Alarm bells are going off with the recent decision of the City of Detroit. The Motor City filed for bankruptcy as a due to severe financial mismanagement and decline in the city's population. The decline was prompted by job losses in the manufacturing and automotive industries. Resident of Detroit are now facing an exodus as crime soared in neighboring areas.

"This could be kind of a precedent for other municipalities. Anyone concerned about some other cities like Chicago, cities in California, what this could do is accelerate a trend where states begin to withdraw their support for cities," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

"We could potentially see more filings, not on the same scale of Detroit, but certainly some other ones coming out of the woodwork," he said.

The numbers of retirees in Detroit outweigh the number of the city's active workers with a 2:1 ratio. With the number of retirees being paid with pension benefits, the city is now in a perpetual knot as it battles with the mounting cost.