Thirteen American Cities Going Broke

Print Email

13. Wenatchee, Wash.
> Credit Rating: Ba2
> 2011 general fund revenues: $22.4 million
> 2011 general fund debt: $13.2 million
> Median income: $44,156

In December 2011, the Greater Wenatchee Public Facilities District defaulted on $42 million of debt associated with the Town Toyota Center, a multi-purpose arena. In order to help pay off that debt, the city imposed a 0.2% regional sales tax in July 2012. Bonds also went on sale in September to further alleviate the debt. Despite these plans, Moody’s noted in its May downgrade that any long-term plan to pay off the city’s debt “would further stress city finances … operational flexibility and ability to invest in infrastructure.” Moody’s also pointed out the city faces financial risk associated with litigation following the arena’s default.

12. Le Center, Minn.
> Credit Rating: Ba2
> 2011 general fund revenue: $1.1 million
> 2011 general fund debt: $8.3 million
> Median income: $41,481

On Feb. 1, Moody’s downgraded Le Center, Minnesota, from A1 to Ba2, with a negative long-term outlook. This small town, located in the south central part of the state, had to borrow to pay debt due in February 2012 , and received an extension on loan payments due December 2011. Besides the payment deferral, Moody’s cites the city’s very small tax base and “weak management practices” to explain the low rating. City management used unrealistic budgeting. In particular, it overestimated the amount of cash it would bring in from a new real estate project. The ratings agency projects that if these trends continue, the city will remain dependent on costly short-term loans to pay its debts.

Read: 10 Cities With The Fastest Growing Home Prices

11. Strafford County, N.H.
> Credit Rating: Ba2
> 2011 general fund revenue: $52.8 million
> 2011 general fund debt: $19.9 million
> Median income: $57,809

Strafford County’s financial state improved in fiscal 2011, when it eliminated a general fund deficit of $7.2 million from fiscal 2010 and ran a small surplus. Still, because of its tight budget, the county has had to regularly borrow money to cover short-term cash needs. Moody’s described Strafford’s ability to reduce its future borrowingas a “key factor” in determining its poor rating. According to Moody’s, Strafford County has no plans to issue any more long-term debt, and will shed an estimated 83.8% of its existing debt within 10 years. Moody’s altered its outlook from last year for the county from “negative” to “stable.”

10. Menasha, Wis.
> Credit Rating: Ba2
> 2011 general fund revenue: $16.2 million
> 2011 general fund debt: $43.4 million
> Median income: $45,897

In 2007, the city of Menasha defaulted on bonds it had issued to fund a steam plant. The utility operation closed down several years later. The fallout from this venture has left the city permanently in the red. As of 2011, it brought in just over $16 million in general fund revenue, but had $43.4 million in outstanding general fund debt. In 2010, nearly 20% of the city’s budget was devoted to paying off debt, which was the second-largest expense on the balance sheet in 2010. The city recently repossessed the abandoned steam plant, and is currently deciding whether to repurpose it or demolish it for scrap.

9. Harrison, N.J.
> Credit Rating: Ba2
> 2011 general fund revenue: $36.8 million
> 2011 general fund debt: $113.8 million
> Median income: $51,193

In 2006, Harrison guaranteed $39.4 million in bonds to buy land for the Red Bull Arena, the stadium used by the New York Red Bulls. The deal has not been profitable for Harrison. Condominium developments, expected to help pay off the stadium, were not finished as of last June. Additionally, for several years the  Red Bulls refused to pay property taxes. In July, the franchise paid the town $5.6 million in overdue taxes after a judge ruled the arena was taxable. In late 2011 the state of New Jersey created a $1 million reserve fund to help pay off the city’s debt. Since last October, the town’s credit rating has improved from Ba3 with a negative outlook to Ba2 with a positive outlook.