US Cities Going Bankrupt In Economic Crisis

With less than a year to go until America elects its next president, the country has been warned of a looming new economic crisis.

Major cities across the United States are declaring themselves bankrupt in the face of huge debts and declining revenues.

Birmingham, in Alabama, and Harrisburg, the state capital of Pennsylvania, are the latest high-profile cities to file for bankruptcy. Analysts warn as many as 100 American cities are at risk.

They are taking their lead from a scenic Californian city which has become the poster child for the blight of municipal bankruptcy.

Vallejo, home to 115,000 thousand perched on wooded hills across the water from San Francisco, has just emerged from three years in bankruptcy but still bears the scars.

Public services were slashed. Half the fire department were laid off, the police force cut by a third and libraries, parks, senior citizens services all drastically reduced.

"We've created a situation where the city of Vallejo has become very attractive for criminals because it just doesn't have the police officers," restaurant owner Ken Ingersoll told Sky News.

"You can't market away someone's safety. I can't run an ad in the paper or a TV commercial saying come to Vallejo.

"If you don't feel safe going to a place there's just no way and mum and two kids are going to go there."

Some people have made a beeline for the city, including prostitutes from as far as 500 miles away, who have been lured there by the reduced chance of arrest.

It prompted residents to organise patrols to drive prostitutes away from their neighbourhoods.

A city that once had a handful of neighbourhood watch schemes now has more than 300. Kathy Beistel runs one of them.

She (SNP: ^SHEY - news) said: "Having it publicly advertised that 'Hey Vallejo has no cops' meant they would come here because they knew they would not get arrested.

"We would see 10 girls, all times of the day. We came up with some recommendations on ways we could address the prostitution issue and wouldn't cost any money and they're trying to put them into place and we might see one or two a week now, which is incredible."

Vallejo's problems will sound familiar. Like governments across Europe (Chicago Options: ^REURUSD - news) , in the boom years the city agreed big pay and pension deals for its public workers.

When the financial crisis hit, the money was not there to pay for it all.

Vallejo councillor Stephanie Gomes told Sky News: "The federal government can print more money, the states can pass their money problems down to the cities and then the cities are the ones who are going to have to go into bankruptcy because there is no one to pass it on to. It is a big concern."

Vallejo has emerged from bankruptcy with debts remaining, but in a better shape to deal with them.

Assistant city manager Craig Whittom said: "Was it the right financial decision? Absolutely. But you don't want to get there in the first place so it's a strategy of last resort."