U.S. is Going Bankrupt One City at a Time

By Alan Caruba

Time to start watching U.S. cities go bankrupt. Prior to Detroit, there was Stockton, California, and, according to Stephen Moore, now the chief economist with the Heritage Foundation, there are more than sixty of the largest cities that “are plagued with the same kinds of retirement legacy costs that sent Detroit in Chapter 9 bankruptcy” last year.

“Keep an eye on ‘too big to fail’ cities like Chicago, Philadelphia, and New York,” he warned. Among the twenty cities he listed in an August 2013 Newsmax article, he cited Compton and Oakland, CA, Harrisburg, PA, and Providence, RI. What these and other cities have in common is that “the vast majority are located in states with forced unions, non-right-to-work states.”

As Steve Stanek, a research fellow with the Heartland Institute, reported, when a federal judge, Stephen Rhodes, cleared the way for Detroit’s bankruptcy filing, in December, the American Federation of State, County, and Municipal Employees (AFCCME) immediately filed a notice of appeal, but Detroit has more than 100,000 creditors. As its emergency financial manager, Kevyn Orr, said, “The reality is the city has no cash on hand to pay the magnitude of the debt we have, which is $12 billion--$5.7 billion of which has to do with health care obligations, $3.5 billion has to do with pensions, and $2 billion has to do with bondholders.”

At the time it declared bankruptcy, Detroit had 47 different public employee unions. The Detroit Water & Sewer Department had a farrier (a horse-shoer) who received $56,000 in pay and benefits every year even though the city had no horses in the department.

As Moore points out, “For at least the last 20 years major U.S. cities have been playgrounds for left-wing experiments—high taxes on the rich; sanctuaries for illegal immigrants; super-minimum wage rules; strict gun-control laws; regulations and paperwork that makes it onerous o open a business or develop on your own property; crony capitalism with contracts going to political donors and friends; and failing schools ruled by teacher unions, with little competition or productivity.”

The legacy costs of pensions and health benefits to retired teachers and municipal retirees force “city managers and mayors are forced to lay off firefighters, police and teachers. Detroit,” Moore noted, “has three retired city workers collecting a pension for every two currently working.”

Recently published, “The Great Withdrawal” by Craig R. Smith with Lowell Ponte examines the damage that progressive programs and policies have done to cities and to the nation. A nation with a $17 trillion debt who’s President has only one answer, raise the debt limit, will encounter a financial Armageddon if the spending and borrowing is not sharply curtailed.

Craig and Ponte point to 1913 as the year progressive, collectivist ideas “took control of the United States government and began a ‘fundamental transformation’ of our economy, politics, culture and beliefs that continues today.”

Citing Detroit as an example of the result of liberal, progressive policies, Smith said that “by 2013 (it) had become a war zone of urban strife, poverty, decay and government profligacy.”

Recall that President Obama claimed he had “saved” General Motors and Chrysler with bailouts that cost taxpayers “at least $25 billion that will never be paid back. At least a billion of these tax dollars went to improve GM facilities in Brazil, and at least $550 million went to GM facilities in Mexico.” Chrysler is now owned by the Italian automaker, Fiat.

Bond holders are major investors in cities and corporations, but the GM bailout denied payment to secured bondholders and redistributed their rightful share to the United Auto Workers. “As a result, today’s bonds are viewed as an investment with uncertain risk,” says Smith. In 2013, investors withdrew $80 billion from bond funds.”

As Smith points out, “The progressive method of operation was, and is, that when the economy is good, they raise taxes and expand government. When the economic cycle turns negative, the politicians blame others, refuse to reduce government—and, increasingly, use the bad economy as a reason for expanding government and spending even more.”

This describes what President has been doing since first elected in 2008. For the entirety of his first term, he blamed everything on President George W. Bush.

“Put simply,” says Smith, “most progressive cities are welfare city-states in which a large percentage of the population lives on government money, either as government dependents or government employees.”  This description fits the nation as well.

How bad are the present times? “27 percent of Americans have no savings at all, 46 percent have savings of less than $800, and 76% of Americans now live paycheck to paycheck.”

With the passage and implementation of the Affordable Care Act—Obamacare—the Congressional Budget Office released a report predicting that, over the next decade, it will cost the nation about 2.3 million jobs and contribute to a $1 trillion increase in projected deficits.

Hans Bader, a senior attorney at the Competitive Enterprise Institute, notes that it contains massive marriage penalties that discriminate against married people, huge work disincentives for some older workers, has slashed hiring, cut economic growth, and induced employers to replace full-time workers with part-time employees. In the process, millions have seen their healthcare policies canceled or replaced with policies with higher premiums and deductibles.

There are already 92 million Americans who are unemployed or ceased looking for work. There are 47 million on food stamps.

The ultimate progressive, President Obama, is impoverishing millions of Americans. Unlike Detroit, America cannot declare bankruptcy. It can only collapse if voters do not replace those Senators and Representatives that voted for Obamacare and who refuse to take the steps to reduce government spending and borrowing. We have three years in which to survive Obama.

© Alan Caruba, 2014