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What in the World Is Going on? Why Are So Many Cities Filing Bankruptcy?

What in the World Is Going on? Why Are So Many Cities Filing Bankruptcy?
"Recently, I began investigating why so many cities were close to declaring bankruptcy. As I began to investigate, I discovered that this issue permeated the entire American social fabric. We are, in all honesty, addicted to debt. I recently learned that during the first tenure of our current president, more debt was accumulated than under the previous 42 presidents combined. Now that baby boomers are beginning to retire, the government must fulfill all the promises made over the past seventy-five years. The number of Americans receiving Medicare is projected to increase from 50 million to close to 75 million by 2025. In addition, it is anticipated that 91 million Americans will be receiving Social Security by the year 2035. Today, this figure is only 56 million. Which brings me to my next question: where are we getting all of this money? Recently, economists estimated the United States' unfunded liabilities to be $222 trillion. Then the light bulb went off in my mind, and I realized the primary reason for the Federal Reserve's massive money printing. China lacks sufficient tea to keep the ship aloft. When you have a sick federal government, it cascades down to the local municipalities, as we just witnessed with the burning of Detroit after its bankruptcy filing. It appears this is not a disease in the United States, but the pandemic.Due to increased personnel costs and unfunded liabilities, a significant number of municipalities have amassed enormous debt over the past decade. This phenomenon has spread throughout the entire United States, causing many cities to contemplate bankruptcy as a means of debt relief. Prior to 2007, the majority of municipalities in the United States desired rapid growth in the housing industry, necessitating an expansion of services for residents. As the communities expanded, salaries became extremely competitive due to the exceptionally low unemployment rate. Unions assisted in negotiating this wage increase for municipal employees. However, as a result of the low unemployment rate, they desired not only private sector market wages but also the lucrative retirement and health plans that have always been offered to these types of employees. Higher wages and incentives to work for a municipality placed cities in jeopardy financially and on the precipice of bankruptcy due to the unfunded liabilities that developed as a result of the promises of lucrative compensation packages. The majority of individuals do not comprehend how a defined retirement plan operates, and unions have made it a political issue.This year, four California cities have filed for bankruptcy due to this issue. Prior to the financial crisis, a number of cities issued bonds to provide competitive salaries and pensions to their employees. CalPERS' 3/50 plan for public safety employees allowed them to retire at age 50 with 90 percent of their highest salary. CalPERS guaranteed that the returns on their investments would readily cover the unfunded portion for which the taxpayer is responsible. In 2007, when the financial markets collapsed, CalPERS suffered a tremendous loss and turned to taxpayers to fill the resulting void. The majority of cities were unable to provide services to their inhabitants because 60 to 70 percent of their annual budgets went to salaries and pensions. Consequently, many cities began registering for bankruptcy to prevent creditors from pursuing them.As a result of these municipalities' bankruptcy filing, the bond companies have suffered a tremendous loss. They are currently battling with the bankruptcy court to have the pensions included in the bankruptcy filing rather than protected. If the courts do not permit the cities to include the employee pension obligations in the bankruptcy petition, they will face the same financial difficulties within a few years of emerging from the previous bankruptcy.
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"What in the World Is Going on? Why Are So Many Cities Filing Bankruptcy?" was written by Mary under the Finance / Wealth category. It has been read 285 times and generated 1 comments. The article was created on and updated on 31 May 2023.
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