In the early 1970s, state and local borrowing expanded quickly as cities and public agencies relied heavily on bonds to finance services and infrastructure. The rapid growth drew attention to weaker disclosure and uneven trading practices compared with corporate securities, setting the stage for later reforms and crises.
In 1975, New York City’s fiscal crisis escalated as it struggled to roll over short-term debt and maintain access to credit markets. New York State created the Municipal Assistance Corporation (MAC) to help finance the city and restore market confidence, making the crisis a landmark moment for municipal credit risk.
On June 4, 1975, federal law created the Municipal Securities Rulemaking Board (MSRB) to write rules for broker-dealers and banks participating in the municipal securities market. This strengthened market structure by standardizing conduct and trade practices, helping address investor protection concerns highlighted by the 1970s market expansion.
In September 1975, New York State enacted the Financial Emergency Act, creating the Emergency Financial Control Board to oversee New York City’s budget and financial management. The move signaled that large municipal borrowers might face outside control during crises, affecting how investors evaluated governance and repayment capacity.
In 1983, the Washington Public Power Supply System (WPPSS) defaulted on $2.25 billion of bonds tied to canceled nuclear projects. The event became a cautionary example of project-risk municipal borrowing and contributed to investor skepticism about certain revenue-backed financings.
The Tax Reform Act of 1986 tightened rules for bonds that primarily benefit private parties (often called private activity bonds). These changes aimed to limit use of tax-exempt financing for private benefit and affected what types of projects could be financed cheaply through the municipal market.
On November 10, 1994, the SEC adopted amendments to Rule 15c2-12 to improve municipal securities disclosure. The rule changes pushed the market toward written commitments for ongoing financial information and event notices, helping investors track credit problems after bonds were sold.
On December 6, 1994, Orange County, California filed for Chapter 9 bankruptcy after large losses in its investment pool. The case highlighted how leveraged strategies and interest-rate bets by public entities could threaten municipal finances and bondholder confidence.
Beginning July 3, 1995, SEC Rule 15c2-12 amendments became effective for many new offerings, making continuing disclosure commitments a standard expectation. This helped shift municipal bonds toward more routine, trackable post-issuance reporting—especially important for secondary-market investors.
On March 31, 2008, the MSRB launched a pilot version of EMMA (Electronic Municipal Market Access), a free public website for official statements, continuing disclosures, and trade price data. EMMA improved transparency by making key bond documents and pricing information easier to find in one place.
On November 9, 2011, Jefferson County, Alabama filed for Chapter 9 bankruptcy amid severe sewer-related debt problems. The case underscored how complex financing structures and revenue stress could lead to very large municipal bankruptcies, influencing investor risk assessments.
On July 18, 2013, Detroit filed for Chapter 9 bankruptcy with liabilities widely reported around $18–20 billion. The filing focused national attention on long-term structural issues—like shrinking tax base and legacy costs—and raised questions about how different types of municipal bonds could be treated in bankruptcy.
Detroit’s plan of adjustment was confirmed in November 2014, and the city officially exited bankruptcy on December 10, 2014. The outcome became a major reference point for how negotiated settlements, state support, and court-approved restructuring can reshape municipal debt burdens.
On June 30, 2016, the U.S. enacted PROMESA, creating a federal oversight framework and a restructuring process for Puerto Rico’s public debts. Because Puerto Rico cannot use Chapter 9, PROMESA established a separate legal path that would become central to the largest U.S. municipal-market restructuring.
On May 3, 2017, Puerto Rico’s oversight board initiated a Title III case under PROMESA for the Commonwealth, starting an in-court restructuring process similar to bankruptcy. The filing marked a turning point for municipal market participants because of the scale of Puerto Rico’s debt and the number of affected bond types and issuers.
In Puerto Rico’s COFINA case (backed by a portion of sales and use taxes), the court confirmed a plan on February 4, 2019, and the plan became effective on February 12, 2019 after a 2018 agreement in principle. This outcome showed how large municipal disputes can be resolved through negotiated settlements embedded in court-approved plans, shaping market expectations about recoveries and legal priority.
Municipal Bond Market Trends and Crises in the United States, 1970–2018