State & Local Government Policy, Business and Technology

'Service Insolvency' Could Help States Intervene in Troubled Cities

Stateline: When a city, county or other government cannot pay its bills, it is considered to be insolvent. In rare instances, the crisis may trigger a Chapter 9 bankruptcy filing.

But in recent years, the description of “insolvency” has expanded beyond a simple cash shortage to include “service-delivery insolvency,” which means the government is struggling to manage police, fire, ambulance, trash, sewer and other essential safety and health services.

State officials may cite service-delivery insolvency as a motive to intervene in local government distress, even when the local government is not seeking bankruptcy protection, or is barred from doing so by state law.

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