Bankruptcy the Future for Overextended Cities

US cities will increasingly have to consider bankruptcy as a way out of their current fiscal mess.

"Just days after becoming controller of financially strapped Harrisburg, Pa., in January, Daniel Miller began uttering an obscure term that baffled most people who had never heard it and chilled those who had: Chapter 9.

The seldom-used part of U.S. bankruptcy law gives municipalities protection from creditors while developing a plan to pay off debts. Created in the wake of the Great Depression, Chapter 9 is widely considered a last resort and filings under it are more taboo than other parts of bankruptcy code because of the resulting uncertainty for everyone from municipal employees to bondholders."

Out-of-control spending at the local level has led to this problem. Progressives certainly can't point their finger at the Bush tax cuts as the source of this issue.

One quote in particular is telling about the predicament these cities are in:

"We can't raise taxes; they're already very high," Mr. Miller says. "If we did, people would just leave. It's cheaper to move out to the suburbs."

Mr. Miller has it exactly right. Taxpayers are tapped out, tired of funding programs that they've never heard of and derive no benefit from, and are sick of paying exorbitant salaries and benefits to unionized state workers .

A Chapter 9 filing is probably the best and healthiest thing that could happen to a lot of cities right now.