Birmingham has bitten the dust. Financially speaking

The second largest city in Britain has filed for insolvency. They don't have the money to pay their bills. They are not technically "bankrupt", but "insolvent" is a rather close cousin.

The government of the United Kingdom has stepped in to assume control. Spending has been slashed. Legal actions abound.

As journalists and 1.1 million angry Birmingham residents begin their forensic audit, the reasons for the financial debacle are many. In 2010, the city received a judgment for equal pay for female employees; since then, the city has paid out 1.1 billion pounds, and still has outstanding obligations.

Then there is the 19-million-pound project to install a new cloud-based IT system; three years later, the cost has soared to 100 million pounds. Mismanagement, lack of council direction, and questionable decision-making are contributing factors for the Birmingham insolvency.

In the US, there have been many cities that have declared bankruptcy, headlined by Detroit MI, Stockton CA, Bridgeport CT, Harrisburg PA, and more than one hundred others. (A number of these were in the 1930s, others more recently. In Canada, a small handful of municipalities could not meet their obligations during the 1930s, but there have been no cases of insolvency for Canadian municipalities in the past seventy years.)

Large debts are almost always at the heart of the reason cities get in trouble. The largest municipal bankruptcy in US history was in 1994 in Orange County, CA. Its former Treasurer borrowed money to bet big on derivatives in the financial market; it didn't go well. Think billions. The city could not meet its debt payments. Boom.

This is something that some councillors and mayors never seem to quite understand—they have immense fiscal accountability. That doesn't mean saying 'no' at budget time, it means understanding borrowing costs, debt servicing, asset management, capital investments, and so on. It means being aware of the financial implications for council decisions.

For several years, I was Chair of the Audit Committee for the city. Yes, that boring annual report with a bunch of numbers, columns of figures, and small print at the back. When I look back, I am not sure that I ever had a question from another council member. Now, you can think of that as a matter of trust in the committee and the city's management team, or you can wonder about the financial acuity of some elected officials.

The truth is that municipal officials have a grave responsibility for the financial health and well-being of their municipality. If the city's credit rating is downgraded, that usually reflects poor financial management and council oversight.

Perhaps not enough (any?) city halls offer courses or seminars to their elected council members on basic municipal financial and audit information.

Decisions at council have consequences. Not just from a fiscal point of view, but also from a service delivery aspect. If the city can't fund programs, it is the residents who suffer.

Having strong, vibrant communities is why cities need strong financial plans—and checks.