General‐Purpose Local Government Defaults: Type, Trend, and Impact

Abstract

Local governments default on bonds when they fail to comply with the monetary and nonmonetary aspects of the debt contracts. Analyses of defaults have relied on reports from credit rating agencies, which include only rated bonds undergoing monetary defaults. Using a unique and comprehensive dataset of defaults, we examine all general‐purpose government defaults from 2009 to 2015 and find defaults to be more common than previously reported. We present a typology of defaults and characteristics of defaulted bonds. Most defaults occur among nongeneral obligation bonds and did not affect the yield of future, unrelated credits of the same issuer, providing support to the credit segmentation hypothesis.

Assessments of Municipalities’ Fiscal Health: Comparative Analysis of State Online Dashboard Systems

“…Many other researchers and think tanks suggested various measures to evaluate municipal fiscal health. The U.S. Congressional Budget Office (CBO) (1978), Aronson and King (1978), Ladd and Yinger (1991), Brown (1993), Khloa et al (2005), McDonald (2019, Yang (2019a), Yang & Abbas (2020), and only several names of many others who contributed to the development of fiscal measures. Guzman and Ermasova (2023), Maher et al (2023), andGordon (2018) synthesize extant frameworks of comprehensive measures of municipal fiscal health.…”

“…(2) What financial indicators have to be included? Based on the review of fiscal health literature (Guzman and Ermasova, 2023;Maher et al, 2023;Yang & Abbas, 2020;McDonald, 2019;Gordon, 2018;Brown, 1993) we suggest the inclusion of the following financial indicators: (1) General Fund Indicators; (2) Debt Burden Indicators; (3) Liquidity Indicators; (4) Solvency Indicators; (5 The combination of these indicators was picked thoughtfully not to create extra administrative burden for local governments that may need to estimate dozens of such ratios, but to make sure different grounds are covered to detect signs of fiscal distress at its earliest.…”

Decree or democracy? State takeovers and local government financial outcomes

“…Many troubled local governments experienced severe fiscal distress, reflecting deterioration in their capacity to service outstanding debt and support public services (Skidmore & Scorsone, 2011). Local governments' default rates increased (Yang & Abbas, 2020), and nine general purpose governments successfully petitioned federal courts for Chapter 9 bankruptcy protection, including Detroit. Some states responded to local fiscal crises by using their intervention authority to appoint EFMs or institute recovery plans with the goal of returning their localities to a path of fiscal sustainability (Chapman, 2008).…”