Advice to Cities Considering Bankruptcy: 'Don't Do It'

As the third California city in a month files for bankruptcy protection, fears of a domino effect worry many. While bankruptcy may seem like an enticing solution, officials that have gone through it caution about the downside.

2 minute read

July 13, 2012, 12:00 PM PDT

By Andrew Gorden


This week, another California city, San Bernardino (population over 200,000), voted to follow the fate of the Sierra Nevada resort town Mammoth Lakes, and Central Valley city Stockton, by filing for bankruptcy. With fast rising labor costs and municipal debt plaguing cities across the state, and country, the slippery slope to bankruptcy may trap other municipalities in the near future, write Phil Willon, Catherine Saillant and Abby Sewell.

"Joe Nation, a Stanford economics professor and co-author of the February report [on rising pension costs], thinks that for at least some cities, insolvency is inevitable unless they can wrest much bigger concessions on salaries and pensions from public employees."

"'I think this is the tip of the iceberg in terms of the problem,' Nation said. 'Stockton was spending $12 [million] or $13 million on pensions 10 years ago. By 2010, it was $30 million and will double again over the next five years, unless something is changed.'"

Writing in The New York Times, Mary Williams Walsh reports that analysts were not, however, predicting a wave of defaults, at least outside of California. "I don't believe that this is the beginning of a tidal wave of insolvency across the country," said Richard P. Larkin, director of credit analysis at the underwriting firm H. J. Sims. "I am worried, however, that this phenomenon may grow in California."

For those cities considering bankruptcy as a viable option, a voice of warning comes from Osby Davis, mayor of Vallejo, the Bay Area city that began the current trend of municipal bankruptcies in May 2008. His advice: don't do it. "It takes an enormous toll on everyone,'' Davis said. "And you have the stigma of being a bankrupt city. How do you come out of being labeled a bankrupt city to one that is a desirable place to live?"

Thursday, July 12, 2012 in Los Angeles Times

portrait of professional woman

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching. Mary G., Urban Planner

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching.

Mary G., Urban Planner

Cover CM Credits, Earn Certificates, Push Your Career Forward

Aerial view of town of Wailuku in Maui, Hawaii with mountains in background against cloudy sunset sky.

Maui's Vacation Rental Debate Turns Ugly

Verbal attacks, misinformation campaigns and fistfights plague a high-stakes debate to convert thousands of vacation rentals into long-term housing.

July 1, 2025 - Honolulu Civil Beat

Logo for Planetizen Federal Action Tracker with black and white image of U.S. Capitol with water ripple overlay.

Planetizen Federal Action Tracker

A weekly monitor of how Trump’s orders and actions are impacting planners and planning in America.

July 9, 2025 - Diana Ionescu

Map of Haussmann's redesign of Paris in the 1850s through 1870s under Napoleon III.

In Urban Planning, AI Prompting Could be the New Design Thinking

Creativity has long been key to great urban design. What if we see AI as our new creative partner?

June 30, 2025 - Tom Sanchez

Red and white "Wildfire Evacuation Route" sign on signpost.

Cal Fire Chatbot Fails to Answer Basic Questions

An AI chatbot designed to provide information about wildfires can’t answer questions about evacuation orders, among other problems.

July 10 - The Markup

Protester at Echo Park Lake, Los Angeles holding sign that says "Housing is a human right"

What Happens if Trump Kills Section 8?

The Trump admin aims to slash federal rental aid by nearly half and shift distribution to states. Experts warn this could spike homelessness and destabilize communities nationwide.

July 10 - Shelterforce Magazine

Aerial of rainbow painted crosswalks at large intersection in Castro District, Sna Francisco, California.

Sean Duffy Targets Rainbow Crosswalks in Road Safety Efforts

Despite evidence that colorful crosswalks actually improve intersection safety — and the lack of almost any crosswalks at all on the nation’s most dangerous arterial roads — U.S. Transportation Secretary Duffy is calling on states to remove them.

July 10 - Streetsblog USA

Urban Design for Planners 1: Software Tools

This six-course series explores essential urban design concepts using open source software and equips planners with the tools they need to participate fully in the urban design process.

Planning for Universal Design

Learn the tools for implementing Universal Design in planning regulations.

Home and Land Services Coordinator

Appalachian Highlands Housing Partners

Associate/Senior Planner

Gallatin County Department of Planning & Community Development

Senior Planner

Heyer Gruel & Associates PA