Detroit famously declared itself bankrupt in 2013, but it’s by no means alone. While not very common, cities, townsand counties can file Chapter 9 Bankruptcy when unable to pay their bills. In 2016, more than 60 cities in the US did not have enough money to pay all of their bills, racking up a grand total of $335.4 billion in unfunded municipal debt, according to Truth for Accounting. Click or scroll through to find out which of the US's biggest cities and counties, have filed for bankruptcy, why, and what happened next.

When it declared bankruptcy in 2008 this Bay Area suburb of 120,000 became the largest city in California to do so. Founded in 1851, its history has long been tied to the Mare Island Naval Shipyard, which opened in 1854. It was the first US Navy base built in the Pacific Ocean, providing civil defense and emergency response services to much of the west coast. During World War II the shipyard included a hospital and schools for firefighters as well as opticians. 

At this wartime peak Mare Island employed 50,000 workers. But when it closed in 1996 the city lost jobs and much-needed tax revenue to support the public employee pension and healthcare benefit packages that had become an overwhelming expense for the city. In fact, a report by Stanford shows employer pension contributions totaled $5 million in 2003-04 and more than doubled to $11.3 million by 2008-09. That wasn't the only expense putting pressure on Vallejo's funds: pay and benefits for firefighters and police officers accounted for nearly 80% percent of the city's general fund budget in 2008. And so, in that year, with $18 million in debt, the city was forced to file for bankruptcy. 

Following bankruptcy the city introduced austerity measures and cut services, such as fire and police. It exited bankruptcy in 2011, and that same year voters approved a one-cent sales tax, which they would then renew in 2016. This provides the city with an extra $14-16 million a year earmarked to cover the lost police and fire services. However, it's not out of the woods yet, as the Stanford report projects that pension contributions are expected to increase to at least $52 million by 2030.

Located in the agricultural Central Valley, the city grew into a transportation hub during the 20th century and its population of 300,000 has steadily grown over the last 150 years. In the 1990s Stockton responded to city employees seeking pay raises by offering full health insurance in retirement instead, among other generous pension benefits. At that time a strong stock market provided the necessary returns for pension funds and the growing housing market added to the city’s tax revenue.

Meanwhile, the city launched various redevelopment and downtown revitalization programs, for which it took on debt. In 2007-2008 as the housing market crashed and the financial crisis in took hold, Stockton’s finances went deep into the red. It was named one of the foreclosure capitals in America. Unable to pay its bills, in June 2012 the city overtook Vallejo to become the state’s largest to file bankruptcy and, at the time, the largest in the US. It would exit bankruptcy in 2015.

While the bankruptcy didn’t affect existing public employee pensions, it was a major focus of the debate – whether or not these benefits can be cut in bankruptcy. City contributions to current employees have been reduced, and in 2013 it stopped offering retirement healthcare. Other austerity measures included reduced hours and services for city hall, libraries and parks. In 2013 voters approved a measure to increase the sales tax by three-quarters of a cent, which could be as much as $28 million per year.

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Two months after Stockton filed for bankruptcy it was followed by San Bernardino in August 2012. Though this southern California city had a slightly smaller population it carried much more debt. Notable for being home to the first ever McDonald’s restaurant, San Bernardino’s economy relies heavily on services including government, retail and restaurants. Like Vallejo, a 1994 naval base closure cost the city some 10,000 jobs and sparked an economic downturn. 

The housing crash had a significant effect on the city’s ability to collect revenue. Debt from pension and other retirement benefits accounted had been mounting. As part of the city’s bankruptcy plan retirement healthcare would get cut, but not pensions, though city contributions would drop. San Bernardino also decided to end its city-run fire and emergency services and use the county instead, an estimated pension cost savings of $65.6 million over the next 20 years.

By 2016 the City had cut nearly half of its full-time employees from 1,140 to approximately 600. Other changes included contracting out services for a soccer complex, street sweeping and solid waste collection. San Bernardino exited bankruptcy in 2017 and estimates it has cut $350 million in spending over the next 30 years. However, it notes that the costs related to bankruptcy will reach at least $25 million, primarily due to the costs of legal and financial professionals.

Well-known in pop culture as the setting for television shows such as The O.C., this suburban Los Angeles county made up of 34 cities and towns was not suffering from the economic downturn when it declared bankruptcy in 1994. In fact, the county's debt was generated by a series of risky investments made by county treasurer Robert Citron based on advice from investment management firm, Merrill Lynch, which encouraged the inexperienced investor to follow a high-risk strategy.

When it came to light in 1994 the Public Policy Institute of California called it an “enormous gamble with public funds" and labelled Citron as "seriously under-qualified". Why? He had purchased derivatives and other debts, which would fall prey to the Federal Reserve Board increasing interest rates, and leave Orange County at least $1.5 billion in debt.

In November 1994 auditors told county officials that Citron had lost the county a serious amount of money. This led to his resignation and the county sued Merrill Lynch. The LA Times would later report how Citron relied on a “mail order astrologer and a psychic” for interest rate predictions. But the events had much wider ramifications, and the county was forced to lay off workers, freeze new hires and make severe cuts to the budget. In July 2017 Orange County made its last bond payment related to the bankruptcy. 

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Home to Alabama’s most-populated city, Birmingham, the county filed bankruptcy in 2011 following a sewer scandal. In the 1990s county officials launched an overhaul of the entire sewer system in Jefferson County, a construction project that was supposed to create jobs while improving the area’s aging sewer infrastructure. However, two major problems relating to the project’s financing put the county in crippling debt – the largest amount ever for municipal bankruptcy filing at the time.

The first issue was that of the large sums of money the county borrowed to rebuild the sewers much of it was spent on bribes. Then as the project’s price tag ballooned the water rates for local customers grew along with it, leaving locals unhappy. And so short on cash and still without new sewers, the county pursued a bond deal with interest-rate swaps, a type of financial product that proved costly for Jefferson County during the financial crisis in 2008. In fact several county officials ended up in court for fraud, with some serving time in prison.

In the aftermath of the bankruptcy the county slashed jobs and spending. Roads have degraded past the point of repair and will now need to be removed and rebuilt. This year the state legislature approved a 10-cent per gallon gas tax, but it comes with limitations on how the funds can be used. The money can pay for construction contracts or for purchasing road construction materials under bids, but not to purchase equipment nor pay salaries if a municipality wants to pave the roads in house. 

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Detroit became the largest municipal bankruptcy in July 2013. Home to the automotive industry the city’s success boomed in the 20th century creating a large tax base. But with the area's automotive industry in decline, Detroit has suffered. Compared to its peak population of 1.8 million in 1950s, its 713,000 population in 2010 was a fraction of the city’s glory days, and is still shrinking. The city has long struggled to pay its bills, and made cuts to services before filing Chapter 9. By 2013 an estimated 40% of the city's street lights weren't working, and there were around 78,000 abandoned buildings across the city.

Corrupt politicians contributed to the money troubles. A former mayor went to prison on 24 corruption charges, which included $9.6 million-worth of illegal profits taken from water and sewer contracts, a $500,000 grant earmarked for kids and seniors which was given to friends instead, and misuse of a city credit card to pay for a trip to Las Vegas, including spa visits, a hotel room for the babysitter and an $850 steak dinner, according to USA Today. Prosecutors emphasized the bankruptcy wasn’t his fault, but his misuse of funds certainly didn't help the situation.

Part of the bankruptcy proceedings centered on the city-owned Detroit Institute of Arts with threats of selling off art to pay the city’s debts. Instead the judge sought donations from major foundations to transfer museum ownership from the city to a non-profit. The more than $800 million, raised in what would become known as the “grand bargain,” had a stipulation that the money most go into the city’s pension fund. The city exited bankruptcy in November 2014, 17 months later.

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