An ongoing discussion we have is trying to determine which state government or city government will reach the state of financial collapse and bankruptcy first. The leading state candidates include New York, New Jersey, Illinois, and California. Leading cities include New York City, Chicago, Los Angeles, and San Francisco. The scenario leading to bankruptcy, and one that is already playing out in some states and cities just mentioned, goes as follows:
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.
As we have pointed out so many times in this blog, the above process is already in place. Residents and businesses are fleeing these high tax states and cities in ever increasing numbers, and the financial death spiral is in effect.
In a recent post, we hypothesized that New York City had taken the lead in the race to bankruptcy court. And what has unfolded in the first two months of the Mamdani administration in the city now reinforces our view that New York City has taken the lead in the bankruptcy race. But before we make our case, recall some of the grandiose promises Mamadani had made during his political campaign:
Bus rides on city buses were going to be free.
Daycare for kids in the city was going to be free.
Tuition at the City College of New York was going to be free.
City run grocery stores would be non-profit.
Rent freeze for 1,000,000 city rent stabilized apartments.
Only the richest city citizens would see their taxes go up to fund the above programs.
But less than two months into the Mamdani era, things are not going well:
In recent budget negotiations Mamadani complained that the city was facing a $5.4 billion shortfall in revenue for next year.
Thus, before spending billions of taxpayer dollars on the above free and other programs that he proposed, the city budget is already in a deep hole.
He proposed two paths to fix the budget hole, either raise taxes on the wealthiest city residents or….force him to increase property taxes on EVERYONE, raid the city’s rainy day fund, and raid the city’s employee benefit fund.
He also wants the state legislature to raise the state corporate income tax from 7.25% to 11.5%.
He has also backed off his campaign promise of expanding the $1 billion City Fighting Homelessness and Eviction Prevention Supplement rental voucher program because of the budget crisis curtailing his promise of increased rental assistance.
So he really has gotten himself in a jam. He promised so much without having a clue of what it would cost and how much money the city does NOT have:
Remember, after the massive snow storms a few weeks ago the city government was incapable of clearing the streets of snow and collecting the tons and tons of garbage that accumulated on city streets during and after the snow storms.
Remember, during and after the massive snow storms a few weeks ago in the city government was incapable of preventing possibly upwards of two dozen homeless folks from dying on the city streets from the extreme cold temps.
Thus, before he expands the city budget to provide free bus rides, free day care, free tuition and other promised expensive benefits, he and the city cannot provide basic services such as timely snow removal, timely garbage removal, and saving lives.
He wants to spend more money that the city does not have on free programs. He wants to spend more money on other projects and programs that the city does not have money for. His administration cannot perform basic government services already such as snow and grange removal and people are dying on the streets because they are homeless.
His solution: raise taxes on either the wealthiest or everyone that owns property. A higher and higher tax burden, deteriorating quality of life, residents and businesses leaving the city, and it is the situation we described above: a financial death spiral.
I admit, the situation is getting worse quicker than expected but it confirms our current betting line: New York City is in a firm lead in the race to bankruptcy court.
Additional note: as we discussed above, politicians like Mamadani would constantly want to raise the tax burden to pay for out of control government expenses rather than cut government programs or make them more efficient. Florida governor, Ron Desantis recently commented on this situation/mentality and the financial straits of New York City:
There are about 23 million people living in Florida.
There are about 8 million people living in New York City.
The total state government budget for the entire state of Florida is about $117 billion.
The city government budget for just New York City is about $127 billion.
Thus, despite having almost three times as many people, the budget to run Florida is less than the budget to run New York City. And Mamadani’s solution is to raise taxes and expand the city budget even more. No wonder residents and businesses are fleeing, New York City’s government, budget, and politicians are out of control.
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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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