3. STRUCTURAL DRIVERS AND POLITICAL FACILITATORS OF LOCAL GOVERNMENT BANKRUPTCY AND THE TROUBLING CASE OF CAPITAL APPRECIATION BONDS

The article outlines the seven major structural drivers of local government bankruptcy. A combination of some, but not all, factors is necessary for a full-blown bankruptcy to occur. In addition to cities and counties, school districts have been particularly hard hit by the fall in property tax revenues. The answer for many school districts has been to issue Capital Appreciation Bonds which allow for decades-long moratoria on payments and are held on the books at their discounted value, thereby avoiding statutory debt ceiling limitations. We strongly recommend the adoption of new state laws that bring back conventional bond practices and call for a renewed discussion about how such an imprudent trend in local government financing has occurred.