The bankruptcy filing of Detroit has thrust the fiscal health of America’s cities into the spotlight. This is a good thing, because a number of U.S. cities are facing similar problems: Declining populations, rising costs, heavy pension burdens and thin budgets.
Chicago is in a unique situation where, burdened with enormous pension costs, it is unable to adjust current pension commitments. This is because the State of Illinois has control of the law that applies to Chicago’s pensions. This may sound odd, but it is how muniland works. In addition to state capitols passing revenue to local governments, they often have significant control over the disposition of local finances.
When local governments are facing fiscal distress and considering bankruptcies, it becomes clear how much they appear like adolescents compared to states. Oddly though, the debts of local governments are not state liabilities, unless the debts are specifically assumed by the state.
Pew Charitable Trusts released a report on the approaches of states to their fiscally-stressed municipalities. You can see which states have pro-active policies for intervention in this Pew Map: