From Dr Joe Duarte….Pensions, Budgets, Municipal Bonds, And Property Taxes Are The Key Combination For Municipalities

Posted By on January 18, 2011

Dr Joe Duarte has a good feel for this…..With states cutting budgets across the board, where is the growth going to come from?

In San Diego an interesting fight between the city and its unions is developing that could set the stage for how things work out in other places with similar problems. According to San Diego Six.com: “The city faces a 2.1 billion dollar pension deficit” and “The city wants to negotiate a deal with the unions.” The issue is familiar. The city increased pension benefits to workers but did not fund the increases, leaving gaping holes in coverage and setting up the potential for a crisis. But San Diego is not alone. The state of Illinois has recently passed a huge income tax increase due to its budget problems, which are partially due to union related benefits.

In San Diego the city is looking to “for a cap on pensions, an end to all pension related lawsuits, and to keep the current retirement benefits intact.”

In New Jersey, Governor Christie has proposed a $10.5 billion cut to Medicaid in order to cut into the state’s growing deficit problems. According to Bloomberg: “New Jersey has run consecutive annual deficits for a decade.” And overall, Bloomberg reports: “States face deficits that may reach $140 billion in the next fiscal year, according to the Center on Budget and Policy Priorities in Washington.”

And New Jersey is not alone. According to Bloomberg: “New York’s new governor, Democrat Andrew Cuomo, said he wants to lower spending $2.1 billion, the Wall Street Journal reported. Rick Scott, the recently elected Republican governor of Florida, said he is looking to trim the program by $1.8 billion.”

The relationship between budget deficits, pension deficits, and municipal bond defaults has yet to be fully explored by analysts, other than Whitney. But it’s there, and it is quite significant.

The centerpiece of most city’s budgets is property taxes. But with a housing glut and rising foreclosures, the money spigots for cities and states have been shut off or significantly reduced. Municipal governments don’t seem to realize that point just yet. When they do, it will likely mean more moves like the recent income tax hike in Illinois.

More: http://www.joe-duarte.com/index.asp

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