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Why your city will be the next to go bankrupt

By Catholic Online (NEWS CONSORTIUM)
October 22nd, 2012
Catholic Online (www.catholic.org)

Cities across the nation remain in distress, despite the supposed recovery that should be reversing the tide of municipal cuts and bankruptcies. Earlier this year, three California municipalities declared bankruptcy, and have suffered an exodus talent as those who can leave do so, seeking places that can pay them. 

STOCKTON, CA (Catholic Online) - The California bankruptcies, and those looming across the nation, have not been caused by mismanagement or corruption, but rather by the collapse of the housing market. As property values dropped and people lost homes, so went tax revenues. 

Without taxes collected from property, cities have been forced to try and make up what they can with local tax increases. These, of course, have been wildly unpopular. A more popular choice with people, but terrible for local government employees, have been the systematic cuts across the board to local government.

Layoffs, attrition, and pay freezes have just been the start. Local governments are having to make do with aging infrastructure and material, reducing efficiency. This while pay-frozen workers must do the work of their laid-off or retired co-workers who are not being replaced. 

The end result is that municipal governments across the country are ill, and doing worse. 

The situation is unlikely to change until people become willing to pay more taxes or the economy improves to the point people can afford homes again. 

There are some signs of hope, but they're faint. According to trends, people are returning to work, but the pace of this recovery is slow. Also, housing prices seem to have bottomed out and are making a slow increase. Both of these factors are good for cash-strapped municipal governments, but neither development is enough to reverse the steady decay of municipal government. 

The end result is bankruptcy for some cities. A tough decision that tends to encourage even more exodus. In some places, such as Scranton, Pennsylvania, workers have seen their pay cut to minimum wage. Such pay cuts often include police and fire staff. For many of these people, a few months at minimum wage can spell financial ruin as vehicles and homes are eventually lost. Many quit their jobs and move elsewhere rather than endure the humiliation of personal bankruptcy - who wouldn't? 

Talented people who can leave for wealthier communities, do so. Police officers, doctors, even teachers, move if they are able. Nobody wants to work without hope of a pay raise or to live in fear of a layoff or pension cut. 

Ultimately, neither the Obama administration, nor a proposed Romney administration is likely to do anything either. Romney has already advocated allowing the foreclosure process to "run its course" which helps nobody in the short-term but investors. Meanwhile, Obama has done all he can, or is going to do, which has not done much to stave off municipal bankruptcies. 

Unless the economy sees broad, substantial growth in the next year, municipal bankruptcies are likely to increase across the nation. 


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