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Originally Posted by newenglandgirl
Where is this headed? Is it a sign of things to come?
Where will the bailout come from? Will property taxes skyrocket?
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Cities are incorporated entities (ie cities are corporations). For that reason they are allowed to file bankruptcy. Most file a Chapter 11, which is a reorganization plan. The court appoints a receiver to take over and run the city during the bankruptcy, which usually lasts several years because of the scope of the litigation. Cities sell municipal bonds, usually for construction or maintenance, thus every bond-holder is a creditor, so there can be literally thousands and thousands of creditors, including other cities, counties and States who purchased the bonds (probably for their own pension plans).
There is no bailout. States do not bail out cities, because it would set a precedent with every city demanding to be bailed out, and it makes no sense and is not good business (it would be very bad political, social and economic policy). I think the federal government toyed with the possibility of bailing out the City of Detroit at one time, and that didn't go over too well.
Raising taxes always fails, because the Laffer Curve applies to all taxes, not just income taxes. Raise property taxes and no new people or businesses will move into the city, those that are there will flee, and those that remain end up defaulting on property taxes and the city forecloses on their property.
Raising sales taxes results in lower revenues. Price Elasticity applies there as well. I don't shop in the city (except for food which is not taxable) because I refuse to pay the half-penny sales tax for the stadiums. If the owners can pay sports stars $20 Million per year, the owners can cough up $100 Million for a new stadium. I go across the river to Kentucky and give them my money for taxes.
There are some 50 cities with populations over 300,000 that are in bankruptcy trouble and nearly all of them are in trouble with their pension plans. Here, the city manager has suggested charging $12 for garbage collection, and employing user fees, plus reducing the size of the military, er, I mean the army, ooops, I hate it when that happens, reduce the size of the paramilitary militia, dammit, I meant reducing the size of the police force, uh, police department, but some of those ideas haven't gone over so well, and of course the unions have stuck their ugly heads into the affray.
I have no idea how many smaller cities are having problems, although the word is that it's a lot of them.
They are all unique, and there's no one-size-fits-all solution, except that in nearly every case, the pension plans will have to be renegotiated or altered, because that is the largest expense for many of those cities (or will be the largest expense over the next 10 years).
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Originally Posted by newonecoming2
If you want a bailout then look to the minimum wage. We can get a lot more taxes if we up them minimum wage to $30hr. Bailout main street. Print a bunch of money and give it to everyone.
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Originally Posted by Themanwithnoname
ANd a Big mac will cost $100
Can't we (just ONCE) learn from history!
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He's like a broken record, but then he's an "internet educated economist."
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Originally Posted by MrRational
Meh.
I'm sure that some municipalities have done so...
but the overwhelming majority committed themselves to nothing more "lavish" than was commonly available to these same employees at that time they were working and similarly promised to their private sector peers.
As to the "over optimistic portfolio projections"... when you dig a little deeper in most instances that actual problem is found to be insufficient funding allocated.
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No, they were lavish. Many of them are getting 80% of their pay at the time they retired, they paid absolutely nothing toward their pensions, and they get free health care, meaning the city pays their monthly/annual premiums, and often there are other perks that people aren't aware of (like free round-trip tickets and hotel rooms annually to some union convention or some other professional career convention).
Even when the private sector realize the stupidity of their ways and started scaling pensions back, cities continued to offer the same pie-in-the-sky pension plans.
The issue is not "insufficient fund allocation" rather the issue is an appalling lack of foresight.
There's an animal called "demographics."
Every city manager here has warned the city council that changing demographics would eventually result in default. None of the council members listened to them, because saying "No" to a union boss was the kiss of death for a political career.
The wealthy and Upper Middle Class fled, taking their money with them. Most of the Middle Class has fled too. Nearly all neighborhoods are now Welfare Class, Working Class Poor, or Lower Middle Class. The one Upper Middle Class neighborhood and the remaining two Middle Class neighborhoods are transition to lower classes now. That will result in even more lost revenues in the coming years.
Business and industry has also fled. Since Americans are frightened of rail, not much point for a warehouse to be located near a rail center. Makes more sense to re-locate the warehouse to the Beltway where the trucks are, and take the jobs and the property taxes and the corporate taxes and the earnings taxes with them.
And still, the city has refused to make any drastic changes to its pension plan for new hires.
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Originally Posted by Escort Rider
The genesis of these problems has multiple causes. As already mentioned by another poster, the offshoring of so much manufacturing is huge here, depriving all levels of government of tax revenue as well as taking people's jobs.
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Off-shoring has little to do with it.
It is demographics. Business and industry left the city to take advantage of lower tax rates in the suburbs, and to have access to transportation.
People fled the cities because crime went up, taxes went up, and services went down.
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Originally Posted by Escort Rider
TAnother point - and here I'll admit to sounding like a broken record because I have posted this so often - is that the generosity (and hence the sustainability) of public pensions varies all over the map. Think of how many public retirement systems there must be in this country: States, counties, cities, police, fire, teachers, and more. Not all of these plans are overly generous, but the ones that are get most of the news coverage, which is only natural.
Bottom line: It's a huge mess, and sorting it out will take years and much pain - there are no simple answers.
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Well, one simple answer is to hack the pension plans.
That is a short term solution. A long term solution is making cities viable, but that is solely up to the people of a city. Since the political power in many cities is held by the Welfare Class, there's no chance those cities will ever become viable. So long as they are not viable, there is no solution for their financial problems.
It think its funny how people miss the connection between bailing out cities and bailing out Wall Street. If people can't handle the problems created by a city because it isn't bailed out, how could they ever possibly handle the problems created if Wall Street wasn't bailed out?
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An overview of the situation
