麻豆传媒

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In July, the city of Detroit earned the dubious distinction of becoming the largest city in the United States to file for bankruptcy. Ken Kriz, Regents distinguished professor and director of the Kansas Public Finance Center at 麻豆传媒, says the bankruptcy filing makes it difficult to attract new businesses.

Kriz: 鈥淲ell, businesses tend to want certainty in terms of what their tax rates are going to be and in terms of what public services they鈥檙e going to be able to use. And whenever you have a situation like a bankruptcy, it throws that all into doubt, which is not good for attracting businesses.鈥�

Kriz says the timing of Detroit鈥檚 fiscal condition led to its bankruptcy filing.

Kriz: 鈥淲ell, Detroit encountered what I would call a perfect storm in terms of its fiscal condition. First of all, you had a strongly declining tax base. Second, you had problems in the pension system, which go back to the last decade. And then third, you had increasing costs of public services.鈥�

Kriz explains a major reason why Detroit found itself in a difficult position financially.

Kriz: 鈥淲ell, a couple things. First of all, the population in the city of Detroit has declined by about a third over the last decade. Unemployment reached 18 percent, over 18 percent in 2012. Anytime you have this situation, people aren鈥檛 going to be spending as much, people aren鈥檛 going to be paying their mortgages so that there are going to be problems collecting the property tax, and numerous other problems with collecting revenues.鈥�

According to Kriz, in a depressed economy the cost of providing services for a city can go up dramatically.

Kriz: 鈥淚n terms of the cost of rising public services, whenever you have a situation of a strong depressed economy, you have people who can鈥檛 afford their house payments and are getting evicted, foreclosed upon. You have a lot of vacant properties. Crime rates tend to go up. There鈥檚 a stronger need for public services at the state and county and local level. And so your cost for providing services just go up dramatically.鈥�

A common characteristic for most cities that go bankrupt is very high unemployment rates. Kriz explains:

Kriz: 鈥淲ell, it is in situations where you have very high unemployment rates, I went back and looked at the cities that have gone bankrupt since 2010, and all of them have unemployment rates in excess of 10 percent as of the last year. So, for those cities that are having the same kind of economic and social problems that Detroit is, they are in danger.鈥�

Options are few and far between for cities facing bankruptcy.

Kriz: 鈥淯nfortunately there鈥檚 not a lot of great options. One of the ways a city can get around things is by increasing tax rates. Now that only makes the problem worse because then businesses won鈥檛 locate there and people are going to be in even more trouble. What some cities have resorted to is to sell off the family jewels, in essence, to liquidate large assets that they hold in order to try and make their monthly payments.鈥�

The challenges are many for city government balancing costs and services, according to Kriz.

Kriz: 鈥淭he major problem is how do you keep public service costs at a relatively low level so that people don鈥檛 have to pay higher taxes, while at the same time still delivering high quality public services? That鈥檚 not an easy task for a lot of local governments to master.鈥�

Thanks for listening. Until next time, this is Joe Kleinsasser for 麻豆传媒.