The Federal government is going more broke than ever. In the meantime, in 2008, it successfully saved many large businesses from going broke.
States are more broke than ever: Illinois, California, Rhode Island the worse among them.
Municipalities and smaller arms of government form the next wave of government going broke. Taxpayers cannot pay their real estate tax bills and survive. Real estate tax bills are bloated with the debt local government officials carelessly voted to approve.
When a landowner fails to pay the real estate tax bill, big consequences fall on him or her, and fall on the local government entities listed on the real estate tax bill. Example for landowner, an unpaid tax bill results in a lien on the property. The lien entitles the taxing authority to collect interest and penalties on top of the tax delinquency. After a couple of years, the amounts build significantly. Let the tax delinquency go longer than that, and the property may be sold. Example for municipality and other local government, with no money coming into the local treasurer’s office, clerks and firemen do not get paid, benefits become unfunded, and, in Rhode Island’s case, street lights get turned off.
A sale of tax of a delinquent property is a tragic comedy these days – tragic because the landowner/taxpayer cannot afford to pay excessive taxes, comic because the government cannot sell the property anyway because there are almost no buyers. The local government created the problem in the first place by spending promiscuously, now ordinary remedies are not available because the taxpayers cannot pay and the marketplace cannot provide buyers.
The cycle of delinquencies-low local revenue-more delinquencies is predicted to worsen for another few years. Bondholder lawsuits against local government have just begun.
The solutions are hard: organize recall elections, go to court to beg bondholders to refinance the local government’s debt, persuade fellow taxpayers to pay refinance costs now or pay a lot more later, draft and promote a referendum so voters can choose which method of financial restructuring they prefer.