Friday, February 1, 2019

The deficit isn't just a federal government problem

We've spoken often in these pages about the federal government deficit (now standing at about $22 trillion), and how it's a crippling hobble on the entire country.  It's so incredibly large that it can probably be repaid only by devaluing the US dollar through massive inflation, and/or repudiating part of the debt.  Either step will damage the "full faith and credit of the United States".

However, that's not the only deficit in prospect.  Most of our major cities are in deep financial trouble.

According to a recent analysis of the 75 most populous cities in the U.S., 63 of them can’t pay their bills and the total amount of unfunded debt among them is nearly $330 billion. Most of the debt is due to unfunded retiree benefits such as pension and health care costs.

“This year, pension debt accounts for $189.1 billion, and other post-employment benefits (OPEB) – mainly retiree health care liabilities – totaled $139.2 billion,” the third annual "Financial State of the Cities" report produced by the Chicago-based research organization, Truth in Accounting (TIA), states.

. . .

In New York City, for example, only $4.7 billion has been set aside to fund $100.6 billion of promised retiree health care benefits. In Philadelphia, every taxpayer would have to pay $27,900 to cover the city’s debt; in San Francisco, $22,600 per taxpayer.

. . .

One major problem area TIA identifies is that city leaders have acquired massive debts despite the balanced budget requirements imposed on them.

“Unfortunately, some elected officials have used portions of the money that is owed to pension funds to keep taxes low and pay for politically popular programs,” TIA states. “This is like charging earned benefits to a credit card without having the money to pay off the debt. Instead of funding promised benefits now, they have been charged to future taxpayers. Shifting the payment of employee benefits to future taxpayers allows the budget to appear balanced, while municipal debt is increasing.”

. . .

No cities received an “A” grade. Twelve cities received a “B;” 24 a “C;” 31 a “D;” and eight failed.

There's more at the link.  You can download the complete report here.

Points to ponder:

  • If you expect to receive a pension from any of the most financially mismanaged cities, it's very likely you won't receive it all, and may lose some of it - perhaps a lot - when their finances are restructured (as they'll have to be, sooner or later).  It's already happened in a number of cities.
  • If you live in one of those cities, the odds are pretty good that the municipal services on which you rely (including police, fire, EMS, power, water, sewage, etc.) may deteriorate as the powers that be are forced to cut expenditure on them, to free up money to make up pension shortfalls or bond repayments.  In some cases, municipal rates and taxes will increase dramatically (Jefferson County, AL, incorporating the city of Birmingham, is a classic example).
  • Property taxes are also likely to increase exponentially.  If you're a homeowner in one of those cities, this may have a serious impact on your finances.  Consider Chicago, IL, for example.  (Of course, Chicago's notorious corruption in city government is another expense.)
  • I fully expect semi-bankrupt cities and states to demand a Federal bailout of their obligations.  I hope and trust that won't happen . . . but bear in mind that almost every city with serious debt problems is run by a Democratic Party administration.  If the Democrats take over the Senate and Presidency, in addition to their present hold on the House, you can bet your bottom dollar (literally) that such a bailout will be passed.  That'll put all US taxpayers on the hook for all that money - at least $5 trillion for all states and major cities right now, and probably higher.

The only thing we can do is to help ourselves by minimizing our own debt load, building up our own financial reserves, and preparing for hard times if and when they arrive.  Personally, I suspect they're on the way, in many cases due to the profligacy and poor self-control of all levels of government and both major political parties.



stencil said...

"If the Democrats take over the Senate and Presidency...."

They don't really need to, while so many share with Republicans their membership in the Politician party.

kurt9 said...

...preparing for hard times if and when they arrive.

If? Are you kidding me? Its a matter of "when", not "if".

tweell said...

Hey, those hard times may not happen. It's not certain. The world may get taken over by aliens instead. A genius may come up with a new invention that saves us all. Like a matter converter, able to convert mass into anything (including energy). We may see the Second Coming of our lord Jesus.

Well, there's three different ways those hard times would not happen. I'm pretty sure folks can come up with more. Are they probable? Um...

Me, I'm impressed with the way our politicians have been able to delay the consequences of their actions. It's gone on much longer than I thought it possibly could. Dodging blame and avoiding consequences should be a comic superpower.

JNorth said...

Rather interesting that the top five "Sunshine Cites" that can pay all their bills have less surplus then I have in my checking account.

The only city in my state there at least got a C and I don't live there. My town has a balanced budget requirement which keeps them out of a lot of trouble. While my state's pension benefits account is in the red there are other state saving accounts that will cover it and they stopped the pensions back in '06, existing people grandfathered of course.

Divemedic said...

You are confusing terms. Deficit is the annual shortfall. Debt is the total amount we have borrowed.

WhatIfWeAllCared? said...

So, from where I sit, I do wonder . . all these countries we owe . . When they finally come to collect .. and we can't pay up . . . Then they collect by dividing the US amoungst themselves to cover our debt . .
Well, although, IMHO, conceivably possible . .not something politicians are willing to discuss . . it would make a great movie . .
Your thoughts??!