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.
1)One of the major indicators that a city is heading towards bankruptcy, as listed above, is that residents and businesses leave that teetering state or city for other areas. The New York Post recently ran an article that highlighted how this is happening in New York state and its cities including New York City:
- More than 125,000 New York residents have left the state and resettled in Florida over the past five years.
- Those folks have taken about $14 billion worth of income with them that can no longer be taxed in the state of New York.
- Over 41,000 of those migrating out of New York ended up in the greater Miami metro area, an area that has seen tremendous growth from out of state people moving in.
- These numbers come from an analysis done by the Citizens Budget Commission (CBC).
- Of the $14 billion that left the state, a whopping $10 billion is estimated to come from New York City residents hitting the road.
- A CBC spokesperson cited affordability, quality of life, and safety from crime as primary drivers for those leaving for Florida.
- The CBC also noted that the percentage of New York City residents who said life in the city was “good or excellent” dropped from 50% prior to the pandemic to 30% in 2025.
- Not only does New York state and New York City lose the tax revenue stream from those leaving but overall economic growth is stunted as these mostly higher income folks that are leaving spend their wealth on restaurants, clothes, and other needs outside of the state and city.
- About 26,000 of those people that left New York for Florida had incomes roughly three times the national average.
- Since the top 1% of earners in New York City pay 40% of the state’s income tax, the loss of higher earning and higher taxed residents is particularly harmful to the tax base.
- But those leaving New York City for Florida are not the only ones leaving the city and taking their tax dollars with them since 138,000 city residents have left the city for Long Island, taking over $11 billion in income from the city according to the CBC.
- Another 120,000 former city residents of the city have moved to Westchester County, NY, Fairfield County in Connecticut, and Bergen County in New Jersey, taking another $11.7 billion in income with them.
- The average income for these migrants was over $100,000.
- In 2010, New York City was home to almost 13% of the country’s millionaires but by 2022 that percentage had dropped to under 9%.
Which, if that happens, the increased tax burden will drive more New Yorkers out of the city and further accelerate the city’s financial death spiral into bankruptcy. In our last post we came across a detailed analysis that forecasted Chicago will go bankrupt in 7-12 years. Given the out-migration of wealth and residents from New York City, it is still our contention that New York City will get to bankruptcy court faster than Chicago, given the above wealth migration trends.
2)Let’s take a look at another recent New York Post article that further reinforces the trend of city residents actually leaving the city or thinking about leaving, given the cost and quality of life issues in the city today:
- According to a recent Marist opinion poll, one in three New York City residents plan on leaving the city and state within the next five years.
- Reasons cited most often of those desiring to leave include the cost of living and declining quality of life.
- 86% of those polled said the state is no longer affordable for the average family, up from 82% in 2025.
- This desire of 33% of those polled planning on leaving the state is up from 27% that planned to leave 15 years ago.
- According to the United Van Lines 2025 Movers study, more people moved out of New York and New Jersey than any other state.
- 56% of those polled said they think New York is heading in the wrong direction.
3)Our strong candidate for going bankrupt is the city of Chicago. Our previous post explored that real possibility in depth, including an analysis that forecasted the city would go bankrupt within seven to twelve years, given the shrinking tax revenue base and the unfunded liabilities the city is committed to paying.
While the following financial it is pretty small int he big picture, it certainly does not impede the city’s drive to bankruptcy:
- A city judge recently ruled that the revenue-strapped city of Chicago will have to refund $163 million to residents due to the fact the city had overcharged them on parking fines.
- Another $94 million in uncollected fees and fines was also wiped out.
- According to state law, there is a $250 cap that can be charged for illegally parked vehicles.
- For years, the city of Chicago violated that state statute.
That will do it for today: lots of people and tax dollars have already left New York City, a lot of New York state and New York City residents say they are going to leave and take more tax dollars with them, and Chicago finds itself with even more liabilities that have to be paid.
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