Will your city go bankrupt in 2011?
Jamie Dimon, the chief executive of banking giant JPMorgan Chase, is warning that more U.S. municipalities may go bankrupt this year. While only two cities — Vallejo, Calif., and Prichard, Ala. — have filed for bankruptcy since the recession began in late 2007, Dimon's prediction echoes earlier statements from Warren Buffett and Meredith Whitney, a noted Wall Street analyst. Here, a list of cities that are teetering on the edge:
This small Michigan municipality is probably the most likely early contender for bankruptcy in 2011, according to The Detroit News. City authorities say Hamtramck will run out of funds on January 31, and has already sought state permission to declare bankruptcy.
Hamtramck's larger neighbor is also on the verge of financial collapse, says Mike Shedlock at The Business Insider. "In a futile attempt to stave off the inevitable," the mayor has cut road repairs, police patrols, streets lights, and garbage collection in 20 percent of the city. Too little, too late, says Shedlock: "I believe Detroit will, sometime in 2011, file for bankruptcy."
Los Angeles, Calif.
It may not happen this year, but former Los Angeles Mayor Richard Riordan says that America's second-largest city will be forced to declare bankruptcy by 2014. The cost of retirement pensions for former civic employees is expected to hit almost $1.25 billion this year. If those costs keep rising, says Riordan, the city will go bust.
The city once referred to as "the most corrupt town in America" is in dire financial straits. Bell became "notorious for its officials' extravagant pay," says the United Press International, and faces a $2.2 million deficit if it keeps spending at current rates. Bankruptcy, says the city's chief administrative officer, is an option "on the table."
Pennsylvania's state capital narrowly avoided defaulting on a $3.29 million debt payment last September, and has now hired a team of financial consultants to help draft a recovery plan. Many city officials want to file for bankruptcy, a move the mayor opposes. A decision on whether or not to declare Harrisburg bust may come as early as April, reports The Wall Street Journal.
Central Falls, R.I.
Central Falls tried to declare bankruptcy last year, but was blocked by the state, which appointed a receiver to oversee the town's finances. That state-appointed administrator says a merger with nearby Pawtucket may be the only way to avoid bankruptcy. The city, which has only 19,000 citizens, needs approximately $80 million to pay for promised health insurance and pension costs. "That's a huge problem," says Mark A. Pfeiffer, the retired Superior Court judge charged with running the city. But bankruptcy should be a "last resort."
Although Republican Sen. Ed Charbonneau is proposing a bill allowing cities in Indiana to declare bankruptcy, he has denied that it is targeting Gary. Even so, residents of the cash-strapped city accept that it may be left with no other option. With deficits of $10 million, says the Indiana Economic Digest, it would be "nearly impossible" for Gary to balance its budget otherwise.