The mayor of Acapulco, one of Mexico's top tourist spots, declared the beach resort in "technical bankruptcy" on Tuesday and called on the federal government to "come to the rescue."
Mayor Luis Walton, who took office two months ago, said the city government was unable to pay a debt of more than $US170 million.
"We are in a state of technical bankruptcy," the leftist mayor told a news conference, accusing the previous administration of inflating public wages and signing contracts worth millions that cannot be paid.
The federal government, he added, must "come to the rescue of Acapulco."
The former mayor, Manuel Anorve, rejected the charges but he acknowledged that the number of public workers rose from 7920 to 8168, with the police force accounting for the bulk of this increase.
While nine million tourists, including one million foreigners, visit Acapulco every year, the city has been plagued by a surge in violent crime linked to drug cartels.