So far, just a few cities have gone fully bankrupt. As the economic continues it slow roll into a collapse, we can continue to see the slow roll of cities entering bankruptcy. In 2013, I am expecting the more cities will face the reality that their obligations can no longer be met. When the 2nd Great Depression becomes a full reality, there will be 100′s, perhaps 1000′s of cities, small and large, going bankrupt.
This article discusses the impact a city’s bankruptcy has upon it people.
When a city goes into bankruptcy, it is not a singular event where a city suddenly stops paying its bills. Cities go to any length to avoid bankruptcy. So when a bankruptcy does arrive, often there were a series of difficult events and hard decisions that preceded the bankruptcy. Cities will utilize every asset, source of credit, and every bit of goodwill first, before going into bankruptcy. When bankruptcy can no longer be avoided, the entire community is negatively impacted.
To date, the following cities have entered bankruptcy in the United States:
- Boise County, Idaho
- City of Central Falls, R.I.
- City of Harrisburg, Pa.
- City of San Bernardino, Calif.
- City of Stockton, Calif.
- Jefferson County, Ala.
- Town of Mammoth Lakes, Calf.
One prediction for 2013, I’m estimating that 5 more cities will enter bankruptcy.
Here are a list of impact upon a city going in to bankruptcy:
- There are mass layoffs of city personnel. The layoff of city personnel will likely add to the high employment in that city.
- The quality of people remaining in the employment of a bankrupt city will likely decline. Highly skilled and valuable employees will depart for better jobs. What remains is a low-quality, demoralized work force.
- In a bankrupt city, city employees are more likely to be involved in corruption as a way to obtain more money. Bribes will make long city transactions go quicker. Crimes will be overlooked in returns bribes to police. Way few city contracts are preserve are routed to family members of city officials or used as a mechanism to collect kick-backs.
- One of the primary reasons why cities go into bankruptcy is the inability to meet the obligation of city workers’ retirement benefits. Cities have a long history of underfunding their pension plans. When budgets start to get tight, contributions to pension plans are reduced. Retirees of the city will likely lose some or all of their pension and retirement health care benefits. Many cities don’t participate in social security, thus city employees are doubly screwed during a bankruptcy. Unless the state absorbs the pension plan, there is the risk that city retirees can lose everything. Those current city employees will see their pension plan closed or cancelled. At one time not too long ago, working for the government was considered stables and reliable employment. Working for the government meant that salaries were sub-par that of the private sector. But benefits, especially retirement benefits, were very generous for government workers. Unfortunately, government workers tended not to save their own money towards retirement. This is a mistake. Everyone, regardless of their employment, should save their own money towards retirement.
- Service levels of any city-related function can be expected to take much longer, or perhaps not done at all. Without city employees to process the paper work, such activities like obtaining a business license, filing a zoning request, or paying a fee will take forever to process. More likely, paperwork will get lost or sit in the in-box of the few remaining city works for months.
- If your company was a vendor to the city or was owned money from the city, your business will get screwed in the bankruptcy process. Many city vendor contracts will be outright cancelled. Existing vendor contracts will be forced to renegotiated at lower prices. City debts will not be paid. Payments towards any debts can held back by a bankruptcy court or can be delay for months or even years. Many small businesses that provide goods or services to a bankrupt city will correspondingly go out of business.
- The infrastructure of the city will degrade incrementally over time. Roads and bridges will not be repaired. Traffic lights will fail and not be repaired. Street lights will not be turned on at night. Sewer lines become backed-up. Water lines burst and fail. It becomes extremely difficult to make a new city water or sewer connection. The quality of the city’s water can degrade due to lagging maintenance of the water treatment plant or due to water pipe leaks. You vehicles can be easily damaged by the poor quality of streets. And if your vehicle is damaged by badly maintained streets, you doubly screwed, since you can’t sue a bankrupt city!!
- You start to see trash everywhere in bankrupt city. Trash pickup services are delayed. Instead of picking up trash once per week, trash pick up might be only twice or once per month. Since no one is watching, people will come to a bankrupt city to dump their trash.
- Abandoned buildings will appear, as residents move away and businesses close. A block with abandoned houses is just depressing. Abandoned buildings invite drug addicts, homeless people, and criminals. Why pay rent, when you can merely squat in an abandoned building, right? Utilities (electricity and water) are often illegally tapped by squatters in abandoned buildings.
- If you are involved in an accident with a bankrupt city vehicle or injured on city property, you’ll likely never be able to sue or receive compensation for the damages. If the police from a bankrupt city inappropriately beats the snot out of you, no longer can you expect to receive million dollar judgments in civil courts. As a result, many city employees will act as though they are above the law and immune from judgment.
- Often the quality of the schools in a bankrupt city decline dramatically. High performing students will leave, as their parents depart for greener pastures. The remaining students will be lower performers. The school district will see lower graduation rates, lower test scores, increased pregnancies, increased crime and drug usage in the schools. The high quality teachers will run to the suburbs or adjacent school districts. Schools will run out of books, toilet paper, pencils, etc. Schools in a bankrupt city or bankrupt school district can quickly regress to 3rd world quality.
- Crime usually dramatically increases in a bankrupt city. This is for a variety of reasons. First, with less police on the street, criminals are embolden and less constrained. In a bankrupt city, you will see higher levels of poverty and desperation, which leads towards more crime. Gangs become the new families for teens without a future. Young girls will more likely to become pregnant, which adds to the repeating poverty cycle. The city attorney for San Bernardino, CA told a group of city citizens, “Lock your doors. Load your guns.” This was said after the layoffs of police and resulting increases in crime. Crime become a force multiplier in the miserly of a bankrupt city.
- Police respond time to 911 / emergency calls become delayed. Some bankrupt cities stopped responding or stopped investigating non-violent crimes. With less police, even a report of a violent crime in progress can be further delayed. In most cities, the response time to a 911 call is about 9 to 15 minutes. In a bankrupt city, the response time could be 20 or 30 minutes. In the even of a protest march or riot, you can expect no police response to a 911 call.
- Dead animals will start to litter the streets of bankrupt cities. Dog and cats will go feral, as their previous owners could not longer afford pet food or moved away from the city. Animal control officers are among the first to be laid off. Packs of dogs can become a safety concerns as they regress to primal instincts.
- Businesses are highly unlikely to invest or expand in a bankrupt city. Viable businesses will depart for a better environment. Many small, family run businesses will simply fold up shop and close forever, due to loss of customers. The closing of business will add to the unemployment rates and misery of the bankrupt city.
- Skilled professionals run away from bankrupt cities. When a city becomes bankrupt, you’ll find it is hard to find a quality doctor, lawyer, accountant, plumber, electrician, HVAC tech, and other highly skilled professionals. People with high skills are much more mobile that blue-collar workers.
- When a city declares bankruptcy, the value of homes and businesses in that city immediately decline. You could wake up tomorrow to find your city declaring bankruptcy, which results immediately in the value of your home declining by as much as 50%. As demand ceases for home buying in a bankrupt city, so will home prices immediately drop in value. This often traps city residents from moving away from a bankrupt city, since no one will buy their home and banks will not refinance a mortgage this is under water.
- A general sense of vibrancy is lost in a bankrupt city. You don’t see people walking the street at night or going to entertainment spots. Restaurants are bare of people. Businesses don’t appear to have customers. The look on the faces of the people are glum, reflecting the economic realities of the place. Sports teams will look to uproot and move to a different town. Movie theaters and night clubs close. Any people who you do see out and about at night look shady or despondent.
- Any business remain viable improve their security. Security guards will be posted where there were none before. Alarm systems and barbed wire are added. I remember walking through downtown Los Angeles a couple of years after the Rodney King riots. The entire downtown area of Los Angeles looked like a prison camp, where every building had bars on the windows and barbed wire on fences.
- Mental illness, drug addiction, alcoholism, and homelessness dramatically increase in bankrupt cities. People will no hope will attempt to escape reality with drugs and alcohol. Loss of jobs results in increases in mental illnesses. Rates of depression and suicide increase.
- The hospitals that serve a bankrupt city become places of misery. As people lose their jobs and their health insurance, their only option sometimes become the emergency room. Wait times at public hospital can increase up to 30 hours for minor emergencies. Some hospital could close due to budget problems, adding to the workload of the remaining hospital.
The key element of planning related to city bankruptcies is get out before bankruptcy is declared. If you have a sense that bankruptcy of your town or city is possible, you have a small window of time to sell your home and move away. Once the bankruptcy is declared, you have already lost. If you must live in a financially unstable city, don’t own a home. Rather, rent a home to give you the flexibility to move away quickly.
The following are warning signs that your town or city might be approaching bankruptcy:
- Layoffs of city workers — Most cities are no longer overflowing with slack employees doing little work. Most people working for cities these days finds their workload are overwhelming. Thus whenever a city does conduct a layoff, that is a bad sign.
- The city is unable to issue new debt – If you see that your town or city attempted to issue new debt, but was somehow rejected, that should be a strong indicator.
- The city has its credit rating lowered — It is my observation that credit ratings agencies are like Monday-morning quarterbacks. The game is already over when a credit rating agency lowers the credit rating of a town or city.
- City officials suddenly resign or involved in some type of scandal or crime. – If your mayor or city executive is in the news for bad reasons, often the economic situation of the city has not been disclosed.
- If the unemployment rate of the city is higher than the state averages, that is a huge warning sign. – If the city has an unemployment rate of 12%, but the state average is 9%, that represents a huge imbalance in the city’s economy.
- The city’s pension plan is funded to 65% or less, that indicates that the city is falling further behind in its obligations to retirees. — An announcement that pension plans are being closed or lessened for new employees is a bad sign.
- If city labor contracts are cancelled, that is an indication that the city is having severe financial problems.
- If a utility system related to the city runs into financial problems, soon the city might need to absorb the financial problems of the utility. This occurred in Harrisburg, PA with a trash incinerator project when bad. Harrisburg was on the hook for the failed project, which dragged the entire city down.
- There is news or discussion about the city being taken control by the state or an overseer is appointed to watch the city’s finances. Or perhaps a control board is appointed to watch over the city. If the city’s elected official lose any measure of control over the city’s finances, that is a bad sign.
- If debt payments are delayed or “restructured”, that is a strong indication that a city is going into crisis mode.
- If a city suddenly declares a major tax increase or increases in fees, that is an indication that a city is become desperate.
In the belief that the 2nd Great Depression is inevitable, I advocate strongly that you move out of any major cities. At minimum, move to the suburbs where there is green grass and plenty of trees. Have enough land to plant your own garden. Cities of significant size will become places of misery during the next Great Depression. It will be difficult to obtain food in large cities. Crime will become out of control.
To valid the information in this article, I invite you to learn more about the economic crisis in Argentina. It has been 10 years since the onset of the Great Depression in Argentina. Life for ordinary Argentines remains difficult. Inflation is high. Corrupt runs through all levels of government. Crime is widespread and ever worrying for law-abiding people. The following are news articles about Argentine’s economic collapse:
Ten years from now, the United States could look like Argentine today. Or like Spain, Greece, Portugal, Ireland, Malta, Hungary, and other countries who are slow rolling into the 2nd Great Depression. Cities are not the place to be, when the 2nd Great Depression becomes the reality of life for ordinary people The ideal location to live comfortable during the 2nd Great Depression is in a rural area, surrounded by extended family and like-minded, self-reliant neighbors. Also living in small towns of less than 10000 people is ideal if you are not able to handle the workload of rural life, such as retirees. The future could be a bread-line of a major city or eating fresh vegetables pulled directly from your own garden. A daily bowl of soup from the Red Cross, or a roasted chicken from your own hen house. Being surrounded by gangs in your neighborhood, or keeping criminals at the distant of 700 yards through the scope of your .308 rifle.