Tuesday, November 19, 2019

One of the factors in municipal Bankruptcies is extreme population growth

That idea isn’t an academic hypothetical. The populations of three distressed California cities — Stockton, San Bernardino, and Vallejo — all had significant population growth in the years leading up to their defaults, the authors noted.
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And local governments are in the same boat as Hemingway’s hero: they go bankrupt two ways, gradually and then suddenly. In “boom default” cases, the authors write, population and productivity growth remains strong right up until about a year before the municipality decides it has no choice but to default.
During that time, the local government’s debt load per person grows, as do government expenditures and taxes. The authors offered Detroit as an example. In the early 2000s, even as the overall economic situation in the city was worsening, the city had what the authors consider an “optimal” debt level, of about $7,000 per person.

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