On a periodic basis we do some posts that fall under the theme of “by the numbers.” Rather than trust what the American politician tells us about reality, we like to examine the real numbers and the real reality in the world to understand what is actually going on. 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.
Previous analyses of “by the numbers” can be accessed by entering the phrase in the search box above. We look at the numbers to truly find out how good, not likely, or bad, most likely, the American political class is doing in managing our tax dollars, protecting our freedoms, and resolving major issues that affect all of us.
1)We have often made the case that a state government or a large city government will soon go bankrupt. Our top states that are likely to soon go bankrupt include:
California
Illinois
New York
New Jersey
Our top city candidates to go bankrupt include:
San Francisco
Los Angeles
New York City
Chicago
The bankruptcy scenario is likely to unfold as follows:
The state or city politicians continually raise taxes on residents and businesses in order to fund their out of control government spending.
This causes residents and businesses to move to other areas of the country where they get to keep their hard earned wealth.
This out migration to other locations reduces the tax base which reduces the government tax revenue stream.
Rather than get more efficient and/or reduce government spending to match the lower tax revenue stream, the politicians raise taxes even more to make up for the tax revenue shortfall.
This drives more residents and businesses out of the state or city, further reducing the tax revenue stream and the financial death spiral is underway.
In fact the financial spiral may already be underway in the government entities listed above. California is looking at a tax revenue shortfall in the next fiscal year in the tens of billions of dollars. Its unfunded future financial liabilities are quickly approaching a trillion dollars which gets more and more difficult to fund since residents and businesses are quickly leaving the state.
New York City and San Francisco have been especially hard hit with businesses and highly paid residents leaving their cities. On top of this out-migration crisis, these cities have always bragged about being “sanctuary cities” for illegal immigrants. This has resulted in tens of thousands of illegal immigrants coming to their cities, putting additional strain on already dicey financial conditions.
But given the dire statistics laid out in a recent Wall Street Journal article by Judge, Glock, it appears that Chicago is now the clear leader when it comes to the race to bankruptcy court. Consider some of the statistical and financial realities he documents in his writing:
Chicago's debt obligation load is about $49 billion which comes out to an individual debt load of about $43,000 for each city taxpayer.
This does not include the $42,000 debt load per resident that the state of Illinois is faced with.
Thus, a taxpayer in Chicago is looking at an individual debt load of about $85,000 that city and state politicians have incurred for each taxpayer in the city and state.
It is by far the worst combined tax liability of any city in the country.
And it is not likely the tax burden in the city is currently real low so that some of this debt could be paid off by raising taxes since average family living in the city currently sees about 12% of their earnings go to city and state taxes and that is before they pay Federal income taxes, Social Security taxes, and Medicare taxes.
The city property tax burden on businesses at 4% is the highest in the country.
All of this has driven companies out of the city with the city’s business space vacancy rate sitting at over 25%.
Big companies, e.g. Boeing, and many other businesses have left the city which has driven up that office vacancy rate.
The population of the city and surrounding areas have fewer residents than what they had 15 years ago as the tax base shrinks.
Generally, over 40% of the city’s budget is annually spent on inflexible fixed costs such as city employee pensions and city bond interest costs, costs that cannot be trimmed to any great degree.
For comparison, the second place city when it comes to fixed pensions and interest costs at the city level is Dallas at 31%, 25% lower than what Chicago has to pay.
The city is facing a $34 billion bill for future pension liabilities and a $2 billion bill for retiree health care benefits liabilities but has only saved about 25% of the amount needed to pay the pension liabilities and has put aside nothing for future retiree healthcare benefits.
Its pension debt liabilities are higher than any other American city and actually higher than the pension liabilities for many state governments.
But Chicago residents and businesses are also on the hook for other government debt liabilities including the liabilities of Chicago School District, Chicago Park District, Cook County, the Forest Reserve District, and the Metropolitan Water Reclamation District, all of which increase the debt burden for just the city government by another 50%.
Budget wise for the formal city government, the mayor projects a tax shortfall of $538 million in the current fiscal year and possibly a $1 billion shortfall in fiscal 2025.
Not covered in the article is the reality that the Chicago teachers union is clamoring for billions of dollars more in support of their agendas.
Also not covered is the continuing need to feed, clothe, and provide medical services to the tens of thousands of illegal immigrants roosting in this sanctuary city.
Sounds like a financial death spiral to me: high taxes drive out residents and businesses reducing the tax base which causes tax rates to rise to pay for pensions, interest payments, and other city services which drives more residents and businesses out of the city which further reduces the tax base without reducing the fixed costs of pension and bond interest payments, and the death spiral is in full motion.
Mr Glock quite elegantly summed up our death spiral concept in his final paragraph: “Chicago could keep paying off its bondholders and retirees by bleeding public services, hiking taxes and driving out still more residents but it would become a shell of its former self.” Sounds like a financial death spiral to me.
Thus, we may now have a clear leader in the race to bankruptcy court: the once great city of Chicago, a city whose politicians’ mishandling of its tax base and economy are to be blamed for its soon to be fiscal demise.
**********************
