Predictors of Municipal Bankruptcies and State Intervention Programs: An Exploratory Study

Why do some struggling cities file for bankruptcy while others, facing simiar circumstances, do not? This Article builds on the literature examining the causes and consequences ofmunicipal fiscal distress by exploring specific factors that lead municipalities to seek help from the state and federal government. Viewing municipal opportunities and constraints through political, economic, and legal lenses, this Article helps to explain the nuances ofmunicival decision making. After identifiing eight factors that may serve as predctors of municipal insolvency, the authors studied cities in Fiscal distress with an eye toward uncovering the circumstances that led each of these cities into and—if applicable—out of their financial predicaments.

Union density unfunded pension iabilty, and financial mismanagement were the three most prevalent factors in the authors' sample population. The analysis suggests that scholars and policymakers should focus their efforts on using bankruptcy relief conjunction with state aid programs in order to address these primary sources of municipal distress in a more comprehensive manner.