How do cities get in a 'death spiral,' and how can we stop it?

Nov 21, 2013

Ever since Detroit’s became the biggest in American history to seek bankruptcy protection, the term “death spiral” has been in the spotlight.

The spiral often begins with promises made to municipal workers. Pensions and health coverage are becoming too much for many cities and states to bear. But the law tells mayors and governors that those pension plans need to remain intact.

As pension costs mount, they try raising taxes, or turning to the municipal bond market. And when those doors are slammed shut, what happens? Essential services get cut, pink slips start flying, and businesses and homeowners get out of town, leaving behind a smaller and poorer population even less able to cover a city’s soaring costs.

Now, cities and states across the country are realizing that they, too, face the same death spiral that brought Detroit to its knees.

James Spiotto is a municipal bankruptcy expert and partner with Chapman & Cutler in Chicago. Spiotto believes he has a solution to the death spiral phenomenon. 

Listen to the full interview above.