This city’s money printing machinery, in the form of bonds, seems to have seized up, and at least even the state paper is reporting the real reason for the insolvency:
“The underlying, built-in problems in the city’s finances — with sizable operating budget deficits projected well into the future — require significantly changing how municipal employee contracts and retirement benefits are handled under state law, he said.”
As you would expect, the city’s incompetence extends to their school system too:
The state is already heavily involved in the city. It took over financing the local school system in the last big state fiscal intervention in 1991 and has spent $604 million on the city’s schools since then. Despite that effort, improvement has been difficult: this year, the city’s high school was rated one of the six worst-performing ones in the state.
The city now wants to keep the reasons for its insolvency in place and taint the state’s financial system with a bond guarantee, which is really a promise to pay by the state when the city cannot pay its bond:
In the short term, Pfeiffer said the city will need about $2.1 million in some form of state support authorized by the General Assembly, a grant or some kind of bond guarantee, to close a deficit in the current budget. Beyond that, he said more substantial changes were needed.
The problem is systemic and will not change until the pension and salaries are reduced — forced on the Democrats via bankruptcy. But right now, no one has the will to do so, and so the deficits pile up until they can not be financed by bonds that have no chance of being paid back.
Investors, meanwhile, believe the Fed will bailout the cities to protect the bond market, so they do not care if the bonds default. Why else would you buy bonds of a financially failed city?
And the Fed bailout will keep the fiscal incompetence in place — forcing a greater debt on the U.S. public by spendthrift robbers who wear suits and beat their chests about the importance of paying city workers more than the city can raise in revenue — so we all have to pay.
The major problem is the city, with an annual operating budget of about $16 million, is facing about $32 million in promised after-retirement health-insurance costs in addition to the $48 million in pension obligations.
“That’s $80 million for a city that has 19,000 citizens, approximately,” he said. “That’s a huge problem.”
This is a trillion dollar problem across the U.S. and Congress needs to pass a law banning a Fed bailout of the cities.