10 States Ready to Go Bankrupt – Bad Implications for USA

Executive Summary – There are now 10 states in the USA that are insolvent and expected to file for bankruptcy in the fairly immediate future (2010).

Which 10 States – California, Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin. These 10 states account for over one third of the USA population and this is significant. Think of it is more then 33% of the USA going bankrupt.

Other States on the Endangered Species List - Colorado, Georgia, Kentucky, New York and Hawaii. These states are in bad shape and can easily get pushed over into bankruptcy.

Which States are Financially Solvent – Only two. Montana and North Dakota, which actually has a $1.3 billion dollar surplus.

Why They Are So Bad Off Financially – High Foreclosure rates, high unemployment, budget deficits, political and legal blocks to having a balanced budget, poor money management.

Real Estate - Declining real estate values cause homeowners to have their house prices adjusted for purposes of paying lower property taxes causing a drop in property tax income revenue. High foreclosure rates means unoccupied homes. That means no taxes on phones, water, cable, Internet etc. More lost revenue. There are very few new housing starts, which means lost jobs and no payroll taxes, and no sales taxes on building supplies and materials. There is also a loss of revenue from building permits and other revenue. A lot of retail space and office space is going vacant which again means lost revenue.

High Unemployment – This means a drop in state income taxes and a drop in city and county taxes as well. This also causes high unemployment benefits with extensions, which hurts the state especially with a shortage of employers paying into the fund due to a large amount of lost jobs.

Retail Sales – Of course with such high unemployment these retail sales are off and thus the sales taxes paid to the states, cities and counties is way down further reducing their revenue.

Auto Sales – The big drop in car sales has hurt Michigan and of course caused lost jobs nationwide.

Tourism – The drop in tourism has caused Nevada to lose a lot of tourism business resulting in jobs lost and the casinos and hotels are in trouble financially with their debt load. Tourism brings Nevada a lot of special tourist taxes that are now way down. Florida and New York are also tourism states and tourism revenue in these states is down.

Timber – This is low due to few new housing starts and is affecting Oregon.

Result of States Filing Bankruptcy – There will be reductions and loses of pensions for retired workers. There will be layoffs amongst state workers. There will be defaults in part or in full on financial obligations the state cannot fulfill. The bankruptcies will roll downhill and cities and counties will start to go bankrupt. Prisons will be turning to early release and letting large numbers of inmates out early. Prisons will close and department of corrections staffs will be curtailed. Newly convicted criminals will be steered into supervised release, house arrest, and other programs which they offender will be paying for as an alternative for prison which will be reserved for violent offenders. There will still be a lot of convicts, just not a lot of people doing prison time. First responders such as police, highway patrols, and department of corrections law enforcement personnel, fire personnel, ambulances, sewer, water, and other personnel will be laid off out of necessity.

Combined with high unemployment, rising homelessness, an awful economy, early prison release and a very low chance of getting sent to prison crime can be expected to rise significantly. There will need to be layoffs and a certain amount of jobs cut from the public sector within the states, cities and counties. Many of these people were and are Obama supporters but they will sour fast when they lose their jobs in the midst of this depression with awful prospects for work.

Thirty-four states already cut higher education aid and twenty-five states already reduced grade school aid. Twenty-Seven states have reduced health care benefits for low-income people. Twenty-six states have hiring freezes. Twenty-two states have lowered employee’s wages. Thirteen states have announced layoffs. Federal aid to the states has already being reduced. The worst is yet to come. 2010 will bring the loss of many jobs in public sector as well as the private sector. Experts say any chance of a turn around will be best case in 2011 and possibly much later with 2010 looking bleak.

Discussion –The bankruptcies should happen in 2010 and many of the other problems have already begun. In 2010 37 Governors face re-election and 46 states will chose their legislatures. The reality is to keep the states spending budgets up; taxes will have to be increased. When you have a lot of people out of work and a lot of failed businesses this means big tax hikes and raising taxes for those able to survive in a down economy is just going to make it harder for them to make it in the long run. Of course out of work people are short term oriented and can care less about down the road.

Things look like the politicians are going to try and run with upside down budgets but they will run out of money and then have to make some hard choices when they are up against the wall. In a state with high unemployment, who is going to vote for a politician who says we need to pull our belts in and run with a balanced budget and a sound economic policy and this will mean spending cuts and job cuts. Now the politician who says well we need to make jobs, extend unemployment benefits, send the kids to school and college, keep the medical aid coming, and keep the spending up is going to get elected. Then when the spenders get elected what are they going to do?

See the perfect storm is brewing and many indicators for a revolution are in place and it is like waiting for the other shoe to drop. Obama has been a sheer disappointment for many and the few remaining supporters will turn against him when they see what 2010 has in store for them.

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