Drowning In Debt

The city of Stockton, California is on the brink of becoming the largest U.S. city to file for bankruptcy.  City officials are hoping the state imposed mediation will help all the parties reach an agreement that

English: A view of Stockton's city center and ...

English: A view of Stockton’s city center and waterfront. (Photo credit: Wikipedia)

will show enough budget savings to have Stockton remain solvent.

To address the $26 million budget shortfall the city has proposed suspending debt payments and payments for legal claims, and to increase revenue by stricter city code enforcement and parking citations.  The proposed budget includes no reductions in city services.

Stockton’s dilemma is nothing new to cities across the country.  At the end of 2011 there were sixteen U.S. cities teetering on the verge of bankruptcy.   Those cities were:

  • Camden, NJ
  • Central Falls, RI
  • Cincinnati, OH
  • Detroit, MI
  • Hamtramck, MI
  • Honolulu, HI
  • Joliet, IL
  • Los Angeles, CA
  • Newark, NJ
  • New York, NY
  • Paterson, N.J.
  • Reading, PA
  • San Diego, CA
  • San Francisco, CA
  • San Jose, CA
  • Washington, D.C.

The annualized budget shortfalls for the cities ranged from a low of 1.7% for San Diego, CA., to a high of 24% for Patterson, New Jersey.

With the economic downturn over the past few years, it depends on which financial pundit you listen to as to whether we may or may not be on the road to economic recovery.  However, there is often one aspect of the debt and deficit spending practiced on the federal, state and local levels, that is not fully addressed.  That aspect is that of the burden of unfunded liabilities.  By definition an unfunded liability is, something that is not covered by an asset of equal or greater value.

An example of unfunded liabilities are, Medicare and Social Security.  Unfunded liabilities also include, pension funds for public employees and union pension funds.  These funds paint a rosy picture of returns on the investments, as the expected payout is at sometime in the future and therefore is not of immediate concern to those who are managing the fund.

Currently the national debt is more than $15 trillion with each person in the U.S. responsible for  more than $50,000 of that debt.  The total U.S. unfunded liability is more than $123 trillion.  The cities in peril can likely learn from the story of economic freedom, energy abundance, and job creation that is ongoing in North Dakota.

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