In Service of Creditors: Emergency Financial Management and Poison Water in Flint, Michigan

Abstract

This case study of the Flint water crisis demonstrates the effects that can result from focusing on the task of improving the creditworthiness of a financially distressed municipality with infrastructure problems. Empirical findings, which incorporate an event study of the impacts on Flint's municipal bondholders, indicate that the creditors of a political subdivision administered by a State appointee may be helped through infliction of a humanitarian crisis while the costs are borne by the State itself and others. Novel forms of financing infrastructure investments are suggested to help resolve the trade-offs between government fiscal discipline and service to the governed people.