More Detroits Are on the Way

Richard Ravitch: More Detroits Are on the Way - WSJ.com
The most significant step taken after New York City's near-bankruptcy in 1975 was to curb creative-accounting practices.
How was that accomplished?
Through a state requirement that the city balance its budget in accordance with generally accepted accounting principles.
The city has not had a fiscal crisis since.

...Sadly, no other local government chose to follow the example of New York City, a choice that has led to chronic shortfalls.
....The report's main finding is that in most states and cities the problems are structural and the crisis is deepening.
.....But the most critical piece of the states' fiscal dilemma is that they are borrowing to cover their operating deficits.
They do this directly—by issuing debt securities—but also indirectly.
Some states, like New York, make contributions to their pension systems in promissory notes rather than cash.
States and cities also sell assets and treat the proceeds as operating revenues, in effect selling off the family silver to stay afloat.
...The political difficulty involved in such a step will be far less than the pain that will result if states and localities are not forced to move toward a responsible system of accrual budgeting.
One thing is clear: 
Continuing to use cash budgeting practices that allow states and cities to inflate revenues, defer costs and multiply the burdens on future generations is the worst option.