Bankruptcy _Did It Help Vallejo; Will It Help All The Others?

Reviewing United States and California municipalities (e.g. Detroit, Jefferson County Alabama, Central Falls RI, Stockton, San Bernardino, Vallejo, US Rural Water Districts) one find civic leader fiscal recklessness mitigation via bankruptcy the order of the day.  The Chicago Tribune yet documents a similar pattern in Chicago’s finances, discovering  officials have long abused borrowing privileges by spending funds meant for long-term initiatives on problematic short-term expenses, ranging from library books to legal settlements. 

Like many municipalities, Chicago officials have  a powerful financial tool, i.e. general obligation bonds, yielding millions of dollars but intended as an investment tool for costly projects that will serve the community for decades.  Originating under Mayor  Daley, now Mayor Emanual, the fiscal recklessness has created a debt level threatening  Chicago's financial future. Added is the ever-present crises of unfunded pension liability and associated chronic budget deficits.  Chicago residents know little about it since Illinois law doesn’t require Chicago to ask voters’ permission before issuing bonds. To further compound the problem, when Chicago can can’t pay what it owes, it uses yet more borrowed money as leverage to push off old bond payments .

Once this debt death trap spiral begins, increasing government spending goes to manage debt obligation.  An alert financial community raises  interest rates, exacerbating the fiscal crises, as lenders grasp municipal government is less capable of making its debt payments from its available tax collections.  The repeating cycle becomes a debt trap of the politicians' own making and the citizens personal avoidance - applicable at local, State or Federal levels if one really cares to understand how the tentacles of the political power-grabbing elected official 'octopus' actually is alive and well in their community, their county, their state, their Government.

Politicians in the debt death spiral increasingly turn to tax hikes to achieve an account balance.  Yet tax hikes create a massive fiscal drag that far outstrips the impact of simply cutting government's unsustainable spending to more fiscally-responsible levels would have accomplished.  

One could posit a question - Why don't politicians do the fiscally-responsible thing, i.e. reduce spending to sustainable levels well before municipal government faces debt crisis and its associated risks?   Economics and history demonstrates to us this spending  is really what politicians promised political backers in exchange for endorsements and campaign contributions.  It appears the need for the power is far more important and so they choose the debt spiral to meet backers' needs over the needs they promised to meet for regular citizens.  Lest we forget, the political backers get what they want from such government's spending at the expense of the regular citizens. 

The people harmed are regular citizens whose real interests were being ignored by the politicians all along.   The end of this story is the story of Vallejo - and perhaps all those other listed locations.  Ideally, political sacrifice and cuts to sustainable levels in government spending were essential accompanied by defaulting on debt obligations and seeking relief through bankruptcy. Did Vallejo achieve that?  Has anything really changed in Vallejo?  Will it ever really change in Vallejo?  And did we suddenly find ourselves with a new tax that - well, is being spent wisely?  Time will tell, or maybe time is telling us something. Perhaps the real question is 'are the regular citizens listening?'  Time will tell!!!