Reuters is joining a chorus of voices calling for caution as they look ahead to what they anticipate being a wave of municipal bankruptcies across the United States in the coming years.
While early defaults can often be blamed at a single or small series of poor investments (such as overspending during the glut years on ambitious projects and construction), the next and larger round of defaults may come from systematic failures and short-sighted financial decisions made over the long term. While pensions are not the only problem area included in this category, it is certainly featuring prominently across the country.
In Chicago, for instance, Mayor Rahm Emmanuel warned that if government worker pensions are not adjusted, property taxes would have to be increased by 150% to cover the cost. In New York, one of the wealthiest counties in the state faced a shortfall of capital and liquidity after they discovered a three-year shortfall of $530 million. They have declared a fiscal emergency.
In California, the cases of Stockton, Mammoth Lakes, and Fresno are well known and well covered. However, Reuters also includes the rising crisis in San Francisco, Los Angeles, Monrovia, and Pomona as other cities that could soon face the prospect of insolvency.
America’s swelling ranks of fallen municipal borrowers have been blamed in the past year on ‘what-were-they-thinking’ causes, be it a Taj Mahal sewer system in Alabama or an overpriced trash incinerator in Pennsylvania’s capital city of Harrisburg.
But the next series of major cities and counties in danger of defaulting on their debt can hardly point to one single decision for their malaise. Whether it be Detroit, Miami or Providence, Rhode Island, their problems have a lot more to do with financial policies that put them on course to live well beyond their means.
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