Which American Governments are Bankrupt and Why

I was reading "Nine American Cities Going Broke," and noticed similarities between the cities in the most financial trouble. Many of them simply forgot their core functions and decided to go into projects like redevelopment and stadium building. These are "grand" projects that appeal to the egos of petty politicians, but for the most part, they do little good for, and much harm to, the taxpayers. Next, you have simple corruption and finally you have politicians buying the support of city workers by offering overly-generous pension schemes.

You may remember Vallejo, CA., actually filed bankruptcy as a result of the extreme pension costs for city workers, especially those given to unionized fire fighters. The city politicians, always wanting to be on the good side of the unions, caved in repeatedly. For years the taxpayers were able to cover the costs of buying political support from the unions, but long term it was unsustainable.

The nine cities listed are those "with the worst credit ratings assigned by Moody's." Here are the worst nine cities in from least bankrupt to most bankrupt.

#9 Camden, NJ. A very corrupt political system meant that three of the last five mayors ended up in prison for corruption. For some odd reason more than half the property in the city is tax exempt meaning taxes are imposed on the remainder. The city, not the school system, got over $1 billion in state aid in the last decade and is still going bankrupt. The state took over managing the finances and spending actually sky-rocketed while tax revenues plummeted. And in 2010 the state paid 80% of the costs of the city to stay afloat.

The city gave tax exemptions to a for-profit aquarium as well as to the a high-rent apartment complex. And greedy trade unions used their political clout to push through high pensions for police and fire fighters. Fringe benefits for those two departments doubled since 2001 after being adjusted for inflation. The city now pays out 28% of its budget in fringe benefits to these greedy city employees who use the clout of unions to their own selfish benefit.

Even while they are going bankrupt the unions increased their clout by getting more members hired. Full time city employees went from 1,131 in 2001 to 1,562. And the police department is 20% larger than the average for a city this size while there are 17% more firefighters than in other similar cities.

#8 Strafford County, NH. The main problem here is that the county went into the business of running a nursing home. And it is losing millions per year. About 40% of the entire country budget goes into this one nursing home. Most the patients are Medicaid patients and the country is finding that the reimbursements from Medicaid simply don't come close to paying the actual costs. This is a problem all health care providers face: government health care refuses to pay the actual costs of health care and this forces up prices for private patients. It is one way that government health care can pretend to cost less, while forcing up the cost of health care for everyone else, and then blaming the higher costs on private health care providers.

#7 Riverdale, IL. The main problem here just seems to be bad budgeting with the village consistently spending more than it takes in.

#6 Salem, NJ. The city decided to get into the office building field by guaranteeing bonds issued to construct the complex. Politicians said they could pay the bonds from revenue from leasing office space. But construction delays, a common thing in government run projects, meant they were paying out with no revenue coming in. Government officials tend to make bad investments like this all the time. They all dream of being the one credited with "revitalizing" the city, or having some grand project attributed to them. They are much more careful when they invest their own funds. But politicians are used to playing with other people's money.

#5 Detroit, MI. Trouble here is long term and tied to the heavily unionized auto industry which continued to push up costs for employers. General Motors and Chrysler both declared bankruptcy which substantially hurt the city. In addition the city was never well run to begin with. The net result is that debts are more than double the annual tax income for the city.

#4 Harrison, NJ. The city got involved heavily in redevelopment and spent $39 million to build a stadium. The income from the stadium, however, is well below what the politicians pretended it would be when they pushed it through. The stadium is one massive subsidy to the privately-owned New York Red Bulls, a soccer team. Bloomberg reports:

Town officials in December had to borrow $3.1 million -- 21 percent of its municipal tax collections -- to make the debt payment on the 2006 issue, and they anticipate doing so again this December, Moody’s said.

Meanwhile, the New York Red Bulls, whose owner is No. 208 on Forbes magazine’s list of the world’s billionaires, are challenging their taxable status. The team refuses to pay a $1.4 million property levy, according to Moody’s.

To close its $6 million budget gap, Harrison plans to dismiss 17 percent of its police and 29 percent of its firefighters on July 1, according to an e-mail from Town Clerk Paul Zarbetski. Mayor Raymond McDonough is also considering selling seven parking lots.

The city claimed that payments from developers would go from $2.3 million in 2008 to $11.5 million by 2011. But, in 2009 they only received $980,000 and $1.1 million in 2010 and 2011, just 10% of what they projected. The soccer team's managing director says the team shouldn't pay taxes since just being there "is a huge economic impact." Of course, it was an even huger economic cost.

#3 Jefferson County, AL. The county is in deep shit, literally and figuratively. It's 2o09 debt was $1,337,233,000 while revenue was only $308,440,000. The county decided to spend $3.2 billion on sewer overhauls. But numerous officials ended up in jail due to corruption connected to the project.

#2 Pontiac, MI. Here is another city hurt by the bankruptcy of union-riddled General Motors. But there was another stadium project involved as well: Silverdome Stadium. Built in 1975 it cost the city $55.7 million. The purpose was to "lure" the Detroit Lions to the stadium by given the wealthy owners a huge subsidy. They moved and stayed until they got a better handout leaving Pontiac holding a white elephant. The Jehovahs Witnesses rented it once a year for their annual get-together and a drive-in theater was opened up in the parking lot. The city decided to get rid of the stadium and asked for bids. In 2008 an offer of $18 million was made. The buyers were planning to turn the stadium into an entertainment complex. The city refused the offer and put it out to auction. Instead of getting $18 million the stadium was then sold for $550,000 in 2009. Brilliant!

#1 Central Falls, RI. Central Falls declared bankruptcy in August of this year. The reason was mostly due to the pension plans for city workers. The city owes $80 million in retirement benefits, which is equal to five years worth of the entire city budget. Once again it was the greedy unions redistributing wealth to fire fighters and police officers. The $80 million in retirement promises is for just 215 cops and firemen. The city has around 20,000 residents. The New York Times reports that Central Falls "is small and poor, but over the years it has promised police officers and firefighters retirement benefits like those offered in big, rich states like California and New York." (I don't know about New York, but big, rich California is in financial trouble as well and once again greedy unions have pushed through massive pension promises for union members.)

State regulations are also to blame here. State law favors unions and forces cities into binding arbitration. The law says that benefits are to be based on comparable benefits across the entire state and has to ignore the city's ability to pay. The result is that each time a city is forced into paying higher benefits the "comparable average" for the state increases forcing each other city to increase their benefits during the next union hold-up (I mean negotiation). Of course, as those benefits go up then the other cities are now lagging behind and have to catch up again. And so it goes in perpetuity. The Times report this means Rhode Island has "the nation's highest per capita spending for fire services and sixth-highest for policing." The law does not apply to other government employees but the teacher's unions are now pushing for a similar law to inflate the pay of teachers.

Foster care, bigots and the rights of kids.

I happen to believe that rights, properly understood, do not conflict but state involvement usually creates conflicts, where none previously existed.

For instance, I do not dispute the right of bigoted parents to teach bigotry to their children. We are, after all, dealing with their children, who are being raised with their own resources.

But, what about adoption? Well, if the adoption agency is private then they have a right to screen out parents who are bigots. Or, if they are bigoted themselves, to screen out tolerants. These private agencies would also, in my view, have the right to discriminate against gay parents, or fundamentalist parents, or simply parents who are too damn cheerful.

Then we come to cases like that of the Pentecostal couple in the United Kingdom who wanted to foster children. It is a case that has the Right in an uproar, and as is so typical for them, they often distort the facts or pretend the case was about something other than what it really is about.

In this case Owen and Eunice Johns, an elderly fundamentalist couple, wanted to foster children for the Derby City Council. The couple are anti-gay and said they would teach anti-gay views to children in their care. The council, which would pay them to care for the children, decided not to use them.

Of course, the Religious Right immediately lied. The Catholic New Service claimed “Christian beliefs can keep couple from being caregivers.” No, that’s not exactly true. Apparently there is the virgin birth, the divinity of Christ, the Trinity, the atonement and “God-hates-fags” all in the same Apostle’s Creed. Of course, anti-gay attitudes are not a Christian doctrine, it is a view held by some Christians but until recently very few churches made it part of their doctrines and almost none, even today, include being anti-gay as an article of faith.

Now take a second to consider the fostering system. The Jones would effectively be agents of the state, paid by the state to care for children who are current wards of the state. That is how it is, like it or not.

Should taxpayers subsidize fundamentalist parents who will use the money they received to preach anti-gay views to children, who are not their own. In this case neither the children, nor the resources being used, actually belong to the couple in question.

Turn the issue around and I think it becomes clear. Consider a couple of gay atheists who wish to foster. What if they taught children that Christians were evil and wicked and dangerous to society? Should they be funded with the tax monies of Christians? No. So neither should the Johns be on the list of approved foster parents.

The Johns and their supporters are screaming that their “right” to be Christians is being violated. But they are still free to believe anything they want, go to church as much as they want, pretend they speak in tongues, hop around wildly in church and claim to be under the “Spirit” and all the things Pentecostals like to do. They can argue the finer points of Dispensationalism and faith healing until the cows come home. All their natural rights as Christians are intact.

What is different, however, is that the state is not willing to fund them to teach bigotry to children who are wards of the state. I think an atheist foster parent would have the right to teach there is no god, and a Christian foster parent has the right to teach there is a god. But neither should be given access to state funds to teach kids to hate the other. The Johns were not denied foster funding because they were teaching the doctrines of Christianity but because they said they would teach kids that homosexuals are evil and sinful.

Ideally all child care should be private. Given that it isn’t, and the state is involved, then the state should be neutral. And, like it or not, foster parents are basically agents of the state, funded with taxpayer money.

Remove the government funding and the issue changes significantly. I would strongly oppose any effort to prevent the Johns from fostering children if the children came to them through private agencies and the costs of fostering were paid for by the couple themselves or through voluntary donations.

I would say the same thing for a racist couple. Consider how the Johns, who are black, would feel if they had funds taken from them by government in order to pay members of the British National Party to raise wards of the state and teach them black people are a threat to White Christian civilization. While I doubt they would want to take the natural children of White Nationalists away from them, they would have a problem if the state were to subsidize the racist teachings and hand over the children for the bigots to indoctrinate.

The Johns said: “Being a Christian is not a crime and should not stop us from raising children.” Well, the issue is not whether they can raise children. No one is stopping people from having children. The issue is whether or not they should receive tax funds to do so. The Johns could go to private care facilities for children and offer to care for children. If they weren’t well past child-bearing age no one would castrate Mr. Johns or tie Mrs Johns’ tubes. They would still be free to raise children.

What it adds up to is this: the right to raise children was not denied, the privilege to care for wards of the state, using state funds was denied. But that is not a right. Their right to believe their own faith is safe and secure. But the access to government funds to teach hatred, in the name of that faith, to children who are not their own, is not secure.

I would prefer to see a world where the state is out of the foster care business. That would solve such messes completely. Given the reality that the state is involved, and that real children are involved, then the State has to make decisions as to who should or should not be given tax funds to care for state wards. I think the state should be broadly tolerant of people to teach their own views about life but similarly see the state having an obligation not to subject children to bigotry with state funds.

There is another angle here, that of the children. We know a White Supremacist couple won’t foster a black baby, or is highly unlikely to do so. So a black child is unlikely to be taught, with government money, to hate himself. But what about the child who turns out to be gay? That is a a very different matter.

While many parents will tell you they knew their child was gay from a very early age, many other parents never had a clue. A certain percentage of children in state care are gay, or will become gay. They may not be openly gay, or even come to understand it themselves at this time. But that they exist is unavoidable.

Assume that one in 20 children will mature to be gay adults. The child who ends up in the foster system is usually an innocent victim of adult failures. He is there because his natural mother and father screwed up in a major way. Given that there is no way to determine which of the 20 children will be the gay one shouldn’t the State avoid putting any of the children in a home that will teach gay hatred. In 19 of the 20 cases it teaches bigotry to children. But in 1 of those cases it teaches a child to hate himself.

I can’t forget the case of Bobby Griffith. Bobby was raised by fundamentalist parents and taught that being gay was evil and immoral. As Bobby’s mother, Mary, will admit, this directly contributed to Bobby taking his own life. There is nothing the state can do, or should do, to prevent bigoted parents from raising their own children, with their own funds, unless clear abuse is apparent. But given that the state cannot separate the gay kids from the non-gay kids, and given that the state is effectively hiring foster parents to care for these kids, it should, at the very least, avoid putting gay kinds into homes that teach self-hatred.

It is easy to prevent black children from going to the home of whit. But with gay children the “gayness” is not always easy to spot—even if multiple myths exist to the contrary. Yes, sometimes people know. I knew a nephew was gay when he was ten. I didn’t tell him that, but I did tell other family members. He came out at 18. I once had a conversation with a friend’s younger brother and that lasted all of one minute, on the phone. I told my friend I suspected his brother was gay. My friend, who was gay, was shocked and thought I was nuts, until he stumbled across his brother, several years later, marching in the gay pride parade. But much of the time you can’t know.

The state would have an obligation to prevent gay children under their care from being put into anti-gay homes, in order to protect them. Given that it cannot be sure which children are gay, then the only way to carry out this duty is to deny foster status and funds to individuals who would be anti-gay.

The case is a difficult one but I think the court ruling in the United Kingdom was the right one.

Rob the poor to subsidize the wealthy.

The New York Times has a piece on how spiralling petrol prices are sending some commuters to government mass transit programs. What it inadvertently does is also show us what is the problem with such mass transit programs.

Basically the argument is that mass transit “are seeing standing-room only crowds”. One transit bureaucrat brags: “In almost every transit system I talk to, we’re seeing very high rates of growth in the last few months.”

Old transit systems see only a minor increase, perhaps 5 percent. But the new systems that are seeing larger increases.

Here in Denver, for example, ridership was up 8 percent in the first three months of the year compared with last year, despite a fare increase in January and a slowing economy, which usually means fewer commuters. Several routes on the system have reached capacity, particularly at rush hour, for the first time.

The paper notes that all around the country the high petrol prices are pushing up ridership.

So how does this expose the problem?

Even with large increases in riders these systems are losing money every day. The paper notes: “Typically, mass transit systems rely on fares to cover about a third of their costs, so they depend on sales taxes and other government funding.”

In other words one third of the actual cost of riding mass transit is paid by the commuter and the other two-thirds is paid by people who don’t commute. And even with increases in ridership some services are seeing shortfalls increase.

The reason for the increase is that rely on taxes to pay the bill. And in some places tax revenue is falling due to the economic slowdown.

But think about the system of subsidies and taxes. And think about the typical system of transit.

I think San Francisco is fairly typical and I know the system fairly well so I will use it as an example. The Bay Area Rapid Transit system basically is a series of train lines that run from the bedroom communities to the financial district of San Francisco. Of course, along the way they run through other areas. But the feed is to and from the financial district. Similarly the Loop in Chicago is the center of interest for mass transit.

I rode the trains to Chicago when I worked at the Merchandise Mart building and lived in the suburbs. So I know that system as well. And here is what I know. Commuters on these lines often held fairly well paying jobs in the city centers. Let us give an example that the New York Times uses.

“Michael Brewer, an accountant who had always driven the 36-mile trip to downtown Houston from the suburb of West Belford, said he had been thinking about switching to the bus for the last two years. The final straw came when he put $100 of gas into his Pontiac over four days a couple of weeks ago.”

An accountant can easily between $40,000 and $50,000 per year. Of course many of the people commuting to the financial districts of the various cities earn a lot more than that.

Here is the question. If the transits systems only charge commuters one-third of the actual cost who pays the other two-thirds? And how does the earning power of the taxpayers compare with that of the recipients of government generosity?

One of the great secrets of the American political system of redistribution of wealth that the political process tends to redistribute wealth up the ladder not down.

When I commuted in Chicago my commute was subsidized. I rode in from the well-to-do suburbs with lots of people who were earning a hell of lot more money than I did. At that time the gas tax was used to help subsidize the mass transit system. And what studies found was that those commuters who drove to work, and hence paid the subsidies, earned far less than those commuters who used mass transit. Working class people subsidize the comfortable train rides of workers from the financial district.

And the subsidies are very generous indeed. The Department of Transportation looked at subsidies and taxes in transit over a twelve year period (1990 to 2002) and found that mass transit commuters received subsidies of $118 per 1,000 passenger miles. For every 1,000 passenger miles of automobile commuters they lost money. That is the services they received were less than what they paid for in taxes.

The Times article says that the favorite way of funding such subsidies are sales taxes. Yet sales taxes are very regressive and impact the living standard of poor people far more than it does wealthy people. I am not saying that there are no poor people who benefit from such systems. Obviously some do. But the systems primarily feed wealth suburbanites to good-paying jobs in the city center and home again.

Where did he lower-income workers go? It usually isn’t the city center or financial districts. The factories, plants, steel mills and the like are not well served by mass transit. My grandparents lived near the steel mill because that was why my grandfather could get to work.

Certainly in the large cities one can take mass transit to almost any part of the city -- if you have a lot of patience and time. Take BART again as an example. I can catch a train to the city, during the day, within 15 minutes of arriving at the station, at the worst. I’m guaranteed a seat as well. By the time it gets to the poorer areas there simply are no seats and it is standing room only. At most I have a very short wait and a comfortable ride. But I also lived in the city itself at one point and there were times when I had to go to the poor areas of the city. One business I dealt with had a warehouse in the poorest area of the city. Transit to the warehouse was almost non-existent.

Typically as you move to the less wealth areas of the city the number of transfers one has to take increases. Instead of waiting 5 or 10 minutes for a comfortable train, in a protected station, these commuters stand on the corner, exposed to rain, snow and any foul weather and they wait. They can wait up to 30 minutes for a bus to arrive which then takes them to another bus stop where they often have to repeat the process with another bus.

As one who took buses frequently when I lived in the city I also know that frequently I ended up walking. Even knowing the bus schedule didn’t help. Too often the bus that was schedule for 10:15 just never showed. The people most inconvenienced by mass transit are the poorest people, the ones hurt most by the taxes used to subsidize the rides. They get the least amount of service in virtually all the systems.

Yet the poor continue to pay through sales taxes so that wealthy workers from the financial district have a comfortable ride to the city.

The poor end up driving. And they end up driving, when they can, because the service they get is unreliable. But if they need to be at work at 8:30 they can’t afford to have a bus show up 40 minutes late. I know that when I go over to the BART station for a ride that even if one train doesn’t show up when it is supposed to that another will be there within 15 minutes maximum. I also know that when the buses screw up it can delay someone as much as an hour. So what ends up a minor inconvenience for the wealthy becomes a major problem for the working poor.

Nor should we forget that in many areas the mass transit doesn’t service the areas where the working poor actually work. If I think back to Chicago the big mills and refineries that hired the average working sod were in places like the East Side (many people don’t know Chicago even had an East Side), Whiting, East Chicago, Hammond and Gary. But mass transit didn’t go there.

Generally when it comes to the State figure that the political process tends to reward wealth and influence. Poor people have no wealth and damn little influence. And that is why I argue that wealth and rights tend to get distributed up the wealth ladder and not down it. Poor people or the working poor tend to subsidize the middle classes and the middle classes tend to subsidize the wealthy.

In politics it is the Archer Daniels Midlands and Halliburtons who end up at the top of food chain. And when well-meaning reformers try to change the system by increasing State power what they end up doing is giving another means by which the poor are plundered to benefit the wealthy.

From the beginning liberals, by which I mean classical liberals, understood this. The great free market advocates of Richard Cobden and John Bright saw how government regulation was starving the poor and subsidizing the landed aristocracy of England. The first great working people’s movement was the one that pushed the repeal of the infamous Corn Laws and instituted free trade in grains. The net result was that the poor benefited and the rump of England’s feudal lords lost out.

Just move forward a few years from that to the Progressive Era in the United States and you will see example after example where the wealth special interest groups pushed for new regulations that limited competition. That guaranteed them profits and higher prices. Once again the poor ended up subsidizing the wealthy. But the wealthy had allies in that campaign -- so called “progressives” and “socialists” who foolishly believed that expanded State power meant the plutocracy would lose power. Yet the plutocrats have always thrived on the expansion of state power. It is by deregulation and limited state power that competition is encouraged and that hurts the old aristocracy and helps the poor.

If you assume that government is a Robin Hood that robs the poor to feed the rich you will be right more often than you are wrong. In the real world Robin Hood works for the Sheriff.

Everything is taxed and subsidized.

The bureaucrats in Brussels, the headquarters of the European Union, are just as anxious to micromanage the lives of others, and to dictate to them, as those in Washington. In other words the people in Brussels are just another version of George Bush -- that ought to upset both Bush and the EU-acrates. Admittedly the Europeans aren’t as likely to torture you but sometimes you’d wish they would as that might be an improvement over the constant Nannying and harassment.

EU bureaucrats spend millions per year to “educate” people. Now I think there is very little doubt that smoking is bad you. You really ought not do it.

The EU claims that “some 80,000 people a year in the EU” are killed by “passive smoking”. No source for that is listed. And from what I’ve seen it is very tenuous to claim that passive smoking is this dangerous. Suffice to say the EU is intent on making Europe smoking free.

Oddly the EU benefits from people smoking. Most EU countries are welfare states that are in deep trouble. They promise pensions to their citizens along with health care and can’t deliver on the promises without constantly raising taxes higher and higher. But by doing that they destroy jobs and create high unemployment requiring massive welfare benefits. And they end up on this downward spiral. Smokers actually offer them some relief. One is that they pay massive taxes for the “privilege” of being allowed, by their political masters, to smoke. The other is that smoking does, on average, shorten their lives and that benefits the welfare state’s bottom line. While there are increased health costs due to smoking the reduced life expectancy means they collect pensions for a shorter time than non smokers. The result tends to be a net gain for the welfare state.

While the EU spends train loads of money to make Europe smoke free it then spends more train loads of money to subsidize tobacco production.

In an exchange in the British parliament one House member asked the Secretary of State for Environment, Food and Rural Affairs “what subsidies are available at (a) EU and (b) national levels to producers of tobacco in the European Union?”

The answer was that: “The European Union adopted budget for tobacco premiums in 2006 was € 920 million...” That’s a lot of cash folks. But we are assured that these subsidies are tied to “a quota system” and that “any tobacco grown beyond quota will only fetch market prices and no premium.” Now don’t you feel better?

The first 350,600 tons of tobacco produced fetches the farmer market value plus extra money from the European Union. And then anything over that will “only fetch” market prices. Oh, those poor farmers! They only get paid above market prices for their tobacco on 350,600 tons. The subsidy to grow tobacco is about 20 times higher than the subsidy to grow grain. There are something like 135,000 people, in Europe, paid by the EU to grow tobacco. You’d think with all these subsidies they could grow decent farm produce in Europe -- but from what I see they can’t. Vegetables are awful in Europe and the meat quality is pretty low. I’ve concluded that one reason the French use so many sauces is to cover up the quality of the meat.

But then subsidies tend to lower the quality of one’s goods and ultimately make one less competititve and more likely to fail.

The EU-acrates will note that a good deal of the tobacco is exported, much of it to poor nations. So the EU subsidizes cancer for the world’s poor. How nice of them! Of course, because of the higher death rates, they also send foreign aid to these countries to try and reverse some of the effects of smoking. It appears that the EU subsidizes everything! But to even things out they also tax everything! And Europeans like to think Americans are stupid?