Why have several cities in California declared bankruptcy or are on the verge of doing so?

Question

What will be an ideal response?

Answer 1

Varies. Cities go bankrupt when they cannot generate enough revenue to pay their bills. One reason is simple mismanagement of funds, which includes spending funds intended for other purposes (such as "raiding" pension accounts), or miscalculation such as assuming higher (and sometimes unrealistic) rates of returns on investments and greater tax receipts that did not materialize as the national economy declined. A major reason is the inability to pay what has been promised to current and future retirees. In some cities, employee contracts containing relatively generous pensions and future health-care benefits were negotiated, but moneys to fund those obligations were not secured and those obligations are not being fulfilled (another form of financial mismanagement). These so-called "unfunded liabilities" represent many billions of dollars owed to public employees who will be retiring in the coming years.