About a year ago Fox News aired a special called Cities Going Broke.  It describes the municipal debt crisis in places like Stockton, CA and Jefferson County (AL), both in terms of the fiscal and societal impact it has.  The common refrain in this special is greed, corruption, and incompetence…which leads to financial ruin.  Watch it for yourself, its an informative albeit bleak look at where municipalities are today and how they got there.

If you live in a small town and think that your local government is immune from the threat of bankruptcy, you may want to rethink that assumption.  Municipal debt is a pervasive problem, not just in big cities.

Credit: America The Beautiful

Desert Hot Springs, CA is the latest municipality facing Chapter 9 Bankruptcy due to salary and pension costs. In what is becoming a familiar refrain, the city discovered that it had underestimated its expenditures while overestimating its revenues.  The result is a $3 million shortfall that will have to be met early next year.  No matter what ends up happening, there will be adjustments that the municipal bond holders, city workers and retirees, and residents will have to make.

The likely outcome is less services at a higher cost.  This will mean less police protection, degraded infrastructure, and lower quality of service.  Citizens will be compelled to do more as essential services are cut or simply wait longer for things to get done.  Hopefully the citizens of Desert Hot Springs are prepared…

By the way, this wouldn’t be the first time the town of 25,000 went into bankruptcy (the first time was in 2001).  Expect more small towns like Desert Hot Springs to join Stockton, San Bernardino, and Detroit in bankrupty court in the coming months.