American Cities Teeter on Brink of Bankruptcy

Left without insurance as of July 1, the Maywood city council decided two weeks ago to lay off nearly all of its employees, disband its police force and pay neighboring Bell to run the city. It's estimated the city will save $164,375 a year. The Los Angeles Sheriff's Department will replace Maywood's police.

"This occurred with less than 30 days notice and getting even an emergency plan contract in place with the Sheriff's Department left us with less than 10 days to disband a police department that had been in service for 86 years," Hauptmann said.

Tucked into the heavily industrial southeast part of Los Angeles County, Maywood is predominantly Latino and densely packed into just 1.2 square miles. Officials estimate about half of the city's residents are illegal immigrants. Critics have blamed the city's woes on what they call the ineptitude of local governments. In May, the California Joint Powers Insurance Authority, a government agency made up of more than 120 cities to share costs, advised Maywood officials to end years of "passive administration."

Hauptmann, the police chief, said that at midnight on July 1, his officers will return to police headquarters and hand over Maywood to the Los Angeles County Sheriff's Department. All 911 lines will be transferred to the neighboring jurisdiction.

"You lose your workers comp and general liability insurance and then no one else wants to commercially insure the city because of past decisions that were made that put them in this position," he said. "You can actually lose a police and fire department over something like this. It's probably going to set an example to other communities across the country."

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