When all else fails in the recovery process, local governments may have the ability to file for protection under Chapter 9 of the United States Bankruptcy Code. If bankruptcy becomes an option, then the municipality should engage stakeholders to renegotiate obligations to avoid bankruptcy. However, GFOA recommends that municipalities make every effort to avoid seeking bankruptcy relief. Bankruptcy will have a serious cost on the community’s reputation and the government’s creditworthiness. The harm to the community’s reputation could sap its economic vitality and will increase the government’s cost of borrowing. Also, the cash outlays required to go through the court proceedings are significant. To learn more about municipal bankruptcy, read the GFOA’s When Recovery Fails: State Intervention and Local Government Bankruptcy.
The Outcome of Recovery
The goal of the recovery process is to build a strong financial foundation and a thriving community for the long term. GFOA’s Financial Foundations Framework describes the pillars on which a thriving community is built.
Each pillar includes different leadership strategies and/or institutional design principles. Understanding that local governments cannot order people to collaborate, leadership strategies help inspire pride and public support for a strong financial foundation. Institutional design principles, meanwhile, are the “rules of the road.” They provide the context for leadership strategies and ensure continuity of good financial practices through changes in leadership. Using case studies from many local governments, GFOA's new book, Financial Foundations for Thriving Communities, will help you develop a plan for implementing the Framework in your community.