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 in the midst of our corruption series is because there have been some significant developments in the race to bankruptcy court. However, 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. Let’s see what is going on with the top candidates in the race to bankruptcy court.
1)New York City has always been a top candidate to win the race to bankruptcy court, experiencing many of the traits we listed above on what would cause bankruptcy. We have already discussed the reality that many residents and businesses, small and large, have left the city to avoid the high taxes and crime rates and that out migration is still going strong:
A recent analysis from the City Comptroller office found that about 30,000 New York City jobs have disappeared in just two months.
The industries hit the hardest by the job loss have been the leisure/hospitality and finance industries.
This indicates that quite possibly tourists are now starting to avoid the city and the migration of financial jobs continues, with many of them going to Florida.
Leisure/hospitality lost 7,700 jobs and finance lost almost 6.000 jobs.
The 6,000 jobs is particularly troubling since the city very heavily depends on the financial sector to pay a lot of the city’s taxes.
Chef Dan Kluger closed his Loring Place restaurant because of high property taxes and spiking electric and insurance bills.
Restaurant owner, George Tenedios, said the city permit process now takes 10-15 weeks vs. the usual 4 weeks which delays operations, profits, and jobs: “If [Mayor Zohran] Mamdani put things in place to make things easier for small business owners, I haven’t experienced it.”
Heather Mulligan, president of the Business Council of NewYOrk State, understands the problem: “This recent data should be a wake-up call. It’s time to ensure we’re creating a business climate in The Big Apple, and throughout the entire state, that allows business to invest, expand and create jobs, not lose them.”
Thus, New York City is still a major competitor in the race to bankruptcy court: high taxes, high business regulations, politicians that have no idea how to grow and manage a robust economy that generates increasing tax revenue as the out migration of businesses and residents grows. Remember, one grows a tax stream by growing the economy, not by growing the tax rate.
2)And the mismanagement deterioration of New York City’s tax base has not gone unnoticed by those that understand economics, unlike Mamdani and his cohorts:
In one year, Mamdani has increased the city budget from $115 billion to $127 billion despite a shrinking tax base of businesses and residents.
To cover this 10% increase in the city budget Mamdani is proposing a possible 9.5% increase in property taxes, he raided the city’s rainy day fund for $1 billion, and got some funds from the state government.
The city’s budget office predicts that city revenues will be growing annually at about 2% a year while expenses are growing at a 4.5% rate, not a formula for financial success.
City Comptroller Mark Levine says the city is “quite simply spending more than it takes in.”
And all of this bad financial news has now resulted in Moody’s Ratings dropping the city’s credit outlook from stable to negative, a first step towards a downgrading of the city’s bond rating.
And as the bond rating drops, the ability to borrow money becomes more difficult and more expensive and the financial death spiral continues.
According to amNY: “It is the first negative outlook the City has received since the COVID crisis,” Levine said. “The fact that this is happening at a time of relative health in our local economy is all the more remarkable. The underlying challenge is clear: New York City is currently spending more than it is bringing in.”
This is the economic insanity that Moody’s is looking at: city education spending has grown almost 32% since 2020 despite there being 100,000 fewer students, rental assistance will likely explode from $300 million to a whopping $3.5 billion projected by 2030 and the city's surplus budget has lost 94% of its value in a single year.
A shrinking tax base, downgrading of the city’s credit worthiness, exploding city expenses: yes, New York City is still a prime candidate to go bankrupt relatively soon.
3)Let's jump across the county to another probable bankruptcy candidate, Los Angeles. As we have discussed many times, LA has many bad economic trends going on: high tax rates and tax burden, horrendous and growing homelessness problem, high crime rates, cumbersome business regulations, strong out migration of jobs/residents/businesses, etc., all of which will be difficult to correct before going bankrupt.
Now, San Francisco has also been on our list to go bankrupt since they were losing their bread and butter taxpayers, high tech, high paid, highly taxed workers in Silicon Valley. Los Angeles does not have an extensive tech industry, their tax base gets a lot of their revenue from the Hollywood show business type businesses. But a recent development may show that base may also be in danger:
The long running, 25 year old TV show, “American Idol" is packing up and moving production to Atlanta.
Not only does the show and its employees escape the problems in Los Angeles that we discussed above, the state of Georgia offered some serious incentives to move to that state.
The state incentives include a 30% tax credit for unscripted and reality TV shows that spend at least $500,000.
Other Hollywood productions are also moving out of California with the number of “shoot days” in Los Angeles having declined 12% in the second quarter of 2026 vs. second quarter of 2025.
Breitbart reports that the new Baywatch reboot is also considering leaving California due to layers of government regulations.
As productions leave the city and state, jobs and the taxes these productions contribute to the state and city tax revenue streams continue to decline. And as out of city and out of state productions show the way and the savings that come with the out migration, it encourages other productions to also leave and the city financial death spiral goes into high gear.
That will do it for today: New York City and Los Angeles are still prime candidates for bankruptcy as the out migration of businesses, residents, and tax dollars continue with no end in sight.
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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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