Every month we devote posts to just general political class insanity that is running rampant through the country. The members of the American political class continue to show that they are incapable of efficiently operating any level of government in this country.
Even their best efforts are almost always ineffective at resolving any problem facing Americans. They spend a great amount of time not trying to improve the lives of their citizens but continually ensuring their reelection and enriching themselves, their families, and their friends in the process, all at taxpayer expense.
1)So, so many times we have discussed the real possibility that a major city government or a state government will go bankrupt. The city or state politicians in charge spend too much taxpayer wealth, very often on failed programs and projects, which requires them to raise tax rates which drives residents and businesses out of state which reduces the tax base and the financial death spiral is underway.
Our favorite state governments to go bankrupt first include California, New York, New Jersey, and Illinois. All of these states have seen a steady stream of residents and businesses leaving these states and going to states with lower tax burdens, lower regulatory hassles, and better quality of life.
And our theory of most likely state bankruptcy candidates has not changed given the latest analysis from the Tax Foundation. The analysis puts together the current corporate tax, income tax, sales tax, property tax, and other tax burdens imposed by each state government.
According to the analysis for 2025, three of our states identified above have the highest overall/least desirable tax burden on their residents and businesses: New York (50th), New Jersey (49th) and California (48th). In other words, three of the four states we think are most likely to go bankrupt are the three states with the worst and highest tax burden on their residents and businesses. Only Illinois (37th) was not near the bottom when it comes to highest tax burden.
It is probably not a coincidence that these states are losing many, many residents and businesses according to Census data. And it is not hard to figure out why: why work hard to earn money and then have a whole lot of it go to the state government while other states such as Florida allow you to keep much more of your earnings.
And given that politicians in these states typically do not understand this basic drive to keep what you earn, they rarely reduce state government spending to reflect the smaller tax base. Reduced tax revenue and continued high spending will eventually get a state government into bankruptcy court.
2)But the possibility of government bankruptcy is not restricted to state governments. We often fluctuate on what major U.S, city we think will go bankrupt first and our top candidates include Chicago, New York City, Los Angeles, San Francisco and to a lesser extent, Portland or Seattle.
But given the latest budget and financial situation, it looks like Chicago may have taken the lead in the race to bankruptcy court:
Chicago’s politicians in the past have provided municipal employees and their unions with very, very generous retirement benefits, courtesy of the city’s residents and businesses’ high tax burden.
Now according to the Civic Federation, the city is facing a $982.4 million projected budget deficit.
This is not their overall budget, it is the additional funds they need to have their spending match their tax revenue.
The mayor, Brandon Johnson, did what most politicians always do when faced with a budget shortfall, try to raise taxes, rather than get government spending under control.
He wanted to raise city property taxes by $300 million but the city council voided that idea.
A whopping 42% of the city tax revenue stream goes to just funding the city’s retirement benefits and bondholder debt service.
Thus, before a penny is present on serving the citizens of Chicago for better schools, better police and fire protection, better social programs, etc., almost half of the tax revenue is spent on items that do not affect anyone living and working in the city except cit employee retirees and those that loaned money to the city.
On average, city employees retiring after 35 years of service with a final salary of $75,000 retire with an annual pension and health benefits plan worth $77,000 which helps to explain why many, many employees retire before they are 60 years old, it is more lucrative to retire than continue to work.
And while retirees are living very well, and probably no longer living in the city, the city police force has 1,600 fewer officers than it had in 2018 and 49% of 911 calls in the city go unanswered as city services are cut to feed the pension benefits and debt servicing expenses.
Bad, bad financial news for the current budget fiasco in the city government. But things are not going to get much better going forward either:
The pension and debt servicing costs are highly likely to go up over time as more city employees retire and the city continues to try and service its debt load.
The taxpayers and government of Chicago owe bondholders almost $29 billion, there are $35 billion in unfunded pension liabilities, and almost $2 billion in unfunded retiree health benefits.
Oh, and let’s not forget the $14 billion in unfunded benefits promised to Chicago teachers.
Unfunded liabilities in the tens of billions, unfunded debt servicing liabilities in the tens of billions of dollars, current budget shortfalls, deteriorating city services because of not enough funds to properly staff and fund them, is it no surprise that companies and residents are fleeing the city.
Thus, you can see our position that maybe Chicago is now the clear city among the country’s big cities that will get to the bankruptcy courthouse first as their death spiral is clearly underway:
Chicago politicians over time have given lucrative retirement benefits to city employees that they will not have to worry about down the road.
And the city then incurred a load of debt to try to pay for the benefits and city services.
Which required taxes to be raised and city services to be cut.
Which drove off residents and businesses.
Which reduced the tax base.
Which required more tax raises and more cuts to city services and the vicious cycle is now in play.
Nasty stuff and really, bankruptcy might be the only option for the city in order to void its pension and bond problems, much like Detroit had to do.
3)And while the city of Chicago has serious, perhaps fatal financial difficulties, it probably can't expect much help form the Illinois state government or state taxpayers, given their dire financial situation:
According to the Illinois Policy Institute, the Illions state government has a whopping pension debt for state employees of almost $144 billion, up from $142 billion in just one year.
The reasons for the high state debt could be the reality that over 140,000 retired Illinois state workers are getting over $100,000 a year in pension and health benefits.
Back in 1994, the state government pension deficit was $17 billion.
Thus, over the past 30 years the state political class has allowed the pension deficit to grow by over eightfold.
As big companies, e.g. Boeing, Tyson Foods, and Citadel, along with smaller businesses and residents flee the city and the state, it could be that both Illionios and Chicago are the most likely to beat their peers to the steps of the bankruptcy court.
Enough for today, a post that became a referral piece on what state and city will go into bankruptcy first. It is going to happen and the financial pain and quality of life downsides for every citizen in those states and cities will be dramatically bad.
Just ask the residents of Stockton, California and Detroit, cities that have actually gone bankrupt and the sacrifices and hard decisions that had to be made to fix what their politicians broke.
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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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