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San Jose, a city in the Silicon Valley in California, has a deficit of 90 million dollars through June 2012 with a budget of 2. 7 billion dollars in Fiscal Year 2010.
San Francisco faces a deficit of 380 million dollars through June 2012 with a budget of 6.55 billion dollars in fiscal Year 2011.
It sounds strange for a city to go bankrupt, but it is a reality in the U.S.
For most of U.S. history, cities and towns were not eligible for bankruptcy protection. But during the Great Depression, more than 2,000 municipalities defaulted on their debt, and they pleaded with President Franklin Roosevelt for a federal bailout in 1933.
Instead, Roosevelt pushed through changes to the bankruptcy laws that allow towns and cities to file for bankruptcy. They even got their own section of the bankruptcy code: Chapter Nine.
The biggest municipal bankruptcy in U.S. history took place in 1994 when Orange County in California declared bankruptcy after it lost more than 1.5 billion dollars in bad investments. It emerged from bankruptcy about six months later, after making severe cuts in spending and reorganizing its debt.
In 1991, Bridgeport, a city with a population of 140,000 in Connecticut, declared bankruptcy after a dispute with the state.