Municipal Bankruptcy: Declining Wages and Workforce Point to MORE Bankruptcies

Confounded Interest ^ | 09/29/2012 | Anthony B. Sanders

[whitedog57]

The latest California community to face bankruptcy is Atwater, just down the Golden State Highway from Modesto and next to Merced. Atwater, like its neighbors Modesto and Merced, are still reeling from the crash of the housing market where prices have fallen about 70% from their peak. And unemployment rates are roughly twice the national average.

Since I don’t have the house price indices for Modesto, Merced and Atwater, I will use the Case-Shiller Las Vegas house price index as a proxy.

Like many communities during the housing bubble, expenditures were made based on increased property tax revenue. When the housing bubble burst with a vengeance, the expenditures (buildings, salaries and pensions) remained and the revenues plunged leaving these communities with a fiscal nightmare.

Can these communities be salvaged? Of course, either new revenues have to be raised (taxes), budgets cuts (workforce and pensions) or a combination of both.

But let us examine two daunting charts at the US level indicating that other communities may be headed for bankruptcy.

First, wages as a percentage of GDP has been falling since 1970. This does not bode well for supporting community budgets since housing recovery will be slowed by lower wage income.

Second, the civilian employment to population ratio has fallen to levels not seen since the Carter recessions of late 1970s and early 1980s. And they are not improving. This means that more and more people are relying on taxpaypers.

Third, last week’s durable goods orders collapse was bad news for Q3 GDP. Collapses in consumer goods orders are associated with recessions.

The macro numbers for wages, employment and durable good production indicate that many communities will far further into fiscal trouble.

At least house prices have seemingly stabilized in much of the country which is good news for communities.

[whitedog57]

Bleak macro numbers do point to more trouble if communities can't get their spending and pensions under control.

[SkyPilot]

Can these communities be salvaged? Of course, either new revenues have to be raised (taxes), budgets cuts (workforce and pensions) or a combination of both.

California must enact the following in order to survive (but they refuse):

1. Vastly reform welfare, education, and medical payments to illegal; the state must work with the new Romney administration to deport illegals, and to stop paying every bill for the children of illegals

2. Reform overly generous state pensions; these were promises made to unions that were not even realistic when they were made during the "good times" - they are absolutely null and void today given economic realities

[Uncle Chip]

Pretty soon there will be no police and fire and other public services and all the tax money will just go to CalPERS.

[marsh2]

Our total County budget went from $139 million to $118 million in one year. That is after we have already laid off 25% of our workforce in prior years. The state has got to realize it can’t keep devolving responsibilities like new prisoners back to the counties without new revenues. The state can’t balance its budget on the backs of Counties or they will begin to buckle.

[Uncle Chip]

Question4U: Who do residents write their property tax checks out to: the County or the State of California???

[marsh2]

The County, but it is required to disperse the vast majority of it it to the school and special districts.The County gets about 21% of it for General Fund Services. The General Fund did not decrease. It stayed almost the same (slightly less.) It was the state/federal programs (public health, human services, behavioral health,) the road dept. and transportation that declined.