The process of cities going bankrupt has already begun. One of Michigan’s largest cities, Flint, is already in receivership. The state gets to help pay the bills. Several other large municipalities in The Wolverine State will probably go under as car companies shut factories.
Calpers put money into worthless real estate and may renege on some of its obligations to government employees in California, putting more financial pressure on local governments.
According to The Wall Street Journal, "Isleton and Rio Vista, small towns roughly 50 miles northeast of San Francisco, say they have begun consulting with bankruptcy lawyers as they draw up plans to deal with their mounting budget crises." California has already said it will have to slash its budget because the state is going broke.
The financial weight of running local governments is now seesawing back and forth between towns and states. The truth is that, in many cases, it is passing the buck from one insolvent party to another. The obligations grow and no one can pay them.
Unfortunately, this leaves the federal government to deal with the problem. Unlike the way that it handled the financial and car industries, it better get out in front of this one. It is severe and growing rapidly. There is no department within the cabinet set up to handle state and city problems. The work of dealing with failures of local government will have to be handed to one or another cabinet secretary.
The time has run out. And, no one has set up a system to deal with the fallout.
Douglas A. McIntyre