We have done a few recent posts where we laid out the numbers showing that any issue that Aericans are worried about in this election season really do not matter. The only thing that matters is that the American political class has run up a total government debt level of about $125,000,000,000,000, a debt bubble that is going to pop sooner rather than later.
When that debt bubble pops, abortion rights, gay rights, gun control, foreign policy, and other issues that you may think are important today, will be swept away in a sea of red ink. The numbers are undeniable and when that happens, a number of very bad situations will take place:
Social Security and Medicare benefits will decrease significantly as taxes to pay for them go up while medical quality goes down.
Government pensions and benefit payouts to government employee retirees will be slashed.
Government functions will be cut back dramatically so there will be fewer police, teachers, and firefighters, there will be fewer and lower quality government services such as welfare, road repairs, etc.
And taxes across the board will go up as politicians fight a losing battle to erase the wave of red ink and insolvencies at all levels of government.
It is also our view that this tidal wave of debt disasters has already begun at the city and state levels as we have already proven. Chicago and New York City are in a race to unseat the city of Detroit as the largest American city to go bankrupt. Illinois, New York, New Jersey, and California are the leaders in becoming the first state government to go bankrupt. These realities and the numbers supporting the realities were laid out in the following three posts:
https://loathemygovernment.blogspot.com/2020/10/there-is-only-one-issue-that-matters-in.html
https://loathemygovernment.blogspot.com/2020/10/october-2020-by-numbers-why-there-is.html
https://loathemygovernment.blogspot.com/2020/10/october-2020-by-numbers-high-tax-states.html
Today’s post does a deeper dive into the cities and states most likely to go bankrupt first. It comes from different source of data that may differ in details from other sources we have cited but the conclusion is still the same regardless of what measurement process is used: U.S. cities and states have rung up so much debt and unfunded liabilities that there really is no way for them to avoid going belly up financially.
As these states and cities incur more and more debt, rather than cut government spending, the respective politicians are raising taxes. But raising taxes causes city and state residents to move elsewhere to seek more freedom and tax relief so that even raising tax rates results in lower revenue streams to these cities and states. As a result, the politicians raise the tax rates again, resulting in more out-migration and the financial death spiral is underway.
To prove our point, consider the excellent, detailed analysis that was recently completed by the Policy Education organization, www.policyed.org. They went through the financial books of every state and many major cities, took the cities’ and states’ estimates of their future unfunded liabilities, adjusted those official government numbers to be realistic, and not the pipe dreams of politicians, and then divided the adjusted unfunded liabilities by the number of residents in that city or state to get the unfunded liabilities tax burden person.
Side note: I believe they adjusted the official unfunded liabilities numbers because of unrealistic investment returns that city and state government pension funds are expecting and planning for. Pension funds are invested in the stock market and investment returns from those stock market investments help fund city and state pensions and retirement benefits for retired government workers.
But some of those pension funds are planning for unattainable stock market returns which underestimates the future unfunded liabilities estimate. The Policy Education analysis tries to estimate unfunded liabilities for a city or state using more realistic and attainable investment returns.
Okay, let’s get started at the city level:
Chicago - According to the official city unfunded liabilities estimate, the city is going to be short about $42 billion when it tries to pay off future debt.
But the adjusted number based on realistic investment returns is a whopping $765 billion. This comes out to every man, woman and child in Chicago writing a check for $28,160 to pay off just the unfunded future liabilities, not the current budget deficits and challenges. Thus, a family of four in Chicago would theoretically have to write a check for over $100,000 to help pay off their fair share of the city's debt hole, not going to happen.
San Francisco - The official city unfunded liability estimate is $2.3 billion but the Policy Education realistic estimate is $141 billion, meaning that every resident of San Francisco is on the hook for $16,266.
New York City - The official unfunded liability estimate is $43 billion while the adjusted, more realistic estimate is $122 billion. Thus, each resident of the city is on the hook for $13,050.
Los Angeles - the official unfunded liability number is $8.4 billion but the more realistic number is $38.7 billion of $9,667 per resident.
Now, keep in mind these are the unfunded liabilities are just the respective cities, there are unfunded liabilities at the state and national level that the residents of these cities states will also be on the hook for!
The first obvious question is are these cites more mismanaged than other cities or do other cities have similar levels of unfunded liabilities? Consider a random sampling of the per person liabilities from a random set of cities across the country:
Detroit - $6,630 per resident.
Miami - $5,347 per resident
Dallas - $4,076 per resident
Phoenix - $2,284 per resident
Charlotte - $501 per resident.
Thus, while it looks like most American city governments have some level of unfunded future financial liabilities, it is only the big four we discussed above that are really in big trouble. Other cities have far smaller and more manageable financial shortfalls.
Which leads us to the question: which American city will be the next major city to go bankrupt, possibly unseating Detroit as the largest American city to go bankrupt:
Chicago’s bond rating is just a hair above junk bond status which will make it impossible or very, very expensive to sell city bonds to fund its operations, never mind paying down its unfunded liabilities.
The city has high taxes and an ever escalating violent crime rate which has caused businesses and residents to flee both the taxes and crime.
This out migration has reduced the tax base and tax revenue which puts additional strain on the city financials.
Things in Chicago have gotten so bad that the inept mayor, Lori Lightfoot, has had to grovel at the feet of businesses to not abandon the city, taking jobs and tax revenue with them.
Bill de Blasio, the inept mayor of New York City, is not in much better shape, having no clue how to fix what he has broken in the city from a high tax and increasing crime rate.
Moving companies have complained that they do not have enough moving vans available to satisfy the demand for NYC residents moving out, taking their tax revenue with them.
With the pandemic, the city’s financial and business districts have become ghost towns as businesses do in New York City what they did in Chicago: move their employees out, taking jobs and tax revenue with them.
De Blasio has stated that unless the Federal taxpayer bails him out, the city will see significant cuts in social and protection services.
San Francisco and Los Angeles face many of the same problems: higher crime, lower quality of life, and higher taxes which results in the out-migration of residents and businesses which reduces the tax revenue stream which results in higher taxes which accelerates the out-migration and the financial death spiral is underway.
However, my bet is that Chicago will beat them all to the steps of bankruptcy court, given the violence, the low credit rating on its bonds, and the complete lack of leadership and solutions from the mayor and the other city politicians. This would, at least for a while, make Chicago the largest American city to go bankrupt, relieving Detroit of that title.
Let’s jump to the state level:
Illinois - according to the official unfunded liabilities estimate of the state, the state has $195.4 billions in unfunded liabilities. But the more realistic, adjusted estimate is $327 billion, which calculates out to a per resident share of $25,571. Thus, a family of four in Illinois would have to write a check for over $100,000 to pay for their fair share of the state’s unfunded liability burden. This is in addition to the over $100,000 check Chicago residents would have to write for the city’s unfunded liability debt hole, bringing the total state and city share to well over $200,000 per family of four.
California - the official unfunded liability estimate is $309.4 billion but the adjusted, more realistic number is a whopping $990.7 billion, almost a TRILLION dollars! This computes out to a per resident share of $25,146 per resident, over $100,000 for a family of four. This would be in addition to the unfunded city liabilities the California residents of Los Angeles and San Francisco would have to pay.
Connecticut - the official estimate is only $37.8 billion but the more realistic estimate is a whopping $686 billion or $19,188 per resident and almost $80,000 for a family of four.
New Jersey - the official estimate is $142.3 billion but the more realistic estimate is a little higher at $163.1 billion, indicating that New Jersey has a little better feel and handle on what is realistic when it comes to its true unfunded liabilities. But it still comes out to about $18,351 per resident, almost $80,000 for a family of four.
New York - the official estimate is $77 billion but, unlike New Jersey, it looks like New York has no clue on what its true unfunded liability is since the adjusted estimate comes in at $303.8 billion. This computes out to about $15,508 per resident.
Which leads us to the question: which American state will be the first state to go bankrupt:
Most of these states face the same out-migration crisis that the distressed cities discussed above face.
New York, New Jersey, California, and Illinois usually lead the country when any measure of outward migration is discussed.
United Van Lines, a major moving company, issues an annual report where it tracks the number of moves into and out of each state it does in a year.
In 2019, New Jersey, New York, and Illinois were the leading states that had far more moves out of the state than into the state, which over time reduces the tax base and tax revenue stream which causes state politicians to raise tax rates to make up for the shortfall which causes even move out-migration and the financial death spiral is underway.
In the latest United Van Lines analysis, New Jersey experienced two moves out of the state for every move into the state, not a good trend.
Illinois and New York were not too far behind with this out to in ratio, ranking 3rd and 2nd respectively and California wasn't too far behind at the seventh worst migration ratio.
And yet state opticians continue to raise taxes with New Jersey having not just raised taxes but instituted a whole slew of new taxes and Illinois is considering raising its top state income tax rate as is California, financial suicide.
California is considering raising its top marginal state income tax rate from about 13% to over 16% which has caused the famous (major podcaster Joe Rogan and conservative pundit, Ben Shapiro) and not so famous people to move out of California to avoid this dreadfully onus of state tax rates.
At least the governor of New York realizes what is happening, having recently pleaded with the wealthy New Yorkers moving out of New York City and often out of the state to come back, that he even offered to have them over to his house for drinks and a barbeque.
But are other states unjust as bad financial shape? What Are the real unfunded liabilities of other large states:
Texas - $7,528 per resident.
Florida - $6,776 per resident.
North Carolina - $6,037 per resident.
Tennessee - $5,577 per resident.
So yes, other states have their own unfunded liabilities problems. However, they are a fraction of the problem that Illinois, New York, et al have, as discussed above.
So the answer to the question, what state goes bankrupt first, is, in my opinion, Illinois. The unfunded liabilities at the state and city level, the out-migration of residents and business looking for a better and less expensive quality of life, the low bond ratings that will make it near impossible to pay off the unfunded liabilities with more borrowing, yes I put my chips on Illinois and Chicago to be the first state and next big city to go bankrupt.
So, relax, any issues that you are fretting about as it relates to this election cycle are going to be rendered mute pretty quickly across the country. As states and cities realize they cannot fund their current budget and their future unfunded liabilities, government services will be cut, government pensions and benefits will be cut, taxes will be raised which will just make the situation worse and to say that chaos will ensue is an understatement.
These cities, Chicago, New York, etc. and states, Illinois, New York, etc. are really just canaries in the coal mine of financial distress. They will be precursors to when the Federal government also finds itself with the inability to pay for everything that the American class has promised and the downside ramifications will roar across the country as the Federal debt balloon/bubble bursts. For what that debt implosion looks like at the Federal level I refer you to the first two posts listed above.
Have a great day!
Please visit the following sites for freedom:
http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w
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