to corporate bankruptcy and conclude that because Chapter 9 does not incorporate all of the Chapter 11 checks on debtor behavior, it cannot adequately promote the financial rehabilitation of a sizable general-purpose municipality. This approach ignores the original goal of Congress in enacting a municipal bankruptcy law in the aftermath of the Great Depression, which was to bring together two sovereigns, the state and the federal government, to accomplish something that neither could accomplish alone – the imposition of a plan to adjust municipal debts that would be binding on all creditors, wherever located. This article refocuses the discussion about the limitations of the municipal bankruptcy process by examining the goals of Chapter 9 and relating its governance provisions to those goals. A refocused discussion is particularly timely, because the deteriorating financial condition of many cities has led states to reexamine their programs for resolving municipal financial distress and the conditions under which they permit their municipalities to file for bankruptcy. Chapter 9 may only be as effective as the state governance that accompanies it. Therefore, policy makers on the state and federal levels need an understanding of the role of Chapter 9 in an integrated scheme for municipal financial recovery in order to decide whether and how to assist municipalities on the state level and to decide whether reforms to Chapter 9 are necessary.
Discharge, the doctrine that frees the debtor's future income from the chains of previous debts, lies at the heart of bankruptcy policy. Nevertheless, few scholars or lawmakers have examined the wisdom of granting discharge. Professor Jackson borrows analytic techniques from psychology and economics to argue that a nonwaivable right of discharge is justified by several characteristics of human behavior. Discharge provides some protection from the "regret" we experience when impulsive behavior or the flawed decision-making "heuristics" that most of us naturally employ cause us to act unwisely with respect to credit. Discharge also eliminates the incentive structure that causes debtors to become less productive once a large proportion of their wages begins flowing to creditors. Armed with this understanding of the "fresh-start" policy, Professor Jackson explores its contours and discusses the trade-offs it requires. He then goes on to critique current bankruptcy doctrine, including the treatment of exempt property, eve-of-bankruptcy conversions into exempt property, and the court's power to deny discharge to debtors who attempt to defraud or impede creditors in their collection efforts.
States have traditionally offered support to their fiscally distressed municipalities. When less intrusive forms of assistance fail to bring stability, some states employ supervisory institutions that exercise approval authority over local budgets or, more intrusively, displace locally elected officials. These "takeover boards" are frequently accused of representing an antidemocratic form of local government and a denial of local autonomy. This Article suggests that the extent to which takeover boards are subject to an antidemocratic critique is frequently overstated. Those making efforts to revive near-insolvent localities cannot be oblivious to the causes that generated their distress. Depopulation, high unemployment, depleted municipal services, and blight do not arise spontaneously. They are frequently the consequence of long periods of local mismanagement, in which expenditures deviate substantially from those goods and services that residents prefer, inducing the most mobile among them to gravitate to more hospitable jurisdictions. Any viable response to such dysfunction must therefore address the causes of political dysfunction. By addressing the political underpinnings of fiscal distress, takeover boards may be more capable of satisfying the interests of local residents for public goods than local elected officials and may also represent the interests of nonresidents and creditors who are not considered by those officials. Moreover, this Article suggests the authority of takeover boards should be expanded to allow them to engage in restructuring of municipal governance in order to avoid the entrenched and fragmented institutions that are often associated with local fiscal distress. The temporary nature of takeover board jurisdiction means that when local governance returns to the realm of normal politics, residents will be in a more informed position to evaluate the optimal structure of local governance.
Now that state governments issue comprehensive annual financial reports in accordance with Statement No. 34 of the Governmental Accounting Standards Board, it is possible to generate a consistent and comprehensive set of government-wide financial information. We use the information to develop financial ratios to benchmark government financial performance from information beyond the traditional general fund, and test the hypothesis that such information is incorporated into the assessment of credit risk. We provide an empirical analysis of the incorporation of government-wide financial information into state government credit ratings, which provides a positive empirical test of the theory of certification and demonstrates how information from the government-wide financial statements is infused into financial markets.
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This article presents a conceptual framework that illustrates four distinct types of accountability environments facing public managers. The framework is used as a heuristic tool to examine the broad facts and contexts surrounding the bankruptcy of the Orange County, California investment pool. The framework also suggests management philosophies and strategies that are appropriate for each type of accountability environment.
Following failed auctions for sewer debt in April 2008, major bond rating companies downgraded Jefferson County, Alabama’s bond rating to D (default) triggering massive mandatory payments by the county to its creditors. At the time of writing, the county teeters on the brink of actual default and bankruptcy, unable to pay service on its $3.3 billion sewer debt portfolio. If the county defaults, it will be the largest municipal bankruptcy in United States history, eclipsing Orange County, California’s 1994 default. The intriguingly complex tale of the Jefferson County debt crisis is recounted here by identifying and examining failures of transparency and accountability by local bureaucratic and political actors, private financial institutions, as well as the larger regulatory framework governing public finance. Enhanced regulation of local government and the financial sector plus greater local government capacity to close accountability gaps and thus prevent future crises of similar scale in this or other jurisdictions are recommended.
Does the public administration research from the late 1970s and 1980s on managing decline contain useful lessons for today's Great Recession? Do these studies serve our current research needs? Why has decline continued to be a major focus of research in generic management, but not in public administration? The answers to these questions give some clues as to a possible new, revitalized research agenda for our field. Whereas public administration often viewed organizational decline as a self-contained set of problems requiring remedial action, generic management and sociology research on decline tended to view the topic as part of organizational phases and life cycles, linking decline to growth, stability, and change. Viewing decline as part of the organizational life cycle encourages researchers to take a longer view of organizations and their management, and thus its orientation is more strategic than reactive. Three areas of decline studies are identified as relevant irrespective of sector: (1) impli
This article considers bankruptcy law design in a setting that is appropriate for entrepreneurial firms. These firms are characterized
by a dependence on an owner-manager who is essential to the firm and must be given incentive through an ownership stake to
maximize the value of the project. In a relationship-lending environment, the banks that fund entrepreneurs cannot capture
the gains from providing the entrepreneur with this stake, and this leaves the entrepreneur emerging from bankruptcy with
a larger debt burden than is socially efficient. In this setting, a “fresh-start” bankruptcy policy provides greater debt
relief than the bank would approve voluntarily, and this generates greater social surplus. The results suggest the value of
separate procedures for small business bankruptcies that allow some mandatory debt relief to preserve ex post incentives.
This paper presents new evidence of the effect of the tax subsidy to employer-provided health insurance on coverage by such insurance. I study the effects of a 1993 tax change that reduced the tax subsidy to employer-provided supplementary health insurance in Quebec by almost 60%. Using a differences-in-differences methodology in which changes in Quebec are compared to changes in other provinces not affected by the tax change, I find that this tax change was associated with a decrease of about one-fifth in coverage by employer-provided supplementary health insurance in Quebec. This corresponds to an elasticity of employer coverage with respect to the tax price of about −0.5. Non-group supplementary health insurance coverage rose slightly in Quebec relative to other provinces in response to the reduction in the tax subsidy to employer-provided (group) coverage. But the increase in the non-group market offset only 10–15% of the decrease in coverage through an employer. The decrease in coverage through an employer was especially pronounced in small firms, where the tax subsidy appears much more critical to the provision of supplementary health insurance than it does in larger firms.
If Detroit's in Bankruptcy Court Why Isn't Flint Too? Michigan Radio
- Carmody Steve
Six Easy Lessons: Learning from Orange County
- Jump Bernard
Municipal Bankruptcy: Standard & Poor's Approach and Viewpoint. Standard & Poor's Rating Services
- Petek Gabriel
- J Previdi Jeffrey
- J Murphy Steve
- J Bill
Municipal Bankruptcy, Essential Municipal Services, and Taxpayers’ Voice
- Chung Christine S.
Financial Management Implications of “Service Delivery Insolvency”
- Ives Martin
Developing a Framework for Ranking State and Municipal Governments on Fiscal Sustainability
- Kaldani Davina
Chapter Plan Confirmation Standards and the Role of State Choices
- Moringiello Juliet M.
States of Bankruptcy
- Skeel David A.
Detroit sells $135 million in bonds with its own credit
- Livengood Chad