Whistling Past the Graveyard of Municipal Debt
Here’s an insider’s tip into most of the articles you read: writers don’t write their headlines. The reasons are simple. The first is an esoteric concept known as SEO – search engine optimization. This is the science of fitting as many buzz words into a headline as is humanly possible. The second is the desperate desire for clicks. Writers, or at least the good ones tend to want to write well-balanced, well-reasoned articles. But in this soundbyte world we live in, getting people to actually click on the article is the real goal. In that regard, controversy and strong opinions do much better than reason and balance. So the headline is there to do just that – suck you in.
This past week one headline did just that: “Default Position: Why We Needn’t Worry Too Much About Municipal Bankruptcy .”
I know what many of you are thinking, municipal bankruptcy? Who would we drawn in by that? A complete nerd like me, that’s who.
The reason I was drawn like a moth to a flame is that it went against everything that I’ve read. Cities are in deep financial doo-doo. How deep? A recent study of the 77 largest municipal pension systems found that the total unfunded liabilities of America’s municipal pension systems is more than $500 billion. That’s just in pensions! Of course, they also owe billions upon billions of dollars for other types of debt – the result of ridiculous spending coupled with a massive decline in tax revenue. Veronique de Rugy, a researcher and economist for the Mercatus Center, estimates that total outstanding municipal bond debt is now $2.8 trillion – doubling in just the past decade.
So how on earth could the author, Annie Lowrey, argue such an untenable position as “we don’t need to worry about municipal bankruptcy.” In fact, for the most part, she doesn’t.
Instead she tells us the story of Harrisburg, Pennsylvania, one of the worst cases of fiscal responsibility this side of Greece. Harrisburg, a relatively small city of 50,000 people, notable mainly for being the state capital, now has a debt of more than $300 million. To show just how ridiculous that is consider that their debt payments exceed the amount of their general fund.
But Lowrey continues,
Harrisburg, surely, is a mismanaged outlier. But other municipalities are not much better off. The possibility of bankruptcy has been whispered in Los Angeles . Jefferson County , Ala., and towns near Detroit have shouted it. Vallejo, a city of more than 100,000 east of San Francisco Bay, is currently in Chapter 9. And states like California and Illinois are facing tremendous shortfalls. The whole situation has Wall Street analysts and bond investors worried. What if cities like Harrisburg decide to just throw their hands up?
The answer to that rhetorical question is…we’re screwed. Either investors don’t get paid back, and people stop buying municipal bonds, or the federal government, unwilling to live with this outcome, steps in and bails cities out.
Are you failing to see the bright side of all of this, because I sure am. In fact, the only real reason Lowrey gives us not to worry is that during downturns, cities have a host of methods to cut their budgets and remain afloat:
They cut spending on nonessentials, like streetlamps. They hike taxes and fees. They fire employees, slash salaries, reduce pension contributions, trim school budgets, abandon building projects, cut back on firefighting and policing services. Sometimes they even issue bonds just to stay afloat.
So a pitch black city, with bad schools, fewer policemen, and higher taxes is supposed to be a good outcome? Not where I come from.
While the headline is telling me not to worry, the article is giving me tons of reasons to start pulling my hair out. I was promised a bit of hope, I received more bad news. Headline writers: 1, Brandon 0. But at least they got me to click on it.
by Brandon Greife, Political Director of the College Republican National Committee