Another California city has filed for protection under Bankruptcy. That makes three this year with another, Compton, set to file soon. Lest you believe this is solely a California problem, let me assure you many other cities and municipalities across this country are in similar situations. The reality is that their expenses exceed their revenue. With our recent economic downturn, property values have sunk along with sales tax receipts as fixed expenses have continued to grow. Contracts with public employee unions, including health care and retirement, continue unabated.
Most of the so-called experts would have you believe there are only three possible solutions. First, and the most popular, is to raise taxes. Second, reduce services by laying off essential employees such as policemen, firefighters, and also closing parks and libraries. Of course number three is to file bankruptcy.
This essay chooses to offer another possible solution. First let us consider the pitfalls of the current thinking. Raising taxes in a recession is a dead end, period. Increasing the costs to citizens who already are in financial difficulty leads only to more and deeper problems. If a municipality raises taxes on a property and the homeowner cannot pay, all that does is create another foreclosure. Laying off essential employees such as policemen and firefighters serves only to further irritate the citizenry and add to the unemployment problem. Even if the city files bankruptcy, their ongoing costs continue the day after the filing. Their revenues continue to go down the next day, maybe even worse. And, do you really think a Bankruptcy Judge is going to cancel the retirement liability cities have negotiated with their former employees? Not likely.
What this country needs is to get back to work. What we need is to re-start the economic engine that has carried this country for our entire history. How? The first thing that has to happen is for the government to get out of the way. Call off the regulator hounds. Rein in the EPA. Stop trying to regulate businesses out of business. Do you have any idea how difficult it is to start a business in California for example?
On a federal level, the Obama Administration has to approve the Keystone pipeline. The Bush era tax cuts have to be renewed. The anti-business climate which dominates the conversation coming out of Washington has to cease immediately. Obamacare has to be overturned so businesses can know what to expect for costs in the next few years. Mining and drilling have to be not only allowed to increase, but encouraged. Building new oil refineries has to begin now. Lower the taxes on everybody and everything. I heard the nonsense from Obama that we need a bottom up or a middle out economy. That statement tells you everything you need to know about Obama’s lack of understanding of economics. Never in my life have I ever heard of a job being offered by a welfare recipient.
Here is reality. Our only chance of recovery is if we increase our business activity. Government is not a producer of wealth. Governments are only consumers of wealth. They don’t create anything but regulation.
One thing is clear. If we don’t get a handle on our economy and get it moving, more and more cities and municipalities will go under. We cannot tax ourselves into prosperity. This problem is not going to fix itself. We just need to get to work.