Lessons Learned about Municipal Bankruptcies

Detroit pic
Image: forbes.com

An associate at the Edward J. Collins Center for Public Management at the University of Massachusetts, Stephen Lisauskas has a considerable background in helping cities manage their expenses. Stephen Lisauskas has worked with fiscally distressed cities to reduce costs and improve credit.

In 2014, Detroit faced critical distress and declared bankruptcy. The plan to deal with that crisis imposed many hardships, such as layoffs and tax increases, which exacerbated population declines. The Pew Charitable Trusts reported on several measures that states could implement to prevent or better manage municipal bankruptcies. These include offering early assistance to distressed cities and counties; tracking cities’ fiscal condition for warning signs of financial problems; and devising alternatives to bankruptcy, including the appointment of temporary managers and monitors.

When no alternatives exist to bankruptcy, policy makers could consult representatives of all parties who have a stake in the outcome, in order to settle conflicts. Once a government exits the bankruptcy, it should enact a short-term recovery plan and a longer-term strategy of economic growth. Equally important is budgeting to balance revenues and expenses over a multi-year span to help address underlying causes.