And The Winner In The "Worst Idea At The Wrong Time" Category Is...

The undisputed winner in this year's "Worst Idea At The Wrong Time" category is the poor suburb of Ferguson, Missouri, a town which was looted, burned and generally eviscerated on several occasions in the past few months as a result of public anger first at the murder of Mike Brown and subsequently, the acquital of the police officer who shot him.

Why? Because according to Bloomberg, in order to close a municipal budget gap - and keep in mind the prevailing poverty in the region has been widely attributed as one of the reason for the escalating violence on either side of the law - Ferguson plans to boost revenue from public-safety fines and tapping reserves.

According to Ferguson's finance director, Jeffrey Blume, revenue from violations, which already represents the city’s second-largest source of cash after sales taxes, are projected to rise to 15.7% of receipts in fiscal 2015, up from 11.8% currently. In 2013, fines brought in $2.2 million, or 11.8 percent of the city’s $18.62 million in annual revenue, according to budget documents.

This means that local cops will now have an even bigger, and more aggressive quota of miscellaneous, petty offenses to fill, in order to collect money from an already impoverished population, and in the process antagonize said population even further, more than likely leading to the same if not worse outcomes that caused the riots in the first place.

From Bloomberg:

To close a projected deficit for fiscal 2014, which ended June 30, the municipality will deplete a $10 million capital-projects reserve, Jeffrey Blume, Ferguson’s finance director, said in a telephone interview. For the current year, the city is budgeting for higher receipts from police-issued tickets.

 

“There are a number of things going on in 2014 and one is a revenue shortfall that we anticipate making up in 2015,” Blume said. “There’s about a million-dollar increase in public-safety fines to make up the difference.”

Even with the added police ticketing, the city - which will certainly incur millions in renovation and infrastructure costs as a result of what for a while seemed to be daily rioting - will see a revenue shortfall in the coming year: even with the increased ticketing, a $4.09 million budget deficit will remain for fiscal 2015. The city will bridge that gap by drawing on its $10.3 million unassigned reserve, the last of its reserve funds, Blume said. Moody’s Investors Service cited an inability to maintain reserves at satisfactory levels as a potential downgrade trigger in a report from December 2012.

In other words, very soon Ferguson may soon add Chapter 9 bankruptcy to its list of woes. But to get there it will first need to avoid being burned down all over again:

Howard Cure, head of municipal research at New York-based Evercore Wealth Management LLC, which oversees $5.2 billion, said Ferguson’s reliance on revenue from police citations may have contributed to public anger after officer Darren Wilson shot and killed 18-year-old Michael Brown.

 

“It leads to animosity and distrust that might have even spawned some of the unrest that we’re seeing,” Cure said.

 

Government dependence on police fines is a larger issue in surrounding St. Louis County, especially among its “poor” and “small” communities, Tim Fischesser, executive director of the St. Louis Municipal League, said in a telephone interview. The poverty rate in Ferguson was 22 percent in 2012, the latest year for which data is available, compared with a national average of 15 percent, according to U.S. Census Bureau data.

 

“They said they weren’t going to go after poor people, so to speak, to fund their budget, but I guess that’s changed, Fischesser said.

And so the Catch 22 of modern insolvent America emerges: while the seaboard megapolises continue to thrive on the back of the financialization of the US service economy thanks to some $300 trillion in derivatives (if only for the time being), the poorer cities in America's heartland are caught in a toxic spiral whereby poor populations are unable to pay enough sales tax to keep city funding afloat, and so cities are forced to resort to forced, and armed, Police extraction of "municipal revenues", adding widespread anger to what already is a combustible mix of poverty and resentment, and worsening it at every turn, until it finally all spontaneously combusts when popular anger explodes leading to such events as the Ferguson riots. This should also help explain the unprecedented, and stealthy, militarization of police forces across the United States in the past year.

Unfortunately, since there are countless other cities just like Ferguson and just as many police forces who just happen to be the last bastion of "municipal revenue collection", the probability of future social violence across America rises exponentially.

What is more, even Wall Street has finally realized just how interconnected the problems facing America's inner slums are:

Reliance on a revenue stream like police fines was problematic from a purely credit perspective as well, said Joe Rosenblum, director of municipal credit research at New York-based AllianceBernstein LP.

 

“Any community that faces budget issuers with a whole series of financial and social challenges you have to approach with a skeptical mind,” he said. “I’d be fairly negative on the outlook from a credit perspective.”

 

Trading in Ferguson debt indicates that investors in the $3.7 trillion municipal market have started to take note of financial issues. Yields on the city’s 2013 certificates of participation maturing in 2032 exceded 4 percent last week from 3.5 percent as prices fell below 90 cents on the dollar for the first time since issuance, according to data compiled by Bloomberg.

They will go far wider before the realization that yet another municipal US bankruptcy is inevitable. As for the fate that lies before a soon to be insolvent and very violent Ferguson, Bloomberg is politically correct: it "may risk worsening community relations with increased citations and weakening its credit standing by reducing a rainy-day fund."

A more accurate summary is that what has happened so far in the poor St. Louis suburb is only an appetizer of what is to come, not only in Ferguson itself but across America, where kicking of responsibility, accountability and simple math, has become next to impossible.