Policy Research

Not Just Pensions: The Social Origins of Municipal Bankruptcy in California

Isaac William Martin

Summary

The article aims to explore some of the root causes behind municipal bankruptcy. While each bankrupt city has its own unique set of factors that led to its decline, some common factors between several California cities and Detroit have emerged. The role of limited real estate tax in the struggle to meet rising municipal expenses is analyzed.

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Policy Implications

It is difficult to generalize while searching for the explanations behind large city bankruptcies, given that they are relatively rare. Great blame is often placed on rising municipal expenses but a history of unusually low real estate tax gets little attention. The challenge today is to find a bipartisan solution that can reverse years of under-taxation and raise city revenues.