Relying on politicians, and their cohorts in the media, to tell us what is reality is always a sucker bet. They have their own agendas and goals, usually centering around their needs and self-enrichment. So we need to look at the reality of the numbers to determine what is really going on.
1) We have often discussed and hypothesized what major city and what state are likely to be the next city and first state to go bankrupt. Through massive mismanagement of city and state budgetary and political processes, cities like Chicago, New York City, San Francisco and others and states like Illinois, New York, New Jersey and others have driven up government spending which required higher and higher taxes which drove residents and businesses out of the city or state which reduced the tax base and associated tax revenue which required more and higher taxes which drove more people out of the cities and states and the financial death spiral is underway.
In this post, we predicted that Chicago and Illinois would be the next city and first state to go bankrupt but did not rule out New York City and New York state or any number of California cities, and state, going bankrupt first:
Prior to that outlined why the state of Illinois is our favorite state to go bankrupt first (note: there is some legal thought that a state government cannot actually go legally bankrupt but if your assets and revenues cannot cover your costs, expenses and liabilities, that is at least a de facto bankruptcy):
A recent article in Forbes magazine put forth some additional data that reinforces our bet that Illinois politicians have screwed up so badly that Illinois is still our first choice to go bankrupt:
- The article by Adam Andrzejewski was titled, “Why Illinois Is In Trouble – 122,258 Public Employees Earned $100,000+ Costing Taxpayers $15.8 Billion Despite Pandemic”
- The main, underlying reasons why the state government of Illinois is going broke so fast, besides the fact that higher and higher taxes are driving people out of the state and reducing the tax revenue stream, is the simple fact that the state and local government in the state pay public employees obscene amounts of both salary and pension benefits.
- For example, Illinois public employees and retirees that earn over $100,000 a year grew from 109,881 people in 2019 to 122,258 people in 2020, an 11% jump in one year and in the middle of the pandemic.
- Just these folks alone cost the state taxpayer about $15.8 billion a year.
- And these are not just high paid executive types making this type of money.
- The OpenTheBooks organization found that prison barbers earn upwards of $115,000 a year, janitors at the State Toll Highway Authority earn up to $123,000 a year, line workers at the Chicago Transit Authority can make $222,278 a year, university doctors earned up to $2 million a year and 171 small town managers earn more than the governor gets which is almost $182,000 a year.
- But it is some of the public schools across the state where the taxpayer money really flows.
- In 2020, about 24,500 state teachers earned over $100,000 a year while at the same time over 15,000 RETIRED teachers earned over $100,000 a year as pension.
- Sixteen retired school superintendents earn over $300,000 a year in pension payouts.
- Almost 1,000 police and fire employees in Chicago earned between $200,000 and $400,000 last year.
- According to the article, “The Chicago Transit Authority, operator of mass transit in the city including the “L” train, paid rail service supervisors up to $239,806, ironworkers as much as $225,579, and line workers collected $222,278. A signal maintainer took home $191,627, a telephone line worker was paid $190,030 and a customer service representative made $185,152.”
- A retired doctor from the University of Illinois earns over $635,000 in PENSION compensation every year.
- And the list goes on and on: “The ten top paid sergeants at the State Police earned between $200,100 and $268,700 while 238 officers made between $150,000 and $268,700...A court-ordered monitor, Dr. Stewart Pablo, was paid $352,000 by taxpayers to report on the barriers to access mental healthcare within the prison system – his pay amounts to nearly $1.4 million during the past four years.”
- State politicians are especially adept at milking the state taxpayers for tremendous pension payouts.
- For example, former Chicago Mayor Richard M. Daley does a double dip pension move, getting over $153,000 in pension payouts for being a state senator for only 8 years and on top of that gets an annual pension of $83,784 for being a mayor of Chicago.
- The list goes on and on and unfortunately, the Illinois taxpayer, at least those that are still left, are paying these whopping pensions and salaries while on average earning nowhere near the amounts that these public employees and retirees are pulling down.
- In fact, according to the article, every man, woman and child in the state would have to write a check, in addition to their ongoing tax liabilities, of about $24,000 per person to enable the state to cover all of its pension and other unfunded government liabilities, or almost $100,000 for a family of four.
As it almost always happens, American politicians are so focused only on getting elected over and over again, not only enriching themselves in the process, but also promising huge financial rewards to government unions and workers in order to get their votes on every election cycle. The only thing that will stop this insanity is at least a de facto bankruptcy option, an option that is probably inevitable and an option that would prove us right: Illinois will be the first state to go bankrupt. Maybe they should call over to Detroit and find out how painful that process was for Detroit and its suckling pension pigs.
2) Wait a minute! News from California says that it still has a chance to beat Illinois to bankruptcy court, an avenue outlined by Dan Walters, writing for the Cal Matters website:
- Keep in mind that California is still a very rich state in a lot of ways since it is the home of the motion picture industry and Silicon Valley is unmatched when it comes to high paying, high flying technology companies.
- Unfortunately, the latest numbers now place California as the most impoverished state despite Hollywood and Silicon Valley.
- The Census Bureau recently reported that California has had the highest level of “functional poverty” in the country, 18.2%.
- In a state with about 40 million residents, that means over 7 million Californians are officially listed as functionally poor.
- One of the main drivers of this high poverty rate is the high cost of living in the state, most of which is driven by idiotic political mandates and laws.
- This functional poverty rate is not only the highest in the country but is three times higher than the state of Iowa which has the lowest functional poverty rate of only 6.8% despite not being home to Hollywood and Silicon Valley.
- Even worse news comes from the Public Policy Institute of California which calculates that another 18.5% of California residents are in a “near poverty” situation, a notch above functional poverty.
- According to the article: “Overall, therefore, more than 35% of Californians, perhaps 15 million human beings, are living in severe economic distress — a number nearly identical to enrollment in Medi-Cal, the state’s health care program for the poor.”
- Laws passed by state politicians make it very difficult for developers to build affordable housing units which restricts the supply of housing which drives up the cost of existing housing far beyond what a great many Californians can afford.
- The California Center for Jobs and the Economy estimates that Californians pay the nation’s second-highest prices for gasoline, an average of $1.07 per gallon more than prices in other states, mostly due to heavy taxation imposed by state politicians.
- This results in California motorists paying extra $15 billion a year, billions that could have been spent on better housing for themselves and their families.
- Californians pay, on average, 52.9% more for electricity than the national average, giving the state the seventh highest cost for electricity in the country.
- The average residential electric bill has risen by over 25% since 2010 as state politicians have insisted that more and more energy come from the more and more expensive renewal sources such as solar and wind in order to deal with the mythical crisis known as “global warming” and its newly branded cousin, “climate change.”
All of which speaks of a financial death spiral: higher and higher taxes and regulations drive more and more people and businesses out of the state which reduces the tax revenue which requires new and higher taxes which drives more residents and businesses out of the state which reduces tax revenues and the death spiral is on.
If you do not believe this analysis, keep in mind that it has just been announced that California, a state where once upon a time everyone wanted to live in, will lose a Congressional seat due to the mass migration out of the state.
But alas, Illinois also lost a Congressional seat, given its high taxes, unfunded liabilities and high crime so the race to the bankruptcy court is still an open issue and anybody's race to win!
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