Peter Pays Paul

Mike Shedlock from Mish’s Global Economic Trend Analysis has a great article about the potential for municipalities across the nation to file Chapter 9 bankruptcy.

Mish’s Global Economic Trend Analysis: Massive Surge In Municipal Bankruptcies Coming.

John Moorlach, the accountant who predicted the 1994 Orange County bankruptcy sees Up to 10 Municipal Bankruptcies in Coming Year

Even more infuriating than the policy makers inability to demonstrate fiscal responsibility is their willing to stick both of their hands in the dole. Mike quotes the St. Petersburg Times article Double dipping rises despite outrage.

This year some of Florida’s public officials are giving a whole new meaning to the phrase “home for the holidays.”

It’s a new crop of double dippers, taking advantage of a loophole in state law that allows them to “retire” by taking 30 days off and return to work in their old jobs with a salary and a pension. Many also collect a lump-sum “retirement” payment that can reach hundreds of thousands of dollars.

It is sad that we live in an entitlement culture. Everyone thinks that society owes them something.

As Margaret Thatcher said of “society”,

There is no such thing! There are individual men and women and there are families and no government can do anything except through people…”

Politicians and people that demand something for nothing are holding back the more productive members of our society.

The Wall Street Journal is reporting on the plight of Vallejo, CA today. The Journal reports that Vallejo is already down 20% of its police force since January and could loose another 20% of its force by the years end.

California Cities Cut Police Budgets – WSJ.com.

This is just one of the effects that cities are experiencing due to lost revenue from development fees and property tax revenues. City councils bought into the myth that real estate would continue to go up in value indefinitely and city services would be adequately funded.

An underfunded police force will likely affect real estate values in Vallejo and other municipalities like Vallejo. If crime rises and the perception of safety decreases, real estate values in some areas of Vallejo will likely decrease as neighborhoods become less desirable.

This could be an unending downward spiral for cities as property taxes are assessed on transfer value in California due to Proposition 13. Lower real estate values would generate lower property tax revenue and the city would have to cut more costs from their budget.

This is a key reminder to real estate investors that local government issues can affect long-term real estate values.

Deals in cities with bankrupt or poorly funded city coffers should be given a higher degree of scrutiny and underwriting.