Do you live in a ‘sinkhole city’?
The American Rescue Plan Act of 2021 sent $350 billion of federal tax dollars to states, cities and tribal governments around the country to help them offset the costs and impact of COVID-19. That’s on top of the $150 billion that went to municipalities in 2020 under the CARES Act of 2020.
The money was initially intended to be spent on COVID-19 response, public health, economic recovery and revenue replacement. But revenues surprised to the upside in many cities, whether they came from sales taxes, property taxes or even local income taxes. And COVID-19 vaccination costs were primarily borne by the government, including Medicare, that paid for hospitalization costs.
The result: a surprising among of “extra money” in city and state coffers. The extra money the government sent to these cities should have gone toward their pension obligations, which are rapidly coming due as the population ages. Instead, according to a December report by Cities-Today.com, the money has been spent on everything from guaranteed income programs to funding police departments.
Now one group is questioning those spending programs, saying they don’t attack the cities’ real financial problems: huge and growing debt for pensions and retiree health care promises.
A new report on “Sinkhole Cities” just issued by Truth in Accounting shows the precarious financial situation of the 75 largest cities in America. Each city has a “balanced budget” requirement — and they each met that requirement last year. But what they don’t show is their “off-budget” obligations, which tend to revolve around pensions and retiree health care.
Sheila Weinberg, founder and CEO of Truth In Accounting, says the cities should have used at least some of the federal dollars to fill in these deep holes.
Says Weinberg: “It’s as if you received a sudden inheritance and used it to go on vacation, instead of paying down your credit card debt or student loans. The cities and states avoid paying into their pension obligations — and the burden is building. But since these are considered ‘off-budget’ items, they can brag that their budgets are balanced.”
If you want the true picture of your city’s debt situation, the just-released report is featured on the homepage at TruthinAccounting.org. Click on your city to get the facts on how much debt they have (including pension and retiree health care) per taxpayer.
Here are some of the highlights — or lowlights, as the case may be — of the report. None of these 75 cities received a grade of A, and only 14 scored a B. Twenty-six cities whose debt didn’t exceed $4,900 per taxpayer received a grade of C. And an additional 29 cities received a D grade.
New York City, not surprisingly, has the worst rating of the 75 cities, with a $204.4 billion shortfall, all in, which breaks down to $71,400 per taxpayer — and a grade of F.
Chicago also earned an F, with a $38.7 billion shortfall, or $43,100 per taxpayer. Other F-rated cities are Honolulu; Philadelphia; Portland, Oregon; and Baltimore.
The top-rated cities with the lowest debt burdens are Washington, D.C.; Irvine, California; Lincoln, Nebraska; and Plano, Texas.
Admittedly, many cities are in a tough spot these days, with residents (voters) impacted by COVID-19 and needing assistance with rent and health care. More federal money will be coming in the wake of the infrastructure bill to create more spending opportunities for mayors. But the cities should at least admit the truth about the part of the iceberg that is buried below the sea of their current financial woes.
Why does this matter to your personal finances? One day soon, all those new retirees will start expecting to cash in on their promised benefits. And unlike the federal government, cities can’t print the money to make good on their promises. So, they will either have to raise local taxes or cut services to fulfill their pension promises.
It’s a process that’s already starting to happen around the country. And that’s The Savage Truth.