Let’s take a brief break from our run of posts regarding the massive corruption and fraud in government programs and return to one of the hottest topics we have been covering over the past few years, coverage that has intensified recently: which major city or state government will 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, now lets check the progress some of the above listed government entities are making to achieve this bankruptcy goal against this process:
1)For the longest time we thought that New York City would be the next big city to go bankrupt in the country. Especially after Zohran Mamdani got elected with his communist ideas, it was pretty clear that NYC was going to have a rough time ahead as city budgets got strained and the tax base shrunk as businesses and residents, usually the higher income residents, fled the city, taking their tax dollars with them.
But with the election of Katie Wilson as mayor of Seattle, within months the situation has deteriorated significantly: businesses fleeing the city due to high taxes, the tax base shrinking, record high office building vacancy rates, homelessness and crime rates rising, city budget shortfalls getting larger every day, etc.
And most of today's bankruptcy discussion will reiterate how fast Seattle is spinning into a financial death spiral:
According to recent reporting by a Seattle radio station, 570 KVI, the city of Seattle is facing an almost $500 million budget deficit over the next three years.
This deficit has grown significantly in just the past few months as the tax base migrates out of the city and businesses either leave, go out of business, or downsize, all of which reduces employment and taxation levels.
The anticipated budget deficit has grown by about $100 million over the past few months and is now $175 million just in 2027.
Apparently the mayor has FINALLY realized what is happening, given a recent statement from her: “We have some really severe budget problems in the City of Seattle right now. We have a large budget deficit which has been a structural deficit that goes back years.”
According to analysis by the Downtown Seattle Association, a whopping 30,000 jobs have left the city since 2020.
The analysis put a lot of blame on the city’ s ridiculous JumpStart payroll tax which placed an onerous tax burden on every employee employed in the city.
And not only is the tax base eroding, inflation in Seattle was 4.9% vs. last year, vs. 3.8% nationwide, and energy costs in the city are up over 20%.
Life is not good in the city, especially for the mayor, who stated she is looking for other revenue options, i.e. code words for raising the tax burden even more to make up for the smaller tax base. Thus, she is going to accelerate the very programs that are shrinking her tax base and driving employers and employees out of the city.
An old saying goes as follows: “When stuck in a hole, stop digging.” Ms. Wilson needs to understand this wise adage. She is in a deep budget hole because of high taxation, raising taxes, just digs that hole deeper.
2)That same 570 KVI report also contained a sample inventory of what businesses have done in the Seattle:
Starbucks is doing a $100 million business expansion in Nashville, not in Seattle, where the entire Starbucks business started decades ago.
That $100 million business expansion will involve employing 2,000 employees that will not be living in and paying taxes in Seattle.
Meta/Facebook has laid off 1,400 workers in Seattle’s home county.
Janicki Industries decided to do an $800 million business expansion not in Seattle where it is headquartered, but in Montana, an expansion that will put 2,000 jobs in Montana and not in Seattle.
Other Seattle businesses that have announced layoffs, relocations, business site closures or payroll reductions in Seattle included Genie Industries, Novanta, Republic National Distributing Company, Delta Camshaft, and Seattle Kosher.
These are just the bigger companies, how many small businesses are also gone or going?
3)As you may know, the United States is hosting the Soccer World Cup tournament this year. Hundreds of thousands of people from all over the world have come into the country to see the games, games that are being played in many cities across the country including Seattle.
Most cities are seeing a boom in their local tourism economy because of the games. However, Seattle seems like it cannot catch a break even while hosting six World Cup games:
The local city promoter, “Visit Seattle,” did an in-depth analysis and predicted that the city of Seattle and King County could experience a whopping $929 million boost from hosting Cup games.
This $929 million would include more than $100 million in incremental tax revenue and 20,000 jobs.
As a result of these numbers, retailers stocked up, restaurants stocked up, the city was ready for a windfall.
Unfortunately, things have not worked as planned.
While other American host cities have seen incremental tourism as a result of the tournament, Seattle has actually experienced a substantial decrease in tourists, especially international tourists.
One theory for the under visitation has been attributed to the financial crisis the city finds itself in along with the resultant bad press and the reality that tourism to the city had already been in decline and the World Cup could not alleviate that decline.
The city government had allocated $32 million of taxpayer funds to facilitate the games, expecting $929 million in return for that investment, $929 million that will not materialize
Hotel rooms are unoccupied, restaurants have empty tables, and the tidal wave of tourists and their money has fizzled, another sad story from a city plummeting towards insolvency. In the middle of the biggest sporting event to hit this country in a very long time, Seattle politicians and their horrible economic, crime, and homelessness policies could not even take advantage of this rare economic opportunity.
4)Jeff Bezos of Amazon fame left Seattle for a much more friendly tax environment in Florida. Howard Schultz of Starbucks fame left Seattle for a much more friendly tax environment in Florida. And that migration of famous business people, people that once paid a lot of taxes in Seattle, is not over:
Rich Barton, billionaire, is now a former resident of Seattle after living there for 35 years.
While not as famous as Bezos or Schultz, Mr. Barton has created great value and companies, first as a co-founder of Expedia and then the creator of Zillow.
Both of his companies have made life much easier for millions and millions of Americans.
His efforts and creativity made him a Seattle/Washington billionaire.
And with his recent move to Nevada, neither the city or state will get his tax dollars.
As a Nevada resident, he will avoid the many, many state and city taxes up in Seattle and Washington.
His tax savings could be in the range of many, many millions of dollars.
As we have discussed, a billionaire leaving is not just a bottom line adjustment on the state or city government asset page. The tax revenue is indeed reduced but it is highly likely as these folks leave Seattle and Washington, they will take their substantial charitable donations with them.
Future business leaders and creators may not find Seattle as welcoming as previously as they witness the titans of the Seattle business community leaving and thus, the next generation of entrepreneurs may not find Seattle as an attractive business location the future.
As business owners take themselves and their companies and employees out of town, retailers, restaurants, supermarkets, dry cleaners and other small businesses see their client base dwindle along with their revenue and profits while their taxes may continue to go up.
All of these factors create a financial death spiral and as a result, we have not changed our minds: no longer do we think that New York City will be the next major U.S. city to go bankrupt, Seattle has now taken the lead in the race to bankruptcy court.
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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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