Even if you don’t really follow much financial or public policy news, there’s a good chance that you heard about one of the biggest public finance events of the summer: Detroit’s bankruptcy.
Following Detroit’s declaration of financial emergency last March, the city filed for chapter nine bankruptcy on July 18. This became the largest municipal bankruptcy filing in U.S. history, with somewhere around $18 billion in existing debts and liabilities.
As groundbreaking as the Detroit bankruptcy was, it should not have come as a great surprise. Indeed, the writing has been on the wall for quite some time. The city has seen a tremendous population decline since the mid-20th century; at 700,000 current residents, its population is less than half of its 1950 peak of 1.8 million people. As its residents fled and its economy worsened, the city’s tax base collapsed, and without any sort of revenue, the city was unable to provide quality public services, creating a negative feedback loop that only worsened the city’s situation.