In some instances, policymakers took steps to move a city's debt off of its balance sheet as a formal matter for example, Harrisburg sold an incinerator project to a municipal authority while also guaranteeing the debt issued by the authority, thus remaining responsible in reality. city owed less than $1,000 per resident in 2011, Detroit owed about $12,000. What united these municipalities was, of course, high debt levels. Gordon and Guerron-Quintana label such cases 'boom' defaults. (The population of Harrisburg remained stable.) Hartford and Vallejo saw large productivity gains prior to their defaults.

For instance, the population of San Bernardino increased 4.3 percent over the five years leading up to its bankruptcy declaration in 2012. San Bernardino, Stockton, and Vallejo all saw significant population growth leading up to their defaults. Yet some municipalities in the group exhibited quite different patterns regarding population, productivity, or both. Four municipalities - Detroit, Flint, Stockton, and San Bernardino - had followed the expected pattern in which productivity declined during the period leading up to their defaults. Four of the cities - Chicago, Detroit, Flint, and Hartford - had followed the expected pattern in which their populations declined during the period leading up to their defaults or severe distress. In an effort to isolate some generalities, or stylized facts, about municipal default, the researchers began by considering eight municipalities that served as case studies of default or financial distress: Chicago, Illinois Detroit, Michigan Flint, Michigan Harrisburg, Pennsylvania Hartford, Connecticut San Bernardino County, California Stockton, California and Vallejo, California. Two of the authors of this brief, Gordon and Guerron-Quintana, have developed a model to explain the puzzling existence of boom defaults, one that gives a pivotal role to inward migration they have found support for their model in data on past municipal defaults. But there is also a surprising alternative pattern, the 'boom' default, in which default is preceded by a population or productivity boom. Such a shift may be accompanied by a drop in productivity in the area, possibly reflecting the departure of high-productivity jobs and companies. Many instances of municipal overborrowing and default follow a familiar and intuitive pattern in which the municipality suffers a drop in population or personal incomes, causing the tax base to decline faster than the cost of services - a 'bust' default. From 1970 through 2012, some seventy-three municipalities defaulted on Moody's-rated bonds. A municipality with an untenable debt burden may even be taken over by an emergency manager or control board, as in the cases of Flint, Michigan, in 2011 and Washington, DC, in 1995. While a municipality in default generally cannot have its assets seized, the practical consequences can nonetheless be serious, including employee layoffs, deferral of payments to vendors or to employee retirement accounts, and cutbacks in services.

For municipalities, as for households, heavy borrowing can lead to financial distress - and, in the worst case, to default and eventual bankruptcy.

Municipal bond defaults