Listen To You Tell Me Texas Friday 5/15/15
On Tuesday (May 12, 2015), Moody’s Investors Service, the bond rating agency, downgraded the City of Chicgao’s bond rating to junk status. The Windy City now has the municipal government equivalent of your irresponsible cousin Jimmy’s 550 FICO score.
It means that those who buy Chicago’s bonds – which is to say loan the city money – are taking a greater risk. Which means they expect a greater reward in the form of higher interest.
Just as a terrible FICO score keeps cousin Jimmy from buying a new car at those swell rates you see advertised on TV, the Moody’s downgrade will force Chicago to pay much higher interest on money borrowed to build roads and buy fire engines. Interest on debt will eat up more of the city’s budget.
This is how great companies and great cities fail. When debt gets piled up, it eats up cash. With less cash available, urgent needs — such as, in Chicago’s case, replacing long-neglected bridges and roads that are now crumbling – can only be met through more borrowing. More borrowing means more drain on cash. It’s a death spiral that has claimed many a once-great company and recently, the once-great city of Detroit.
Starved for cash, the first thing that Chicago will do is raise property taxes. They’ll try to hide this fact for a while from ordinary citizens by saying that the tax increases only really affect wealthy homeowners and commercial properties.
But that’s a complete ruse. Because individuals and businesses that can do so will leave the city. As a result, the tax base will decline. Those who remain will have to pay proportionately more. More will leave – until one day Chicago might eclipse Detroit as the largest ever municipal bankruptcy.
Don’t think it can’t happen. Detroit was once one of the wealthiest cities in the country. None of this happened because Chicago spent too much money on police officer salaries, bridge and road maintenance or the water utility system. Chicago’s city council – 100 percent Democrats since can’t remember when – put their city in this position by buying votes with public employee union campaign cash. That cash was donated as a quid pro quo for the lavish public employee health and retirement benefits granted by the city council.
As has been the case in other precincts – such as the State of California – public employee unions and Democrat-dominated governments have operated in a closed-loop feedback system. It’s a system under which Democrats keep themselves in power by rewarding union members who donate the cash to keep the Democrats in power.
It’s all great while it lasts and in states, counties and municipalities all across the country, it has lasted an amazingly long time.
Get elected and hold power today by making promises that won’t come due until tomorrow.
The problem is that it’s now tomorrow.
So where will those who flee Chicago go? Well, one good bet is, somewhere in Texas, where we don’t have public employee unions.
Besides DQ, it’s one more thing to like about Texas.