Which American Cities Will File Bankruptcy Next?

Tyler Durden's picture

We harp on the massive, unsustainable, yet largely unnoticed, debt burdens of American cities, counties and states fairly regularly because, well, it's a frightening issue if you spend just a little time to understand the math and ultimate consequences.  Here is some of our recent posts on the topic:

Luckily, for those looking to escape the trauma of being taxed into oblivion by their failing cities/counties/states, JP Morgan has provided a comprehensive guide on which municipalities haven't the slightest hope of surviving their multi-decade debt binge and lavish public pension awards

If you live in any of the 'red' cities below, it just might be time to start looking for another home...

To add a little context to the map above, JP Morgan ranked every major city in the United States based on what percentage of their annual budgets are required just to fund interest payments on debt, pension contributions and other post retirement benefits.

The results are staggering.  To our great 'shock', Chicago residents win the award of "most screwed" with over 60% of their tax dollars going to fund debt and pension payments.  Meanwhile, there are a dozen municipalities where over 50% of their annual budgets are used just to fund the maintenance cost of past expenditures.

As managers of $70 billion in US municipal bonds across our asset management business (Q2 2017), we’re very focused on credit risk of US municipalities.

 

The chart below shows our “IPOD” ratio for US states, cities and counties.  This measure represents the percentage of a municipality’s revenues that would be needed to pay interest on direct debt, and fully amortize unfunded pension and retiree healthcare obligations over 30 years, assuming a conservative return of 6% on plan assets.  While there’s no hard and fast rule, municipalities with IPOD ratios over 30% may eventually face very difficult choices regarding taxation, non-pension spending, infrastructure investment, contributions to unfunded plans and bond repayment.

So, what will it take to fix the mess in these various municipal budgets?  How about massive tax hikes of ~30% or a slight 76,121% increase in worker pension contributions in Honolulu...

Anyone else feel like the winters in South Dakota are suddenly looking much more manageable...

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Déjà view's picture

Tejas has a HUGE CAB bond problem...it is VERY expensive when they come due 15-20 years...

https://americansforprosperity.org/capital-appreciation-bonds-no-way-to-...

https://www.texaspolicy.com/blog/detail/15000-owed-by-every-texan-for-st...

FYI: 'Loan' Star State is on the hook for most local debt...Wall Street loves Tejas...

Gov. Brown signs law limiting risky capital appreciation school bonds
October 02, 2013|By Dan Weikel

http://articles.latimes.com/2013/oct/02/local/la-me-ln-school-bonds-2013...

Refuse-Resist's picture

It's Baton Rouge and it's majority black. I used to live there and saw it transition. The reason: White people getting the fuck out (like I did).

What a shithole now. The state's flagship university, LSU, is situated, like an island of wealth, right in the middle of BR's worst areas.

I'm surprised it ranks that high as it is a much smaller city than the others.

But never underestimate the disparate impacts of niggers. Never relax and if you're smart, you'll just avoid them at all costs.

THe destroy eveything they touch. A real reverse Midas-Touch.

America? FUCK YEAH!

hawaiian waverider's picture

Hawaii is the textbook example.  Unions run the show here, not a single republican in the senate and only 5 in all the house.  

State hire as many as they can, pay them great with large benefits and barely get much work out of them. 

The legislature year in year out continues to find ways to raise or impose new taxes on business in particular and the whole people in general. It's sickening.  But the citizens keep voting for the dems "because they care" haha. What a farce.

Justin Case's picture

why wurk for moar, when moar can wurk for less? Get rid of unions.

Utopia Planitia's picture

As you can see in the tables above Seattle has managed to load much of the burden they have created onto King County.  Through the King County Council (among others).  Even those of us who live far away from Seattle still get stuck with much of the bill. Seattle has a deserved reputation for being "creative".  As in "creating" one insane right and mandate after another that the taxpayer gets stuck paying for. One wonders when the public will finally run dry and vote the bastards out? I have lost faith. And am relocating far away where I will no longer have to pay for heroin shooting galleries et al.

FixItAgainTony's picture

According to this data, half of metropolitan America is going to be relocating to clogged gutters.

pods's picture

If we're honest we should all admit we are all on the same time line, merely at different points. That would wake up those to the exponential scam that is our money system. 

I'm not hopeful though. 

(BTW Tyler, love the pop-ups when trying to post. Mobile ZH is about unusable now)

pods

DRTexas's picture

I don't even go to ZH if I'm on my phone anymore.

BarkingCat's picture

I live in Seattle and hate this city with a passion.

Unless it is an emergency and something small, I make sure I do my shopping out of the city. 

I find paying 10.1% sales tax criminal and insulting. 

However, Seattle is not even the worst one. The thieves in Lynnwood will scalp you for 10.4%.

To me these politicians crossed the red line and will actually see much less taxes than in the past.

When sales tax was 8.6%, that was high but I did not object as there is no state income tax.

Now I do object and am actively avoiding any tax generating activity while in Seattle.

I need new tires for my car. I am holding off until my next trip out of state. I will buy them in Oregon where sales tax is 0%.

 

I also need new cabinets for my kitchen remodel.  Given that these will run about $10,000, I will also buy them in Oregon.

$1,100 tax savings is definitely worth the $100 in gas and 8 hours of driving.

Juggernaut x2's picture

Another side effect of ZIRP

Sanity Bear's picture

Actually ZIRP was a side effect of this, not the other way around. They needed ZIRP to prevent these Ponzi schemes from blowing up many years ago.

But the time they bought with it is very close to over, and now the fun begins when we can tell all these government pensioners to go fuck themselves and they get nothing.

Winston Churchill's picture

ZIRP is a function of declining ERoIE.

We cannot afford the luxury of interest anymore.

FreeMoney's picture

The Sanity Bear is correct.  ZIRP/NIRP allows the debt slavery ballon to be filled more.  When the ponzi blows it will be a way bigger mess than without it.  This will allow more government and more control to "fix" it, after the war.

techpriest's picture

The only problem, of course, is that the imbalances will remain. You cannot expect a rapidly impoverishing populace to willingly starve for their masters.

Take a page out of Chinese history: once the population gets hungry enough, the old regime comes to an end because it cannot pay to keep the system together. I would hope we could learn from the example of other nations, and make the transition as painless as it can be, but I don't think it will happen. The political class burns down everything before it gives up anything.

venturen's picture

how many are run by the GOP?

ZIRPdiggler's picture

Are you referring to the other half of the two -party tyranny? What difference does it make? They know which group THEY DON'T work for: WE THE PEOPLE. I hope I'm still alive when identity-politics dies because I'm gonna take a big ole s*** on its grave.                                           Packers vs Shitbears: I live in Chi town and couldn't agree more.                  And yes, those white "commies and progressives" from the north east like Bernie, Warren, and Stephen King need to cork it until they've actually lived in and among the dindu-wilds of chicago urban blight. They don't know what the fuck they're talking about, as they live in the whitest area per capita in north America, if you discount Canada of course.

ZIRPdiggler's picture

Because Chicago and Baltimore truly are the badlands

Boris Badenov's picture

Why is nobody blaming The Federal Reserve ???

Raffie's picture

Blaming The Fed is like calling the sky blue, just a waste of time to say it.

Moving on...........

logicalman's picture

On ZH, you may be correct in regard to blaming the Fed, but try saying anything about banking or the Fed the next time you are sitting in a sports bar.

The vast majority of folks have no clue how badly they are being screwed and, by extension, by whom.

I've spent thousands of hours trying to inform people regarding banking and government. I'm pretty sure I've got through to a few.

Doing my bit.

pods's picture

I screwed up the previous owner of the place I work for. He sold and GTFO. 

Oops. My bad. 

pods

Refuse-Resist's picture

Jews are God's chosen people (TM). They dindu nuffin.

CrazyCanadian's picture

because blaming the federal reserve is like blaming trump for the vegas shooting, dumbass.

toktomi's picture

Right!  Because everyone knows that the Federal Reserve does not own the United States currency [USD] and therefore, has absolutely no influence over every aspect of the U.S. financial system.

1033eruth's picture

For what?  the Pension crisis?  

You still don't understand about government unions and employees and how their contracts are negotiated?  

You have politicians that negotiate wage increases etc (arbitrators, don't make me laugh).  Unions always ask for the moon and settle for something less.  The unions guarantee their members votes to whoever pays them off at the negotiating table.  There is NO TAXPAYER ADVOCATE negotiating on behalf of the taxpayers.  

Or are you saying blaming the Fed for ZIRP?  Again, the Fed does not spend money, congress does and when there is a deficit, the fed gets to create money.  We're like Japan and that was easy to predict.  Interest can NEVER normalize or our deficit would explode and its doing that anyway.  Puerto in 10, Venezuala in 20.

hawaiian waverider's picture

You are one of the few that understands it.  In the salary/pension "negotiations" there is NO ONE representing the taxpayer.  It is absurd and, duh.. why so many states have a huge problem and won't be able to pay the outrageous pensions they promised.  Note, and it's a fact, mostly all Dem states.  

Boris Badenov's picture

But if rates were 8% today on T-bonds, you wouldn't know it.

The Wizard's picture

Blame the people for being ignorant of the mechanics of money and how the FED works. Also, the ignorance in the mechanics of the law is as bad as it gets. The educational system did a fine job dumbing most everyone when it comes those topics.

Yes We Can. But Lets Not.'s picture

If your neighbors are gonna bail en masse, you'd best be one of the first ones out, before the resultant real property value collapse.

But is it really going to happen.  Are Chicagoans really going to move to Des Moines?

brushhog's picture

What happens when property values collapse? Property taxes fall, revenues collape, and they are forced to cut.

Yes We Can. But Lets Not.'s picture

Property taxes won't fall.  With a 50% drop in property values, they just double the millage rates.  Double millage rate on 1/2 the value produces unchanged tax revenue.

 

Bigly's picture

BS article. HARTFORD is not even red and is literally bankrupt.

SantaClaws's picture

I noticed that too.  Huge error.  Providence, RI should also be red.

Bigly's picture

Truly, most municipalities are insolvent. Just a question of how long they can hang on.

Dammit Walter's picture

"They" always seem to hang on way longer than anyone would think possible... and then "nobody" saw it coming!

logicalman's picture

When the whole financial system is insolvent, how can any municipality not be? - or any government, for that matter.

 

SantaClaws's picture

UPDATE:  Providence, RI Mayor Elorza declares "surplus" as city suffocates from pension and healthcare debt.  http://www.golocalprov.com/news/editorial-surplus-in-providence-only-in-...

deepfriedbrain's picture

was just about to mention that...well done Bigly

any_mouse's picture

Hartford is marked in pink, low credit risk.

How many articles have been posted recently about Connecticut Capital Hartford going bankrupt?

Dissonance.

WorkingFool's picture

And a lot of fires caused by faulty wiring

WorkingFool's picture

And there will be the inevitable state bailouts - hidden at first by redirecting subidizies from “rich” towns and counties to the “under privilege cities”. Then grants. Then the states will require bailout from the federal level and we print print print. Why - because that is the path of least resistance.

brushhog's picture

And then youll have flight out of those areas and values will fall even more. Eventually you get a ghost town that generates no revenue. Cant be done. How those property taxes in Detroit?

Shinebama's picture

That's exactly what they do. If anyone that lives there bothered to read the city CAFR they'd know that. They take the combined budget numbers for the year, divide by the total assessed value of all properties, and that's how they determine the millage. They never collected less in revenue, even after the housing market crashed. amazing what you can find out if you take time to read the financial reports. That's why I left, I read the reports and bond offerings and my first reaction was "You've got to be kidding me." I know the financial shit storm that's going to hit taxpayers in a few years, it's spelled out very clearly in the financials. 

Scuba Steve's picture

Ha, change the equation all you want ... cant get nuthin from nuthin except lead waiting for you to collect at every house in the county.

"When you got nuthin you got nuthin left to lose"

MozartIII's picture

They're going to Detroit some places.

BigCumulusClouds's picture

Taxes don't fall. They increase. But revenues dry up as people walk from their homes even if they're paid for.

BarkingCat's picture

Supposedly that is how ancient Rome fell. People simply walked out of the city because the taxes were way too high. I will also add that if I walked away from my house I would burn that fucker to the ground.

Well, maybe not burn it as my neighbors are too close but I would definitely leave it in an unlivable and unrepairable condition.

 

iamrefreshed's picture

"What happens when property values collapse? Property taxes fall, revenues collape, and they are forced to cut."

Detroit?

Do I win a prize?