Many Large Cities Are in Deep Financial Trouble

So the big cities are hopelessly bankrupt and empty office buildings is not going to help their situation.  Oh well, they’ll just get money from their state to pay their bills.  What if their state has no money?  Oh well, they’ll just get it from the US government!  And what if the US government has $35 trillion in debt and the bond markets won’t allow her to borrow anymore?  Oh well, the the Federal reserve will just buy the debt.  Ummm….the Federal Reserve has no money to “buy” anything.

Even a casual observer should understand that the financial boat of USA is sinking.

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 Municipal governments across the United States are looking to rein in spending as pandemic-era stimulus dries up and inflation lingers for longer than expected.

“Clearly there are significant capital needs across the U.S.,” said Michael Rinaldi, senior director at Fitch Ratings’ public finance group. The group issued a AA investment grade general obligation bond rating for New York City in March 2024.

The financial challenges within cities appear to be mounting despite high municipal credit ratings and robust demand for urban commodities like housing. For example, New York City had a total public debt of $177.6 billion at the end of fiscal year 2022, according to researchers at Truth in Accounting, a nonprofit that partners with the University of Denver to promote transparency in public accounting. That translates into a per capita taxpayer burden of $61,200, according to the group’s analysis.

That estimate comes in higher than the one quoted by New York City Comptroller Brad Lander, who says the Big Apple has a public debt burden of roughly $96 billion in 2024 — about $30 billion shy of the city’s debt limit.

The discrepancy, according to Truth in Accounting, comes from pension debt obligations that are underreported and will eventually be pushed on to future taxpayers. “If I don’t pay that invoice, I don’t have to include it in my balanced budget,” said Sheila Weinberg, the group’s founder and CEO.

Truth in Accounting estimates that 53 of the largest cities in the U.S. were not generating enough revenue to pay their bills at the end of fiscal year 2022. The list also highlights fiscal challenges facing cities like Chicago, Houston and Portland, Oregon. 

“I think we can all agree that we’re broke,” said Houston Mayor John Whitmire in a March 2024 City Council budget hearing.

Truth in Accounting believes that underfunded pension obligations and retiree health benefits are straining municipal governments nationwide. Detroit’s 2013 municipal bankruptcywas a potent example of the potential effect when the city temporarily suspended pension payments to pump more cash into reserves.

“I believe this is a big problem throughout the country,” said Weinberg. “The voters think, oh, they must be living within their means. And they’re not.”

Weinberg told CNBC that cities and state governments are, in effect, spending tomorrow’s money today in unsustainable fashion.

https://www.cnbc.com/2024/04/25/many-large-us-cities-are-in-deep-financial-trouble-heres-why.html