Meredith Whitney is re-upping her call for a wave of municipal bankruptcies, in the wake of Detroit’s Chapter 9 filing.
Flashback: in 2010, Whitney told 60 Minutes that there could be between “50 to 100” cities defaulting on their debt, totaling “$100s of billions of dollars.”
While there have definitely been a few since then, we never really reached that number.
But today, in an op-ed for the FT, she doubles down:
There are five more towns like Detroit in Michigan alone. There are many more municipalities across the country in similar positions.
Basically, the profligacy of past city administrations past has finally caught up:
…these days, things are very different in the world of municipal finance.
At the root of the problem is the incentive system that elected officials used to face. For decades, across the US, local leaders ran up tabs for future taxpayers; they promised pensions and other benefits for public employees that have strong legal protection. That has been a great source of patronage for elected officials: they can promise all sorts of future perks to loyal supporters (state and local workers) with very little accountability on the delivery of those promises.
Today, we are left with the legacies of this waste. The bill for promises past is now so large for some cities and towns that it is crowding out money for the most basic of services – in the case of Detroit, it could not even afford to run its traffic lights. Across many American cities, cuts to basic social services have already been so deep that they have made the communities unpleasant places.
She says officials are finally “siding with residents,” but that this will come at the expense of pensions and bond holders.
“The aftershocks of the largest municipal bankruptcy in US history will be staggering,” she says.
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