It seems we are in a little bit of a rut in that we seem to be getting overwhelmed with news about our choice for states and major cities that are likely to go bankrupt relatively soon. As always, our top state governments that we think are nearing bankruptcy include New York, New Jersey, Illinois, and California. Our top major cities we think are rapidly approaching bankruptcy include New York City, Chicago, Los Angeles, and San Francisco.
Before reviewing the latest news and seeing which state or city is making the best progress towards government bankruptcy, let’s review how these cities and states got themselves into this financial death spiral position to begin with:
A government entity keeps expanding its budget, eventually putting pressure on the tax revenue stream it receives.
At some point, rather than cut government spending or make its programs more efficient financially, the politicians in charge raise taxes to meet the ever growing government expenditures.
The raising of taxes causes some residents and businesses to leave the city or state for less tax burdensome areas, reducing the tax base and reducing the revenue stream.
Rather than cut expenses and become more efficient to match the reduced tax revenue stream, politicians in the above cities or states raise the tax burden even more.
This causes more residents and businesses to flee the city or state, further reducing the tax base and tax revenue stream.
At some point politicians panic and raise taxes more and start cutting vital government services (e.g. police, fire, education) in order to try and balance government spending against the shrinking tax base and revenue stream.
The reduction in quality of government services in particular and quality of life in general drives more residents and businesses out of the area.
Eventually, the expenses, costs and financial liabilities outstrip the reduced tax stream and bankruptcy occurs.
Okay that’s the process, now lets specifically check the progress on how one of the above listed government entities is making to achieve this bankruptcy goal against this process:
Although we believe that the New York state government will be the first state government to go bankrupt, California is definitely still in the running. We base our latest rating on the information from the following article:
Recall in past discussions we have discussed the reality that hundreds of major and smaller companies have been fleeing the state of California for years (Tesla, Chevron, Schwab, Yamaha and others) to avoid heavy duty business overregulation and high taxes and other costs. Residents have also been fleeing the state, especially the wealthier residents, taking their economic potential and tax dollars with them.
The Blabberbuzz article above listed out a whole range of economic and quality of life issues that are driving people and economic power out of the state, reducing the state government tax base and helping the race to bankruptcy court. So in no particular order, this is why California is going down the tubes:
While 12% of the nation’s population live in California, 24% of the nation’s homeless population is in California..
Two out of every three homeless folks in the state live on the street, not in a shelter.
Thus, half of the country’s unsheltered homeless population lives in California.
From 2007 to 2023 the state’s homeless population grew by almost 45,000 people or 41%.
All of this growth in the homeless population happened despite the state government spending billions of dollars to futilely try to stem the problem.
An official state auditor found that the state government has failed to consistently audit and track spending across more than 30 homeless government programs.
The auditor found that only 2 out of the more than 30 homeless programs actually were actually cost effective.
California’s poverty rate, 17.7%, was still the highest in the country in 2024.
Despite the ultra wealth of Silicon Valley and Hollywood, almost one in five state residents are living in poverty.
According to the Census Bureau, 7 million state residents lack the resources to fulfill basic living needs.
The 7 million figure is equivalent to the combined populations of Los Angeles, San Diego, San Jose, and San Francisco.
State child poverty more than doubled since 2021, going from 7.5% to 18.6% in 2024.
And despite 7 million Americans living in poverty in the state, the state government has showered the 2.3 illegal immigrants living in the state with free food and shelter, college scholarships, low income tax credits, and full Medicaid health coverage via Medi-Cal.
Illegal immigrants getting free medical care cost the state government $8.5 billion a year.
That $8.5 billion could provide about $1,200 a year to those state residents living in poverty, certainly easing their default lives.
That $8.5 billion is $2.7 billion higher than what the program was supposed to cost, about 50% over budget.
But it gets worse when you consider that the state government spends $22.8 billion a year for all of the costs, freebies, and services that illegal immigrants get.
Combining the $22.8 billion the state spends on illegal immigration services and needs and the $8.5 billion spent on their medical needs, each of the 7 million state residents living in poverty could be given a check worth about $4,500 a year.
As taxpaying residents and businesses have left the state, the current state government budget deficit is anywhere from $38 billion (the governor’s estimate) to $73 billion (deficit of the Legislative Analyst's office).
The $73 billion would make it the largest state government deficit in the country, a deficit that has to be closed quite quickly for the next fiscal year.
And the deficit picture is not expected to get much better in further out years.
California has the highest marginal income tax rate in the country at 14.4% so it would be difficult to raise taxes to cover the embedded, structural budget deficits without driving out even more wealthy taxpayers.
The state’s inane climate programs and laws, high gas taxes and regulations have given the state drivers the highest gas prices in the country at a whopping $5.89 a gallon as of early April.
The state’s gasoline tax at 70.9 cents a gallon is the highest in the country.
The state government’s laws have driven multiple refiners out of the state, requiring the state to import gas from other states which help sustain the high prices at the pump.
All of the above has resulted in 10 million people moving out of California to other states while only 7 million moved in over the past ten years.
IRS analyses show that California has the highest net loss of taxpayers in the country, with a resident leaving the state on average every 2 seconds or so.
Over 54,000 of those Californians left for Texas and IRS data shows the average gross income of those moving to Texas was $146,000, heavy duty California taxpayers that are now former California taxpayers.
And to add insult to injury, California has high housing costs, retail crime rate, and adult illiteracy rate, low educational attainment, and heavy anti-business regulation.
The state has the second highest housing costs including high monthly rental rates, the highest in the country
Government overregulation of the housing market has created an unnecessary housing shortage which drives the high prices to own a house and to rent a home.
Retail crime increased 28% between 2019 and 2023, causing stores to pay for enhanced anti-theft procedures which raised the cost of products.
Recent standardized tests showed that the state’s fourth graders and eighth graders scored in the bottom ten states for reading and math despite untold billions of dollars the state has spent on education over the years.
The California Assessment of Student Performance and Progress (CAASPP) shows that less than half of the state’s kids meet standards in English Language Arts, and fewer than one in three meet standards in mathematics.
Test results in the urban areas score even worse than these state averages.
The Tax Foundation and the CATO Institute constantly rank the state as one of the worst states to do business in because of government regulation.
Now, is there any mystery left on why residents and businesses are leaving the state in greater and greater numbers, constantly reducing the tax base, causing ever larger and larger government budget strains and deficits and why we think that California is a strong candidate to go bankrupt?
An ever growing homelessness problem, high poverty levels, billions of dollars spent every year on illegal immigrants, high gas prices, high crime rates, high housing and rental prices, abysmally low education attainment levels, high taxes, over regulation.
And like the other states facing a fiscal crisis, there are strong advocates for not reducing state government spending: teachers’ unions, government employees, political donors, NGOs, etc. And when politicians do not have the stomach to reduce spending or make the government more efficient while the tax base declines, the race to bankruptcy court gets more and more competitive.
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If you agree that we need to deseat every member of Congress for their lack of success and accomplishment, then please consider going to the following petition link to help the cause:
https://www.change.org/p/deseat-congress-reset-freedom
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