Thirteen American Cities Going Broke

Print Email

8. Salem, N.J.
> Credit Rating: Ba3
> 2011 general fund revenue: $8.0 million
> 2011 general fund debt: $36.0 million
> Median income: $25,682

In 2007, Salem guaranteed bonds to finance the construction of the Finlaw State Office Building. The project was a disaster. There were construction delays and the state leased the building for just 20 years, while the town will have debt repayments for 30 years. Lease revenue was not high enough to cover both maintenance fees and debt payments. As of May, the city had already spent all but $772,000 of the $1.8 million set aside in reserves to cover shortfalls in revenue from the project. If this fund is exhausted, the city, and possibly the taxpayers, will be on the hook for any debt payments that lease revenue does not cover. Moody’s describes the deal as “a liability which is disproportionate to the city’s size and ability to pay.”

7. Riverdale, Ill.
> Credit Rating: B2
> 2011 general fund revenue: $12.9 million
> 2011 general fund debt: $7.0 million
> Median income: $42,690

Riverdale, a community of under 14,000 people about 20 minutes south of downtown Chicago, had its credit rating downgraded in October due to a growing deficit in its general operating fund. The village is expected to report a deficit of $1.5 million for fiscal 2012, bringing the total general fund balance to -$1.95 million, or 15.8% of projected revenue. Riverdale is also underfunding its four pension plans.  Moody’s said Riverdale’s coffers are hurting due to “declining full valuation, taxpayer concentration, elevated unemployment and a net population loss.” According to the U.S. Census, the village population fell 10% from 2000 to 2010, while per capita income was only 61% of the U.S. average income.

Read: States with the Highest (and Lowest) Taxes

6. Woonsocket, R.I.
> Credit Rating: B2
> 2011 general fund revenue: $80.6 million
> 2011 general fund debt: $203.2 million
>Median income: $38,625

In June 2012, Woonsocket faced a severe cash flow crisis, but managed to avoid disaster after Rhode Island’s budget oversight commission increased state aid. As of 2011, Woonsocket’s general fund had debt equivalent to 2.5 times its revenue that year. Moody’s report on the city’s speculative-grade rating cited the city’s continuing difficulties making spending cuts because of poor management and imprecise accounting.

5. Central Falls, R.I.
> Credit Rating: B2
> 2011 general fund revenue: $17.9 million
> 2011 general fund debt: $21.0 million
> Median income: $34,389

Central Falls, a city of around 20,000 people located outside of Providence, filed for Chapter 9 bankruptcy in Aug. 2011. At the time, the city faced $80 million in unfunded pensions liabilities and retiree health benefits, or about than four-and-a-half times its annual general fund revenues of $17.9 million. During its time in bankruptcy, the Rhode Island legislature funded $2.6 million to help prevent severe cuts during bankruptcy. A judge approved of the city’s plan to emerge from bankruptcy in September 2012. As part of its plan to emerge from bankruptcy, the city will increase property taxes by 4% annually for the next five years. It will also cut pensions of workers who retired at a young age by up to 55% and will have a reduced workforce indefinitely.

4. Detroit, Mich.
> Credit Rating: B3
> 2011 general fund revenue: $1,229.2 million
> 2011 general fund debt: $2,508.3 million
> Median income: $28,357

Since last October, Detroit’s credit rating has fallen significantly — from Ba3 to B3. According to Moody’s,  the city “suffers from high unemployment, high poverty, low income, concentrated exposure to a dominant industry, and a depressed housing market.” In April, Michigan reached an agreement with Detroit that prevented the appointment of an emergency manager, who would manage the city’s finances and would have authority to remove the mayor and city council. Although Michigan raised $129 million in funds for Detroit in August, the city has only received $50 million — the rest is dependent on its ability to make financial reforms. On Oct.15, Moody’s noted that Detroit remains under review for a further downgrade, highlighting uncertainty surrounding possible amendments to the city’s fiscal 2013 budget.