The Adjustment of Municipal Debts

Report Outline
Defaults by Municipalities Since 1929
Congressional Efforts to Relieve Municipalities
State Aid to Defaulting Municipalities
Bonded Indebtedness of American Municipalities
Special Focus

Defaults by Municipalities Since 1929

Defaults by more than 1,200 American municipalities and other political subdivisions since the current depression began, involving in all about $1,500,000,000 of the $17,250,000,000 to $18,500,000,000 outstanding in municipal and local securities, have led to a series of proposals the last year for federal legislation to assist cities and towns in default. Following extensive hearings last spring before the Committee on the Judiciary of the House of Representatives, the advocates of federal legislation for the relief of municipalities agreed upon the Sumners bill for composition of municipal debts, which passed the House on June 9, and which is now in the hands of the Senate Judiciary Committee. A vigorous fight for its adoption is to be made in the Senate at the present session.

In the opinion of the Municipal Securities Committee of the Investment Bankers Association, the municipal default situation has not improved since Congress adjourned last June. “More communities now face the necessity of a debt readjustment,” the committee reported to the convention of the Association on October 29, “and there seems to be little prospect of accomplishing it without federal bankruptcy court machinery.” The committee urged all persons interested in the passage of the measure to work aggressively in its behalf.

The Financial Plight of American Cities

Until 1929 few municipal defaults had occurred in this century, but four years of financial stress have resulted in a situation similar to that in the depression of the 1890's. Many factors serve to confuse the problem, according to Clifford W. Ham, director of the Atlantic City Survey Commission, including dwindling cash receipts from taxes, impounding of city funds in closed and restricted banks, loss of credit for current financing, as well as inability to meet interest and bond maturities.