On Thursday, the city of Detroit filed for Chapter 9 bankruptcy protection. The total value of the city’s outstanding obligations are estimated at more than $18 billion. This makes the filing easily the largest by a U.S. city in history.
While Detroit’s bankruptcy — if the petition is not blocked – will be the largest, is it certainly not the first major city, town, or county to file for Chapter 9 bankruptcy protection. In 2012 alone, Stockton and San Bernardino also petitioned for bankruptcy protection. Each had hundreds of millions of dollars in debt. 24/7 Wall St. reviewed the five largest municipal bankruptcies in U.S. history.
Thursday’s bankruptcy filing is the latest chapter in the tragedy that is the city of Detroit. Once a booming manufacturing-based economy with a strong middle class, Detroit has lost more than half its population, as well as much of its valuable tax base.
In addition to poor economic circumstances, poor management can also play a critical role in ruining a municipality’s finances. Many argue that Detroit’s officials have been overspending for years, despite their severely limited and diminishing resources. In the case of Jefferson County, corruption and bets on the direction of interest rate changes by public officials marred the city’s attempts to rebuild its sewer system. Orange County borrowed billions in order to purchase complex, potentially-risky assets. In both municipalities, public officials were convicted for their roles in promoting faulty deals.
Based on data provided by Moody’s Investors Service and public records, 24/7 Wall St. identified the municipal entities with the largest principal liabilities associated with bankruptcy. In every case except for Orange County, legal proceedings are still ongoing. In the cases of Detroit and San Bernardino, the petition could be rejected by a court.
These are the largest municipal bankruptcies in U.S. history.