Let’s check in with our discussion on which city or state government is going to get to bankruptcy court first. Our primary cities in the race to bankruptcy include New York City, Chicago, Los Angeles, San Francisco, and newcomer, Seattle. The state governments that we think are soon heading into bankruptcy include New York, New Jersey, Illinois, and California with Washington state a newcomer to the race.
The reason for returning to this topic is because there have been some significant developments in the race to bankruptcy court, specifically Seattle. However, before reviewing the latest news, 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. Let’s see what is going on in the newest and possibly the our strongest contender for bankruptcy court, Seattle.
1)As we have recently often discussed, it is our view that Seattle is now the leader in the race to bankruptcy court:
The downtown area business office vacancy rate is around 35%, the highest in the country as businesses abandon the city because of sky high taxes, high homelessness rate, and high violent crime rate.
As businesses and residents leave the city, the tax base shrinks and tax revenue steadily declines, further damaging the quality of life in the city.
The mayor, Katie Wilson, always seems to be overwhelmed and useless as crises after crises erupts.
Top business leaders in the city grew so frustrated that they all signed a letter that was sent to Wilson, basically telling her to get her act together from a public safety and quality of life perspective.
The city recently raised the minimum wage rate for people working in the city, a move that is sure to drive out small, middle and larger sized companies as the labor component of their business becomes too large, all of which will result in fewer jobs for the citizens of the city and even lower tax collections.
But this economic ignorance on Wilson’s part and other city politicians should not come as a surprise, given what they already did to wages and the severe economic negative fallout from their actions:
In 2024, Seattle doubled the base delivery pay for so-called gig-workers.
Overnight, the salary line went from $5.37 to $12.52 per gigwork task.
Under the old rate, delivery folks got their base salary plus any tips for their service.
But quite quickly that plan did not hold economic water.
Total driver earnings over the following months barely moved. Despite the more than doubling of the base wage rate.
DoorDash reported a delivery volume drop of 30,000 deliveries and a loss of $1 million within two weeks of the new wage rate taking effect.
The negative effects were multifold: delivery driver earnings barely changed, tips got smaller because the cost of delivery got higher as a result of the higher minimum wage getting bigger, and customers ordered less because the higher cost of delivery further drove down demand and wages.
This was because DoorDash added a so-call “regulator fee” of $4.99 per delivery while Uber added a $5 "local operating fee” to account for their higher labor costs.
These fees drove down demand which in turn limited any upside to delivery folks.
Uber Eats reported similar demand drops akin to the 30,000 fewer orders DoorDash incurred.
Seattle politicians still defended the rule in the face of these economic demand downturns.
Analysis by the National Bureau of Economic Research in conjunction with Carnegie Mellon University tracked the economic impacts on individual drivers.
They tracked specific delivery drivers earnings before and after the law went into effect and concluded based on their tracking analysis that the law did little to increase the take home pay of gig workers for DoorDash and Uber Eats.
A Fortune analysis reached the same conclusion that while base pay more than doubled total take home pay barely moved because of fewer orders and lower tips.
We have discussed this economic ignorance of mostly liberal politicians for years in situations like this like this: businesses raise prices into order to stay viable and cope with their much higher labor cost, customers pull back their demand because of the higher cost, and the people the law was supposed to help never get that bump they were promised. “The good news is that your base wage just doubled, the bad news is that you no longer have a job” or “The good news is that your base wage doubled, the bad news is your take home pay will likely not change.”
And with the new minimum wage that Seattle just passed getting ready to be implemented, there will similar types of economic fallout: less hours worked, benefits stripped out so that business owners can cope with the higher labor cost, and fewer hours allocated to the higher paid workers, all of which result in little or no economic gain. But it will continue to drive businesses and residents out of the city and the continued dwindling to the tax base and tax revenue.
2)So let's do a Seattle and Mayor Katie Wilson review:
The gig worker base pay increase failed and likely drove businesses out of the city.
The new, higher minimum wage will likely do the same thing.
Businesses have been fleeing the city to avoid the Jumpstart tax and other onerous city taxes, talking employees and their tax base with them.
Wealthy folks have also left the city for Florida, Texas, and Nevada to avoid the higher and higher taxation.
Seattle has one of the highest levels of homelessness and drug addiction in the country.
Crime and gang violence is rampant as witnessed by the failed and embarrassing reaction to the shootings during the Bite Of Seattle event.
It is a city in crisis: rampant crime and homelessness, a dwindling tax base, lower lower quality of life, high taxation, etc. One would hope that Katie Wilson and other city politicians were laser focused on fixing these horrible problems. But, alas, as what always happens with politicians, hope is never realized:
Rather than focusing all of her energy on the city problems and the stressed out residents, Wilson recently hosted, not attended, hosted, a panel discussion and meeting featuring anti-Israel and anti-capitalist discussions.
These two hateful positions were subtopics under the overall theme of fascism.
She hosted a panel that had two non-citizens with her from Canada.
It seems that the underlying theory goes something like the following: Christian Zionists (whatever that means) are in cahoots with Silicon Valley billionaires to trigger a nuclear Armageddon so that Jews can build luxury condos in Gaza and build a Third Temple in Jerusalem.
According to the description of this meeting reported by the Post Millennial, these three characters never provided any proof that this was going on, just wild and unfounded theories.
Wilson used the panel to put forth her theories on why Seattle is disintegrating on her watch, deflecting her inability to govern to “fascism always emerges in moments of systemic crisis to protect elites from the threats of redistribution and accountability.”
In other words, it is not her fault Seattle is in trouble, it is the elites who refuse to give up their wealth.
Also involved in their ridiculous discussion was , of course, climate change, Hurricane Katrina, and red heifers, whatever that means, somehow connecting all of these things together in a mishmash of idiocy.
Even if she believes this nonsense, given the sad state of her city, should she not be worried about theoretical nonsense and be laser focused on fixing the everyday problems of her residents and businesses? Discussing climate change red heifers, the Third Temple, Christian Zionists (again I have no idea how that is possible), does nothing to get the homeless city drug addicts treatment, it does nothing to get economic relief to the beleaguered businesses that are still in her city, it does nothing to reduce the violence of crime in her city.
She is spending time hosting a panel that has no relationship to the everyday problems of her city. But possibly, maybe she has no idea how to fix her city and this theoretical nonsense gives her a comfortable feeling that she is mastering something even if it has no positive impact on anyone else in Seattle.
As a result of her track record of failure and now this distraction, a focus on something totally unrelated to the city's problems, our contention that Seattle will be the next major city to go bankrupt looks stronger everyday.
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