Financial distress and municipal bankruptcy: the case of prichard, alabama

Abstract

Since 1934, the federal government has provided a process for municipalities to declare bankruptcy, and approximately 500 governments have done so. In recent years, an average of less than one city government declares bankruptcy each year. In this article, the authors identify five factors that contribute to financial distress for cities which, if left unattended, can lead to municipal bankruptcy. This discussion is followed by an examination of the events that led to the bankruptcy of the City of Prichard, Alabama, once a prosperous suburb of Mobile.

Auditors and early signals of financial distress in local governments

“…Undoubtedly, when financial distress occurs, both citizens and the entire local community have to endure a detrimental impact. Also, the future development of the LG is compromised (Pagano and Moore, 1985;Watson et al, 2005;Carmeli, 2008).…”

Assessing the influence of socioeconomic drivers on Italian municipal financial destabilization

“…Later studies seem to downsize the role of socioeconomic factors (Clark, 1999;Dougherty et al, 2000), claiming that they were relevant only when higher levels of government were unable to respond to economic recession (Falconer, 1991). More recent studies seem to provide further evidence about the relevance of socioeconomic downturns in producing local fiscal stress, as socioeconomic factors can substantially influence the revenue-generating capacity of local governments (Honadle, 2003;Edgerton et al, 2004;Beckett-Camarata, 2004;Watson et al, 2005;Carroll, 2005;Jones and Walker, 2007;Skidmore and Scorsone, 2011). Yet, according to some authors and with specific reference to US municipal bankruptcy, political factors appear to shape, influence, or even determine whether or not a government will file for bankruptcy protection, and are therefore more important than economic factors (Park, 2004).…”

Causes of (and Solutions for?) Financial Crises in Local Governments: Insights From Local Arab Authorities in Israel

“…The second approach, the “socioeconomic decline approach” (Kimhi, 2008), contrasts with the first approach by focusing on the external causes of crisis, such as socioeconomic characteristics (SEs; that is, size, socioeconomic context, and municipal history), and structural circumstances that are beyond the control of local officials, such as national business cycles, declines in local business activities, and national public policies (NPPs; Beckett-Camarata, 2004; Carroll, 2005; Edgerton, Haughwout, & Rosen, 2004; Ghanem & Azaiza, 2008; Haider, 2010; Honadle, 2003; Jones & Walker, 2007; Skidmore & Scorsone, 2011; Watson, Handley, & Hassett, 2005). SEs are generally considered to be primarily responsible for FCLAs.…”