Table Of Content“This is a thoroughly treated, must read book on local government/municipal
finance and bankruptcy challenges. The book’s uniqueness is its strength
on emergency financial management stress, fiscal distress, and government
bankruptcy with loss of financial capacity in modern times. The authors have
done an excellent job of explaining and illustrating this highly significant feature
of contemporary financial management; their work is admirably well done with
adequate details without overwhelming the students, researchers, and instructors.
The select case studies of the second half of the book supplement the theory,
concept, and issues covered earlier, and are extremely useful to readers. Highly
recommended for upper undergraduate and graduate MPA students, as well as
for courses in public financial management, for its easy to read and substantive
content”.
– Ali Farazmand, Florida Atlantic University
“Ermasova and Guzman provide the reader with an approachable yet thorough
understanding of the conceptual underpinnings of fiscal stress, its effects, and
remedies that is augmented through the use of carefully selected case studies”.
– C. Kurt Zorn, Indiana University
“Through a compelling review of current scholarship and a detailed discussion of
case studies, the authors share with us their wealth of knowledge on the origins
of fiscal malaise in U.S. cities and stimulate us to reflect on policy action that can
counteract the economic, political, institutional and managerial environments
that are conducive to local financial crises. A captivating read for scholars
and practitioners interested in the management of local government financial
condition!”
– Evgenia Gorina, University of Texas at Dallas
MUNICIPAL FISCAL STRESS,
BANKRUPTCIES, AND OTHER
FINANCIAL EMERGENCIES
It is difficult to find someone who has not heard about the Puerto Rico, Detroit,
Michigan, or Orange County, California, bankruptcies. While guides for
responsibly managing government finances exist, problems often originate not
because of poor financial reporting or financial deficiencies but because issues
external to financial wellbeing arise, such as economic, demographic, political,
legal, or even environmental factors. Exacerbating the problem, there is not much
advice in the existing literature on how to act when municipalities face financial
struggles. Filling this important gap, this book explores fiscal health and fiscal
hardships, municipal defaults and bankruptcies, and many other aspects to help
guide local governments during fiscal distress.
Fiscal hardships negatively affect the quality and availability of public goods
and services and, consequently, the wellbeing of residents and businesses living
and working in distressed municipalities. Turned off streetlights, unmaintained
public parks, potholes, inconsistent garbage pickup, longer response time from
emergency services, and multiple other issues that residents of the struggling
municipalities deal with, lead to higher crime rates, lower quality of K-12
education, dangerous road conditions, lower housing values, outmigration of
wealthier population, and numerous other problems. The COVID-19 pandemic
put additional unprecedented pressure on municipal finances nationwide.
In this book authors Tatyana Guzman and Natalia Ermasova evaluate distressed
cities and municipalities and provide practical recommendations on improving
their financial conditions. What are conditions and signs to look for to not
to find yourself in similar situations? What can be done if your municipality
is already experiencing fiscal hardships? What are the consequences of fiscal
misfortunes? How does one exit a fiscal emergency? This book answers these
and other questions and serves as a guide to fiscal health and prosperity for U.S.
municipal governments, students and researchers in public finance, and general
public management fields.
Tatyana Guzman is Associate Professor in public finance and policy analysis at
Cleveland State University. Dr. Guzman received her PhD in public affairs from
O’Neill School of Public and Environmental Affairs at Indiana University and
also holds an MA degree in economics. Dr. Guzman’s primary research interests
are in various aspects of the public finance field, including taxation, budgeting,
and municipal bond markets. She has published over 20 journal articles and book
chapters. Her research has appeared in such peer-reviewed journals as Public
Budgeting and Finance (PBF), Policy Studies Journal (PSJ), American Review of Public
Administration (ARPA), Journal of Benefit-Cost Analysis (JBCA), Tax Notes, and
other outlets. Tatyana has 15 years of teaching experience at Cleveland State
University, Indiana University Bloomington (IUB), and Indiana University
Purdue University in Indianapolis (IUPUI), where she has taught undergraduate
and graduate public finance and budgeting, research methods, economics, and
statistics courses.
Natalia Ermasova is a Professor at Governors State University, Illinois, USA.
She has a PhD in public affairs (SPEA, Indiana University, USA). Her primary
research interests are capital budgeting, business ethics, public finance, leadership,
risk-management, innovation management, and public education funding. She
was Visiting Professor in Germany (Ludwigsburg Academy for Civil Services),
Corvinus University (Hungary) and Fulbright Visiting Professor (SPEA, IU).
Dr. Natalia Ermasova is a board member of the International Journal of Public
Administration (IJPA) and Co-Editor of Global Encyclopedia of Public Administration,
Public Policy, and Governance. More than 60 of her articles, books, and chapters
were published in the USA, UK, and Australia. She is the author of six textbooks
about budgeting systems, financial management, and risk-management. Her
articles have been published in journals including Public Finance and Management,
State and Local Government Review, the International Journal of Public Administration,
and the Journal of Management Development.
MUNICIPAL FISCAL
STRESS, BANKRUPTCIES,
AND OTHER FINANCIAL
EMERGENCIES
Tatyana Guzman and Natalia Ermasova
Designed cover image: krisanapong detraphiphat (Getty Images)
First published 2023
by Routledge
605 Third Avenue, New York, NY 10158
and by Routledge
4 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2023 Tatyana Guzman and Natalia Ermasova
The right of Tatyana Guzman and Natalia Ermasova to be identified as
author[/s] of this work has been asserted in accordance with sections 77
and 78 of the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced
or utilised in any form or by any electronic, mechanical, or other
means, now known or hereafter invented, including photocopying and
recording, or in any information storage or retrieval system, without
permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or
registered trademarks, and are used only for identification and explanation
without intent to infringe.
Library of Congress Cataloging-in-Publication Data
Names: Guzman, Tatyana, author. | Ermasova, Natalia, author.
Title: Municipal fiscal stress, bankruptcies, and other financial
emergencies / Tatyana Guzman and Natalia Ermasova.
Identifiers: LCCN 2022025936 | ISBN 9781032349374 (hardback) |
ISBN 9781032349381 (paperback) | ISBN 9781003324553 (ebook)
Subjects: LCSH: Municipal finance—United States—Case studies. |
Municipal bankruptcy—United States—Case studies.
Classification: LCC HJ9145 .G86 2023 | DDC 336.73—dc23/eng/
20220907
LC record available at https://lccn.loc.gov/2022025936
ISBN: 978-1-032-34937-4 (hbk)
ISBN: 978-1-032-34938-1 (pbk)
ISBN: 978-1-003-32455-3 (ebk)
DOI: 10.4324/b23117
Typeset in Bembo
by Apex CoVantage, LLC
CONTENTS
Preface ix
1 Introduction 1
2 Measurements of Fiscal Health and Fiscal Health
Monitoring Systems 12
3 Preventative Treatment and Federal, State, and Local
Incentives for Unhealthy Municipalities 44
4 Legal Aspects of Municipal Bankruptcy 72
5 Fiscal Stress and Operating Budget 91
6 Fiscal Stress and Capital Infrastructure 108
7 Fiscal Stress During the COVID-19 Pandemic 128
8 Introduction to the Case Studies 148
9 Case Study: City of Detroit 153
10 Case Study: Colorado Springs, CO 179
viii Contents
11 Case Study: Jefferson County, AL 196
12 Case Study: Pittsburgh, PA 214
13 Case Study: Central Falls, RI 232
14 Case Study: Vallejo, CA 250
15 Conclusions and a Theory of Financial Management and
Budgeting During Fiscal Emergency and Bankruptcy 266
Index 291
PREFACE
In 2016, one of the authors, Dr. Tatyana Guzman, was approached by the cities
of East Cleveland and Maple Heights, Ohio, with requests to assess potential ways
of exiting the fiscal emergency situations these two cities were facing. Severe
financial struggles meant that the municipalities did not have the funds to pay for
expensive research. In the search for ways to help, Dr. Guzman engaged students
in her graduate budgeting class to look for possible causes of the fiscal emergen-
cies in these two cities and to study practices of other comparable cities that were
in similar conditions and have improved their financial standing since then. While
supervising the works of Dr. Guzman and Dr. Ermasova’s students and observing
how little research there is to explain causes of financial emergencies and give
advice on potential ways out of fiscal stress, the idea came to write this book to
provide an affordable guide for municipalities on exiting financial struggles.
While not a panacea for fiscal illnesses, this book consolidates, discusses, and
evaluates general ways to measure fiscal health and then dives into assessments of
fiscal stress situations for municipalities. The book discusses states’ monitoring
practices of local government finances, early warning signs, intervention policies,
states’ bankruptcy procedures, tax and non-tax incentives for economic devel-
opment, budgeting approaches, and capital infrastructure maintenance during
financially challenging times. The book also dives into case studies of several
fiscally stressed municipalities to learn from the mistakes and successes of others.
Most importantly, the book discusses major causes and positive practices in an
attempt to prevent fiscal emergency in the municipalities in the first place and
offers general recommendations on exiting fiscal emergency if it happens.
This book could serve as a desk reference for practitioners, especially now that
the topic of fiscal emergency situations and bankruptcy is again taking center stage
during the COVID-19 crisis, rising gas prices, high inflation, and predictions of
