Few Good Options for Cities Going Bankrupt
Source Newsroom: Wichita State University
Newswise — The scripts are available for printing and for sound bite identification.
In July, the city of Detroit became the largest city in the United States to file for bankruptcy. Eight cities and towns have filed for bankruptcy since 2010, and an additional 28 utilities, water districts, hospital authorities and other municipal units have also gone bankrupt in the wake of the financial crisis. Ken Kriz, Regents distinguished professor and director of the Kansas Public Finance Center at Wichita State University, explains why bankruptcy is such a difficult option.
Announcer: In July, the city of Detroit earned the dubious distinction of becoming the largest city in the United States to file for bankruptcy. Ken Kriz, Regents distinguished professor and director of the Kansas Public Finance Center at Wichita State University, says the bankruptcy filing makes it difficult to attract new businesses.
Kriz: “Well, businesses tend to want certainty in terms of what their tax rates are going to be and in terms of what public services they’re going to be able to use. And whenever you have a situation like a bankruptcy, it throws that all into doubt, which is not good for attracting businesses.”
Announcer: According to Kriz, the major challenge is how do you keep public service costs at a relatively low level so that people don’t have to pay higher taxes, while at the same time delivering high quality public services? He says that’s not an easy task for a lot of local governments to master. This is Joe Kleinsasser at Wichita State University. This is Joe Kleinsasser at Wichita State University.
Sound bite #1
Kriz says the city of Detroit encountered the perfect storm which led to its bankruptcy. The sound bite is 22 seconds and the outcue is “public services.”
Kriz: “Well, Detroit encountered what I would call a perfect storm in terms of its fiscal condition. First of all, you had a strongly declining tax base. Second, you had problems in the pension system, which go back to the last decade. And then third, you had increasing costs of public services.”
Sound bite #2
Kriz explains a major reason why Detroit found itself in a difficult position financially. The sound bite is 23 seconds and the outcue is “collecting revenues.”
Kriz: “Well, a couple things. First of all, the population in the city of Detroit has declined by about a third over the last decade. Unemployment reached 18 percent, over
18 percent in 2012. Anytime you have this situation, people aren’t going to be spending as much, people aren’t going to be paying their mortgages so that there are going to be problems collecting the property tax, and numerous other problems with collecting revenues.”
Sound bite #3
Kriz says in a depressed economy, the cost of providing services can go up dramatically. The sound bite is 22 seconds and the outcue is “go up dramatically.”
Kriz: “In terms of the cost of rising public services, whenever you have a situation of a strong depressed economy, you have people who can’t afford their house payments and are getting evicted, foreclosed upon. You have a lot of vacant properties. Crime rates tend to go up. There’s a stronger need for public services at the state and county and local level. And so your cost for providing services just go up dramatically.”
Sound bite #4
Kriz says most cities that go bankrupt have very high unemployment rates. The sound bite is 21 seconds and the outcue is “in danger.”
Kriz: “Well, it is in situations where you have very high unemployment rates, I went back and looked at the cities that have gone bankrupt since 2010, and all of them have unemployment rates in excess of 10 percent as of the last year. So, for those cities that are having the same kind of economic and social problems that Detroit is, they are in danger.”
Sound bite #5
Kriz says cities in financial trouble don’t have a lot of options. The sound bite is 24 seconds and the outcue is “monthly payments.”
Kriz: “Unfortunately there’s not a lot of great options. One of the ways a city can get around things is by increasing tax rates. Now that only makes the problem worse because then businesses won’t locate there and people are going to be in even more trouble. What some cities have resorted to is to sell off the family jewels, in essence, to liquidate large assets that they hold in order to try and make their monthly payments.”
Sound bite #6
Kriz describes a major challenge facing city governments. The sound bite is 18 seconds and the outcue is “to master.”
Kriz: “The major problem is how do you keep public service costs at a relatively low level so that people don’t have to pay higher taxes, while at the same time still delivering high quality public services? That’s not an easy task for a lot of local governments to master.”
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If you have additional questions for Ken Kriz after listening to the WSU Newsline, please contact him at 316-978-6959 or firstname.lastname@example.org.