In an opinion piece for the New York Times, Research Professor Jodie Kirshner argues that Mitch McConnell's suggestion that states hit hard by the coronivirus outbreak declare bankrupty is "a terrible idea." Kirshner writes that federal aid doesn't go far enough, citing the 50 percent cut in funding compared to similar aid during the 2008 financial crisis.
Although filing for bankruptcy enables a city to renegotiate debts with its creditors, freeing future revenues for uses beyond interest payments on outstanding debt, the maneuver exacerbates negative trends. Bankruptcy does not bring back lost jobs or shuttered businesses, nor will it magically reconstruct a tax base.
Detroit’s 2013 bankruptcy and the experiences of people who endured it demonstrate the limits of a bankruptcy declaration as a cure-all. Instead, it’s important to invest in people directly.