What is the probablity that your State Bankrupts?

[Zero]

Hoping the very interesting discussions state government issues on the Recovery Thread can be continued here.

I'll start.

My best friend from college is a muckity muck in the Seattle Public Library management. He participates in state budget issues. His last few contacts with me have been very depressing in terms of his outlook for the library.

He tells me that he is cutting back employees hours, totally freezing hiring, furloughing folks, closing the libraries for days at a time, cutting back in nearly every service, closing branches, charging for things such as Inter-Library Loans, and basically doing every fix that is palatable. And still falling way short of making the budget. He thinks he will be over budget well before the next budget. And it looks to be smaller still.

He is generally an optimist, so to hear his outlook makes me think we are in for some shocks in lots of states that have not surfaced yet.

 

[Steve O]

Illinois is in bad shape, here's a depressing article...

IllinoisIsBroke.com - Media

 

[Steve O]

BO is from here, I doubt he would let Illinois go bankrupt before he gets ran out of town in 2012 though...

By then we may be talking about what countries are broke...

Oh yea that's already happening, depressing aint it...

Believe me I do hope the optimists win here, but this state is so corrupt I just don't see it happening

 

[Zero]

BO is from here, I doubt he would let Illinois go bankrupt before he gets ran out of town in 2012 though...

By then we may be talking about what countries are broke...

Oh yea that's already happening, depressing aint it...

Believe me I do hope the optimists win here, but this state is so corrupt I just don't see it happening

I think Illinois may be the poster child for corruption going unchecked and I fear you are right about the state getting looked after.

If the tough choices were made and new hires into state jobs were given benefits that were manageable budget-wise, I think the quality of new hires would end up being the equivalent to current minimum wage qualifiers. The only attraction to a bureaucratic desk job is the cushy benefits currently in place for the government worker.

Probably one way to cut costs but maybe a bit late in the train wreck, but the current retiree benefits burden is a time bomb for all but a few states.

 

[Independent]

I'd guess that most state and local gov'ts could stay solvent by cutting wages, but that's extremely difficult. The good news is that we have so many local gov'ts that the worst can go under and that may clarify the choices for the other 99%. The bad news is that the federal gov't may decide to bail them out.

I don't follow the muni market. I wonder if prices of some bonds aren't partially dependent on buyers' estimates of a federal bailout. Maybe someone who does follow that market will comment.

 

[freebird5825]

I found this cheerful little gem about the state of NY State...
http://www.abetterchoiceforny.org/ways and means testimony.ppt#256,1,The Better Choice: Meeting New York State’s Economic Challenges with Fair Fiscal Policies Testimony to the Assembly Ways and Means Committee

The fiscal year described in the presentation is FY2009. The data in the charts is 4Q08 vintage.
The good news is I am way under the higher income levels that Albany is proposing to raise taxes on.
The bad news is state aid to schools will be severely cut, therefore my school taxes will increase. Same old, same old across the nation.
I already have that emergency fire door covered. Several years ago I identified a rapid increase in school/property taxes as 1 of the 2 biggest and completely uncontrollable Achilles' Heels in my FIRE plan. The other was runaway inflation.
The surplus money I might need to tap into in the near term (national TE muni bond fund) continues to compound interest every 30 days.
So far so good...

 

[freebird5825]

I'd guess that most state and local gov'ts could stay solvent by cutting wages, but that's extremely difficult. The good news is that we have so many local gov'ts that the worst can go under and that may clarify the choices for the other 99%. The bad news is that the federal gov't may decide to bail them out.

I don't follow the muni market. I wonder if prices of some bonds aren't partially dependent on buyers' estimates of a federal bailout. Maybe someone who does follow that market will comment.

Do a Google search on the phrase "Build America Bonds" (BABs), a newer type of
non-tax exempt municipal bond that appeared on the scene as a result of The American Recovery and Reinvestment Act of 2009.
I don't remember all the technical details right now, but I do recall that they were introduced as something states can use to raise capital and get some sort of partial federal "match".

Disclaimer: Don't quote me on any of this...it is a fuzzy recall of the terms of the BABs, at best.

UPDATE: And yes, Virginia, the IRS is involved.
Guidance from April 2009
http://www.irs.gov/newsroom/article/0,,id=206037,00.html
and their watchdog role as evidenced by some "live action" as of Feb 2010
http://www.businessweek.com/news/20...e-launches-review-of-build-america-bonds.html

 

[youbet]

I think Illinois may be the poster child for corruption going unchecked and I fear you are right about the state getting looked after.

Illinois politics is not more corrupt today than in decades past, the politicians are just dumber. They used to know how to skim generous perks for themselves and their friends and still deliver services to citizens. Today they can't figure out how to keep the machine oiled and it's off the tracks.

If the tough choices were made and new hires into state jobs were given benefits that were manageable budget-wise, I think the quality of new hires would end up being the equivalent to current minimum wage qualifiers.

History doesn't show this to be true. Demand for public sector jobs in Illinois is high and only the partronage system, directly or indirectly, is responsible for non-qualified employees being hired.

Probably one way to cut costs but maybe a bit late in the train wreck, but the current retiree benefits burden is a time bomb for all but a few states.

Yep. And Illinois has the worse public sector pension funding. It's going to get ugly.

 

[haha]

Hoping the very interesting discussions state government issues on the Recovery Thread can be continued here.

I'll start.

My best friend from college is a muckity muck in the Seattle Public Library management. He participates in state budget issues. His last few contacts with me have been very depressing in terms of his outlook for the library.

He tells me that he is cutting back employees hours, totally freezing hiring, furloughing folks, closing the libraries for days at a time, cutting back in nearly every service, closing branches, charging for things such as Inter-Library Loans, and basically doing every fix that is palatable. And still falling way short of making the budget. He thinks he will be over budget well before the next budget. And it looks to be smaller still.

He is generally an optimist, so to hear his outlook makes me think we are in for some shocks in lots of states that have not surfaced yet.

The library closures here in Seattle have had an unexpected benefit for me. As my library is one that is very heavily used, its hours have been increased, and some employees routed from other smaller libraries to here.

I would be willing to pay an annual user fee.

I also would like to say that in Seattle in particular, the library system has been on a huge building jag that in my opinion was largely unnecessary. The downtown monstrosity is truly a monument to hubris and stupidity. I detest even walking by the building, let alone going into it.

Even neighborhoods with low levels of library users (eg. Northgate) have huge fancy new buildings. Nice surroundings for the staff, but of no interest to the primary purpose of a library.

Eventually all these buildings, the good ones and the detestable, will be obsolete and replaced by Kindle type readers and electronic access. Then the street pople, ERs and people trying to get out of the rain will have to find another solution.

Ha

 

[Steve O]

We have a perfectly good library right down the street...

There's a new one 4 times the size going up right next to it

My property tax bill just keeps going up too

 

[freebird5825]

We have a perfectly good library right down the street...

There's a new one 4 times the size going up right next to it

My property tax bill just keeps going up too

I can beat that easily...the local high school kids in my district have ASTROTURF (and the associated high maintenance costs and liability issues for injuries) to play sports on.

Don't get me started...

 

[Zero]

I also would like to say that in Seattle in particular, the library system has been on a huge building jag that in my opinion was largely unnecessary. The downtown monstrosity is truly a monument to hubris and stupidity. I detest even walking by the building, let alone going into it.


Ha

I recall my friend saying how much the library folks themselves were opposed to the new central library building but that some state bureaucrats forced it thru. Not sure what the original looked like but he sent me some old B&W photos from the Depression and all the old wooden tables had row after row of men dressed in suits and ties. He said it was men out of work but too ashamed to tell the family, so they came to while away the hours.

BTW, he said it looks a bit like that now even.

 

[clifp]

The Pew Center on the states has two excellent reports
The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform

And
Beyond California: States in Fiscal Peril

I find it useful to express all of the individual numbers on per capita basis. So for instance Hawaii's almost 17 billion in unfunded pension and medical benefits is about $13,000 a piece.

 

[RonBoyd]

How, exactly, would a government entity the size of a State go Bankrupt. Would it stop paying its debts and have a special Court take over the operations? Would the Legislature be required the seek permission before voting or simply be declared null and void.

All in all, this doesn't seem such a bad thing, does it?

On the other hand, it could only invite a whole new infestation of Weasels.

 

[clifp]

How, exactly, would a government entity the size of a State go Bankrupt. Would it stop paying its debts and have a special Court take over the operations? Would the Legislature be required the seek permission before voting or simply be declared null and void.

All in all, this doesn't seem such a bad thing, does it?

On the other hand, it could only invite a whole new infestation of Weasels.

Great questions perhaps one of the lawyers with bankruptcy experience might want to hazard a guess.

Doing a bit of Googling. I see that in addition to Vallejo,CA which has been in bankruptcy for some time, we have Harrisburg capital of Pennsylvania filing now, and the pretty high visibility Las Vegas Monorail (complete with corney jokes) doing the same thing. This Bloomberg article is pretty good. To compound bond holders misery, the insurance companies backing the muni bonds are themselves out of money having lost their shirts, insuring credit default swap and structured investment vehicles.

I also have read that peak defaults for municipalities will probably be this spring and summer when tax revenues don't materialize and states like CA have to pay back they borrowed last year anticipating this years revenues.

About 18 months ago Buffett's Berkshire Hathaway was getting into the business of providing muni bond insurance. (Something which I was very enthused about, I am starting to be a contrary indicator ) Now Buffett, is saying that insuring Muni Bonds is a very dangerous business. Betting that Buffett is wrong on financial matters generally isn't wise.

 

[Steve O]

Don't worry Banana Ben and the Fed are gonna "Probe" Goldman Sucks on their role in cooking the Greek books

GS owns and is the Fed

 

[Bikerdude]

Well in CT it won't be too long. Mainly due to tax paying residents moving out because of high tax rates and tax consuming immigrants moving in due to generous benefits. But the City politicians get re-elected, so who cares.

 

[clifp]

Don't worry Banana Ben and the Fed are gonna "Probe" Goldman Sucks on their role in cooking the Greek books

GS owns and is the Fed

If you think that you should buy GS stock.

 

[Delawaredave5]

How, exactly, would a government entity the size of a State go Bankrupt. Would it stop paying its debts and have a special Court take over the operations? Would the Legislature be required the seek permission before voting or simply be declared null and void.

All in all, this doesn't seem such a bad thing, does it?

Maybe states will go the route of companies:
- go bankrupt
- trash the pensions
- start over

 

[dm]

I'm not sure what shape Missouri is in, but they canceled their Highway letting yesterday. I don't know if that ever happened before. Evidently they didn't have to money.

 

[RonBoyd]

I'm not sure what shape Missouri is in, but they canceled their Highway letting yesterday. I don't know if that ever happened before. Evidently they didn't have to money.

What was it they were letting their highways do?

 

[kb56]

We here in "Penn's Woods" (PA) have been saved:
First we got casinos with slots,
Next we allowed them to do table games,
We have added an additional lottery game,
Also raised income on liquor,
Now we are trying to “Toll” Interstate 80

Our state is soooo good to us, that the “GOV”
Wants to “Lower” our state taxes**

We love our “Honest” Caretakers

(** lower sales taxes; BUT apply taxes to items not currently being taxed – classified as necessities – food, clothing, labor, … etc.)

PS - the state is still "underwater"

 

[Nodak]

We don't often get to brag about North Dakota so I am going to take the opportunity. The state has a large budget surplus, unemployment below 5%, and low taxes. Mostly due to energy; we have oil, coal, and lots of wind energy. Things here, with the exception of nasty winters, are very good. I will not be leaving anytime soon.

 

[MichaelB]

A State that ceases to exist may be a problem – otherwise the threat is default (like Argentina). This seems more likely in the case of municipalities that have limited or no taxing ability. States, especially large ones, have substantial – and mostly unused - power to tax. Illinois income tax is only 3% - immense upside.

Never underestimate the ability of politicians to find a way to kick the can down the road.

 

[Steve O]

"Maybe states will go the route of companies:"
- go bankrupt
- trash the pensions
- start over

You forgot the government bailout like GM...

What was the old saying about GM

"Whats good for GM is good for the country"

Here's one from today's WSJ about our former lieutenant GOV (who was appointed after our last two Governors were arrested) wanting to raise taxes and cut services...

Illinois Airs Plan on Deficit - WSJ.com