State and local governments can't run deficits, so a collapsing local economy acts like a fiscal vise; capital improvement debts aren't easily rescheduled, so you have reduced tax bases carrying long term debt payments (possibly with nonlinear, back-loaded schedules), and so operations are squeezed and capital improvements are stopped. Once you're in that trap, you can't get out; people and companies who can move will, those who can't become cost sinks as per capita operational costs rise. Without some emergency stabilization mechanism for discharging debt and dealing with necessary operations and improvements, there's no way for a town to return to equilibrium.

The same dynamics can be seen with companies that operate on a negative cash flow basis and who fail to properly buffer a period of improved revenue that later reverts to the mean -- short-term prosperity can mean long-term impovershment.