It seems we are in a little bit of a rut in that we seem to be getting overwhelmed with news about our choice for states and major cities that are likely to go bankrupt relatively soon. As always, our top state governments that we think are nearing bankruptcy include New York, New Jersey, Illinois, and California. Our top major cities we think are rapidly approaching bankruptcy include New York City, Chicago, Los Angeles, and San Francisco.
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)The following discussion point proves that some cities and states are definitely going to go bankrupt pretty soon because politicians are ignorant of economic realities and really and just plain stupid when it comes to common sense. But before we explore one of the most inane recent reactions to the financial death spiral one state finds itself in, consider a little history and background:
Back in 2022, the New York Post reported on some incredibly stupid comments made by the governor of New York, Kathy Hochul.
Hochul is a Democrat and told state Republican voters back in 2022 that they should “Just jump on a bus and head down to Florida where you belong. You are not New Yorkers.”
Yes, the top political official in the state told about half of her state’s constituents, about 5.4 million Republican voters, that they should just leave and not come back, likely one of the most insensitive and disgusting comments ever made by a sitting politician.
The Post reported at the time that the state government of New York was staring at a five year anticipated budget gap of $14 billion and yet she told a large portion of the state’s taxpayers to leave town.
Of course, back in 2022, many of the state’s residents and businesses had already taken her advice, driven out by high taxes, high crime rates, and high business regulation, since over the preceding ten years, 1.5 million New York residents had already left the state with 350,000 leaving during the year long pandemic epidemic.
At the time of her comments, she was proposing a record high state government budget of $220 billion making the out immigration of residents and their tax dollars even more financially dangerous.
In 2022 when the Post reported on Hochul’s comments, New York City by itself had lost 300,000 jobs during the previous two years.
Opinion polls conducted at that time showed that the number one reason people were leaving the state was overwhelmingly associated with high taxes.,
And finally the Post article reported that an IRS analysis of those people leaving New York had an average income of over $100,000, i.e. the highest paying taxpayers were the ones getting out of the state.
So, four years ago the governor of a state with a record setting budget and record setting budget deficits told millions of taxpayers, and some of its highest paying taxpayers, to go away and not come back. An elected official, who is supposed to equally represent every citizen in their domain, told half of them to go to hell, they were not welcome in their home state.
So Hochul sets the stage with her insensitive and despicable comments in 2022 for the following reality
A recent New York Post article covered some recent Hocul comments where she said that New York must win back the high earning taxpayers that fled to Florida.
Yes, four years after she told millions of state residents to “just leave,” she finally realized, duh!, that they took a lot of tax revenue with them and that she created a financial crisis in New York.
Rather than reduce government spending to match the reduced New York state government tax base, she insists that more tax dollars, this time by former state residents coming back to the state to pay high taxes, is the remedy.
Her out of touch with reality statements to that effect include: “I need people of high net worth to support the generous social programs that we want to have in our state. There are some patriotic millionaires who stepped up. OK! Cut me the checks. But if you want to be supportive, maybe the first step should be to go down to Palm Beach and see who we can bring back home. Because our tax base has been eroded.”
Can a politician be any more out of touch with reality than Hochul? She does not want people to come back to a better life that she created in the state. She blatantly just wants them back to pay for her government programs, i.e. “CUT ME THE CHECKS!” Don’t come back for a better life for you and your family or your business, just come back to fix the tax base that I helped erode by telling over 5 million taxpayers to leave the state.
But her behavior is completely consistent \with the process described above of how a state goes bankrupt: raise taxes and drive out residents and businesses who do not want to pay high taxes, do not make government smaller or more efficient due to the the smaller tax base, raise taxes to overcome the reduced tax base which drives out more residents and businesses, etc. Hochul made the process even worse when she actually told residents to get out of town, her stupidity is amazing.
This reinforces our belief that New York state will be the first state government to go bankrupt, a process that is accelerating, a reality the governor finally realizes is happening. Unfortunately her solution is ridiculous and shallow: why would people who left a bad situation voluntarily return to that same situation?
2)In recent posts we have also reiterated our belief that New York City will be the next major American city to go bankrupt. The current mayor, Zohran Mamdani, has decided that reducing city government expenses or making government programs more efficient is not fun, he would rather raise taxes.
As we discussed, he faces a $5.4 short term budget shortfall. He wants Hochul and the state government to raise taxes on the wealthy living in the city and if that does not happen he threatens to raise property taxes on everyone by almost 10%. He recently proposed a drastic raise of the city death tax to 50% while at the same time lowering the tax threshold by about 90% to $750,000.
So consider the following realities:
A wealthy person living in the city is probably going to get out of the city if their income tax gets raised again and their lifelong work savings get decimated by Mamdani’s changes to the death tax.
All types of people, wealthy or not, will consider getting out of the city if their already high property taxes are raised another 10% or so.
Thus, the tax base continues to erode and thousands of other New York City residents will follow the hundreds of thousands of other residents who have already fled the city. And apparently Mamdani has no intention of trimming back his record-setting city budget to cope with the reduced tax base, a formula for bankruptcy as outlined above.
But we have discussed all of this already in previous posts. The new news is that the financial rating company, Moodys, has downgraded the city’s credit viability from stable to negative. The company cited budget shortfalls, government inefficiencies, and reduced financial flexibility as the budget goes up while the tax base goes down. This downgrade could cause it to be more expensive for the city to raise capital in the future and scare away investors who can invest their wealth with safer options.
Whether this is a wake up call for Mamdani remains to be seen. However, denying the reality just makes it quicker for the city to go bankrupt as not only do residents and businesses flee the city but investors do also.
3)And while we now believe that New York City will go bankrupt next, the city of Chicago has not given up on that race to bankruptcy court:
Chicago city officials predict that the city is facing a short term financial deficit of $150 million while also facing billions of dollars in unfunded liabilities into the future.
One of the reasons for the deficits is that a whopping 40% of the city’s tax revenues goes to just paying pension obligations and debt service on city bonds before a single dollar is spent on roads, schools, emergency services, etc.
The current mayor, Brandon Johnson FINALLY realized the financial plight when he recently said the city was “at a crossroads” and had to “essentially do more with less” from a financial health basis.
However, rather than get the city’s financials in order and in line with the reducing tax steam, he went shallow and just blamed Trump.
Austin Berg of the Illinois Policy Institute summarized the situation: “The solution set is always the same: Stop making bad decisions, and you have to put a structure in place to make better decisions. So, the bad decisions are things like taking one-time revenues from federal COVID spending and putting it into operations. The bad decisions are borrowing for operations, which this latest bond issue just did. That’s a huge no-no and a red flag for investors.”
In other words stop with the financial gimmicks to balance the budget, they are temporary and make the long term financial situation even worse.
Much like Hochul, Johnson finally realized that maybe Chicago is looking at a catastrophic financial death spiral. But both blame others for their inactions to fixing the problem. In New York, it is the fault of the people that Hochul told to leave the state in 2022 and take their tax revenue with them. In Chicago, it is Trump's fault that the city has such a large financial hole to dig out of.
In either case, their realizations do not change our view that New York state, New York City, and Chicago are still leading government candidates to reach bankruptcy court first.
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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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