Capital Budgeting During Municipal Bankruptcy: Cases of Jefferson County, AL; Central Falls, RI; and Vallejo, CA

Abstract

This comparative case study explores the capital budgeting before, during, and after municipal bankruptcy in three U.S. local governments: Jefferson County, AL; Central Falls, RI; and Vallejo, CA. This in-depth examination of capital budgeting challenges reveals a pattern across all cases—a significant decrease in capital spending on infrastructure and maintenance before and during municipal bankruptcy. In fact, the mismanagement and underinvestment in capital infrastructure were some of the causes of municipal bankruptcy in all three local governments. The comparison of the reforms adopted after the bankruptcy shows that all three local government went through a similar two-stage process of recovery and restructuring, employing the emergent strategy to exit the bankruptcy and the problem-oriented innovative strategy to recover. These results show that even though all three local government significantly decreased spending on capital investments and maintenance as part of the emergent strategy, investment in public infrastructure during the recovery, and reconstructing became a priority across all selected cases.