Posted on 01/17/2016 10:47:05 AM PST by MtnClimber
As Wilbur Ross so eloquently noted, for Puerto Rico "it's the end of the beginning... and the beginning of the end," as he explained "Puerto Rico is the US version of Greece." However, as JPMorgan explains, for some states the pain is really just beginning as Municipal bond risk will only become more important over time, as assets of some severely underfunded plans are gradually depleted.
But, as JPMorgan details, Muni risk is on the rise for US states, but broad generalizations do not apply (in other words, these five states are 'screwed')...
The direct indebtedness of US states (excluding revenue bonds) is $500 billion. However, bonds are just one part of the picture: states have another trillion in future obligations related to pension and retiree healthcare. In the summer of 2014, we conducted a deep-dive analysis of US states, incorporating bonds, pension obligations and retiree healthcare obligations. After reviewing over 300 Comprehensive Annual Financial Reports from different states, we pulled together an assessment of each state's total debt service relative to its tax collections, incorporating the need to pay down underfunded pension and retiree healthcare obligations.
While there are five states with significant challenges (Illinois, Connecticut, Hawaii, New Jersey, and Kentucky) , the majority of states have debt service-to-revenue ratios that are more manageable.
(Excerpt) Read more at zerohedge.com ...
Debt is slavery.
Here comes the bailout.
All 5 are blue states. Kentucky equals mcconnel equals blue state..okay, that might be a stretch but its close enough.
I was surprised California was not in the top 5.
Surprised that Nueva Yorke, er, New York wasn’t listed.
Yes, I am surprised the communists have not run Nuevo Yorkita into the dirt yet.
Sorry to read Kentucky in the list, they are from American self sufficiency, I hope they didn’t lose too much of it.
California is working overtime to get into the “exclusive” club of soon-to-fail states.
What happens to a state in the United States if it does become bankrupt? Can they then be invited out of the Federal Union?
Or is this a “too big to fail” thing?
Wonder where the scratch to prop up the hut is coming from.
(Embezzlement and laundered money.)
The war on coal was a war on KY and WV.
Eastern KY is very poor, and with the loss of coal employment getting poorer. A whole lot of public assistance.
How in the Hell is PR broke? It’s an island tropical paradise. Go get some investors and loosen the taxes and regs, sheesh.
It was, and that had slipped my mind, presently.
PR votes for democRATs. Enough said.
Surprised NY isn’t there. This state is run by buffoons!
‘Eastern KY is very poor, and with the loss of coal employment getting poorer. A whole lot of public assistance.”
This was true when coal was selling well. It takes far, far fewer people to do coal mining per ton than it once did. And out west, even less. With no infrastructure to speak of, there simply is no reason to open a business or live there. Sad, but true.
I’d say that Illinois’ problems are worse then they look, because people are simply leaving the state. And the people who are leaving are being replaced (somewhat) by people who earn much less. This is not helpful to any plan to get out of the mess.
Some pretty country, and cheap land. Those are reasons to live there. Neither of them help the locals much, though.
“What happens to a state in the United States if it does become bankrupt?”
That’s a great question. A partial answer is that it shows up as a cash flow failure. The available funds in the state treasury become insufficient to pay current obligations, which means paychecks and other regular payments. The state employees have to wait for paychecks as there would probably, at first, be delays in payments. This is where the feds come in and provide loans to cover shortfalls (I am guessing this is what would happen). It would probably take a long time to balance revenues to payments again. New projects might not be proposed. Hiring freezes would become policy in state agencies. Road repairs on state roads would be reduced or stopped. If there are state bonds, payments might be delayed and the value of the bonds would drop as credit ratings dropped. If this situation persisted, defaults on bonds could occur. Schools could be consolidated (as is frequently proposed in places like NYS now).
These things could be avoided, of course, by reducing spending now, but the politicians in office now have no incentive to do that because voters don’t blame them for future economic problems that won’t occur for years to come. However, the current politicians are responsible because they are the ones spending and promising more gifts to current voters.
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