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Which Cities/States Will Be The First To Default When The Economy Rolls Over?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
What happens to local governments when the economy rolls over?
Though we're constantly reassured the "recovery" that's stumbled for five years has years of strong growth ahead, history suggests the "recovery" is due to roll over. Few recoveries last longer than 5 or 6 years, and the business cycle is graying fast: subprime auto loans are not exactly the foundation of "strong growth."
So what might push the economy over the cliff? The strong U.S. dollar is crimping overseas sales and profits, the global economy is already recessionary, mortgage applications have dried up, auto sales are being driven by subprime loans, and the valuation bubbles in stocks and real estate are due for a breather, if not an outright reversal. Retail sales are flat, and with all these headwinds, growing profits by 10% to 20% a year becomes impossible for the vast majority of enterprises.
So what happens to local governments when the economy rolls over? Tax revenues decline.
The consensus is that local governments are sitting pretty: sales and property values have risen smartly, pushing tax revenues higher, and the cost of borrowing money via tax-free municipal bonds has fallen. Nice, but these are all functions of expansion and rising tax rates.
The uneven nature of the "recovery" has left some cities and states more vulnerable to a downturn than others.Let's catalog the various risk factors that might become consequential as the global and U.S. economies weaken.
1. Those dependent on foreign tourism. The weak dollar made America a bargain destination for the past decade. As the dollar strengthens and other currencies lose purchasing power, America is no longer a bargain--especially as job cuts decimate the number of people who can blow a few thousand dollars on overseas vacations to the U.S.2. Auto manufacturing-dependent locales. Vehicle sales have been strong, and the cheerleaders claim sales will keep rising for years to come. Really? With what money? As soon as layoffs hit the marginal workforce and the subprime auto loan bubble implodes, vehicle sales will follow suit.3. Cities and states that depend heavily on capital gains taxes. Once the current housing and stock bubbles deflate--or simply stop expanding--tax revenues from the enormous capital gains reaped in the past five years will wither.4. Locales dependent on high income taxes. Given that most of the job growth of the past five years has occurred in low-wage sectors, adding jobs hasn't boosted income taxes much. High income-tax states have jacked up rates on high-income earners, but there is no law of nature that says high-income jobs will survive a global downturn.Rather, enterprises desperate to tighten operating costs will want to jettison high-cost employees first.5. Local governments with enormous debt burdens. With interest rates low, municipalities and states went to the bond market over the past few years for "free money." Once tax revenues plummet, the interest on all that "free money" will take a larger percentage of tax revenues, heightening the cost of new bond debt as buyers start adding in the risk of eventual default.6. Locales with high fixed costs. These include high healthcare costs for homeless, elderly, government employees, etc., interest on all those bonds, government employee pensions, etc. The fixed costs only increase every year, regardless of tax revenues. Every local government with high fixed costs is in a tightening fiscal vice once tax revenues plummet.7. Local governments with generous employee benefits and pensions. Once the stock market rolls over, the big capital gains that have funded public pension plans dry up, and the annual contribution has to be paid out of declining tax revenues.Should interest rates actually rise, pension fund bond portfolios would plummet in value, too.8. Local governments dominated by self-serving entrenched interests. That is, all of them: sclerotic, self-serving, entrenched interests resolutely refuse to accept any cuts in their swag. As tax revenues fall off a cliff, government managers will face a dilemma: they can't cut costs because the self-serving interests have made that politically impossible, and they can't borrow money for operating expenses.
That leaves defaulting on debt as the only choice left. And since that's the only choice left, that's what they'll do.
The vice will close on some cities and states sooner than others, but it will eventually squeeze every city and state with declining revenues and rising fixed costs into default.
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one of the things Bob Prechter recites is the difference between the two type of government. the deficit spending limit imposed on municipal government, compared to federal defict spending. if the fed runs out of money they print more, but cities have to balance their books. in CA that led to the state redevelopment fund, which gave cities access to money for infrastructure (but more importantly commercial projects, corporate government enterprise, a new cineplex, walwart, resulting in enhanced tax revenues. net net money was being was being taken out of the general fund sent to Sacramento, then redistributed through redevelopment, the result for our town was lavish public works projects, a monsterous new city hall with office space that could be rented, the locals dubbed it the Taj-Ma-Hall, while at the same time the drain on the operating budgets meant the city was closing schools, cancelling ambulance service, and turning off street lights. then the governor stepped in and closed the redevelopment agency, which stopped the blight on services, but oddly enough hasn't really hurt the redevelopment projects (because i think the city has money parked off balance sheet) now perhaps with these tools we figure it out. i think Prechter, like a lot of analysts, takes a rational overview, (how the system is supposed to work ) and never considers how devious the financial wizards are at constructing ways around deficit spending when the charter does not allow that.
Thanks seems about on my level.
They use this on the US Post Office too. Like the forced Future Liability on Detroit, they did it to the US Post Office.
I guess this is what US Hospital are doing also to jack up prices.
Connecticut is at the top of that list.
For large cities, Chicago will be the first to go under.
And Illinois in general. Yeah, I know they just elected a RINO guvna there, but it's really bad in that state.
It's too late!
But naturally, the Republicans will be blamed for the collapse because they were in office when it happened.
Any state that has a SeaWorld operating in it.
Orlando, Florida
San Diego, California
San Antonio, Texas
Die Mickey Mouse, die ............
The vice will close...
LOLOLOLOLOLOLOL
you got that shit right.
Miami Vise?
The economy will never roll over. This time is different. Really! QE has changed everything. The economy will just continue to go up and up thanks to the wisdom and generosity of the Fed.
All praise to the Fed! And BTFD!
\s
My small town deserves to go Bankrupt when the economy rolls over. We are a typical small town America. The very best jobs in twon are with the City, at City Hall, with all the operations departments like streets, water, gas etc. etc. City Hall affords lots of 50-60 thousand dollar a year jobs. Secretaries have all become titled and boosted to the 50K pay scale. Other's with real titales like Planner, Inspectors, Managers of dept. are in the 90K sweet spot. With City Manager [3,200 pop] in the 120K range, Police Chief [7 cops total] at 100K. City supervisors all touch the 70K and up range. The bottom pay scale for new hire street crew is 40K.
You get the picture! As a note, the fucking streets are falling to bits. The sewers were due for replacement 40 years ago. A fortune in tax dollars cleared and put city services into a large forested area to expand housing during the boom. Space for 200+ homes, there are a total of 20 built since 2008, all the empty lots with all city hook ups await builders.
We are fucked. While the city hall lives like it was ancient Rome of feast Day! I suspect we are typical of many small towns where the City Administration runs a big fucking hand out and employment party of relatives, friends and beer drinking buddies. That's how it works! And of course We Who pay the taxes dare not speck up! And you all know why, the walls have ears in a tiny town like this, the those who benefit can be real mean fuckers should anyone threaten or call attention to their gravey train life on the tax payers ticket.
Invest in baseball bats
also pitchforks and guillotines
If you have the manpower, bats are better. Slower.
Warriors commmeee out to playyyyahhh!
Hada warriors flashback
RIPS
Like I said... these shitholes are in virtual default.
$10M for the new high school auditorium and property taxes hovering around 4% annually... of realistic property value.
In my municipality, the new Mayor was roundly castigated, including in the Communist media, for having the unmitigated gall of insisting that City employees actually work a 40 hour week, and not be allowed to routinely leave early, particularly on those three day Holiday weekends.
They brought out the electric chair when he ordered the entrenched police chief to work a few evenings per month instead of the comfortable banker's hours day shift.
Run for office.
@ Jack B
Don't worry Jack , hold on just a tad longer and those small town .gov mafioso gangs will be held in makeshift prison sewer hot spots and fed using dumb waiters lowered by the very ropes that will sit comfortably around their necks , until dead.
Nobody will be held accountable.
They’ll ‘frame’ the conversation.
I already explained here that I (and my neighbors) have to pay for private snow removal because the county does something else with the money…. All the while the retard kid cross the street gets chauffeured to school and back every day in a gas guzzling bus.
I’m framed as a bad guy suggesting the retard’s parents flip the bills for their retard.
It’s the same with old-lady knee replacements. She should ask her kids for the money.
It’s the same with Cheney’s pacemaker – he should pay cash instead of milking us.
Downward sticky Wages:
- Private Executives
- Public Executives like in Jack's Town
Locally we get skipped on snow removal for my street. Big thing with me is we repair the same streets every year after winter time... pretty sure this not economical and is due to cheap materials. This municipal spends pretty steadily on new projects, but they are keeping the businesses here through sweet deals. I hear local officials are able to buy properties just before new projects get approved.
Federal Budget has some big money for special education these days as you probably know:
2014 Office of Special Education and Rehabilitative Services
Special Education Outlays = $12.605 Billion
Patronage is as old as mankind. Perhaps even older.
I live in a poor northern California county ( if you can believe that). I travel to Mexico once a year and the road that I live on is worse than some of the ones I drive in Mexico. The county is poor and there isn't a lot of high dollar jobs, everyone bumps along. If social services disappeared here it would be a few months before anyone missed them. As a matter of fact some people around where I live fix the potholes themselves even though that is "illegal". I'm proud to say that we have the bureaucrats outnumbered here. Welcome to far northern Mexico. I am a Norteamericano. I was worried about immigration for a while but then I realized that the Mexicans where here first anyway so what the hell do I care.
These shitholes are not in default on paper yet, but when the water don't work and the police take hours to respond, that's a virtual default.
How do I short LA County and all the municipal entities within it?
Any city with a core of uneducated, low wage, angry people and burbs full of educated, unemployed angry people.
no matter how many/which American cities or states default - there's always money for Israel, and an army of people ready to threaten any politician who says otherwise
How the Israel Lobby Set Beto O'Rourke Right
What Happens When Freshman Lawmaker Misses the MemoThe... fucking arrogance and sense of entitlement. The bare fact they are primarily loyal to a foreign country but would claim you "hate" an entire group for noting that they for example, never send letters to the families of fallen US soldiers, but like Bob Kraft, send 'em when some American Jew goes to Israel to join their military and dies while helping to maintain the occupation [Bob Kraft].
p.s. We shouldn't be giving money to Egypt, et al., either. But there's no insidious Egypt lobby threatenign Congressman for putting America first, all while claiming that referencing their outsized power is an anti-Egyptian canard...
not sure what kind of American would downvote me here. Maybe just an Israel Firster/Jewish Supremacist type... which appear to be well funded and in every corner of the intertubes. ;0p
Easy: Just look for the blue states run by liberal/progressive/communist retards. This shouldn't be hard.
www.traderzoo.mobi
Republicans are going to fix this. They got a midterm mandate. And if they don't fix it.... well, we'll send them money and reelect them.... and if still no action, that's OK. Ron Paul has been at it for 55 years.
That is easy, every state with multiple medium/large cities that have been run into the ground after decades of liberal progressive democrat rule is going to be having a tough time WTSHTF...