Detroit-Style Financial Warnings to Update for City, State Risks

When the city of Detroit declared bankruptcy in 2013, its auditor raised red flags about the city’s ability to continue as a going concern.

The warning—a financial statement call-out that there’s a strong chance an organization or government won’t survive the next 12 months—was rare in state and local government accounting. Unlike private enterprises, governments just don’t dissolve. Cities raise taxes, slash services, or float bonds before even thinking of turning out the lights at city hall.

Detroit survived, like the ...