Tin-Cup Urbanism

Tin-Cup Urbanism

Two articles today about the looming municipal bankruptcy problem: Steve Malanga at Real Clear Politics, and yesterday's Washington Examiner OpEd. Malanga reports:

A recent study of the 77 largest municipal pension systems by finance professors Joshua Rauh of Northwestern University's Kellogg School and Robert Novy-Marx of the University of Rochester estimates that total unfunded liabilities of America's municipal pension systems is well north of half a trillion dollars. On a per capita basis, the professors estimated that each household in the 50 largest cities and counties they studied owes an average of $14,165 for future retiree liabilities. . . .
The city with the highest per household unfunded liability in the nation is Chicago, $41,966 per household, or $45 billion in total obligations. Illinois, meanwhile, is the state with among the most troubled pension systems, with about $285 billion in unfunded liabilities. "Even if all other spending was shut down, the city of Chicago would need to allocate about eight years of dedicated tax revenues to cover pension promises it has already made," the study by Rauh and Novy-Marx estimates. Meanwhile, Illinois' pension obligations amount to seven times annual state tax collections.

California is in particularly bad shape. San Francisco and Los Angeles are among the places with the greatest liabilities among cities, amounting to $34,940 and $18,643 per household, respectively. Their combined pension debt of $33 billion is in addition to some $600 billion in Golden State unfunded liabilities. Also on the watch list from California are a host of other cities and counties, including Contra Costa County, Santa Barbara County and the city of San Jose. Los Angeles County, which runs many municipal functions in addition to those of the city of Los Angeles, has its own woes with a staggering $27 billion in unfunded liabilities. . . .

The cost of funding retirement benefits for New York City employees . . . has increased from $1.5 billion in 2000 to some $7 billion today, out of a city-funded budget of $44 billion.
The Examiner editorial blames the problem on cities' addiction to the federal teat:
Growing dependency on federal solutions to local problems has almost always stifled innovation. "Tin-cup urbanism," as it came to be known, removed the ability of citizens to control the fates of their own communities, leading to ineffective governance and increased crime.
Sometimes the only solution to excessive debt is for the people with money to stop lending. Nationally and individually, maybe we should quit investing in munis despite the tax breaks that are specifically designed to keep that funding pipeline wide open. At the very least, it would be a sign of sanity if investors quit buying munis issued by insanely over-leveraged cities like San Francisco and New York. Locally, residents of cities will have to elect public servants who are committed to living within the means that their local taxpayers are able and willing to pay. Cities are going to have to cut up their credit cards.

No comments: