Recently on MSNBC’s Morning Joe, former Obama Economic advisor Steven Rattner declared that the slew of municipal bankruptcy filings were simply the result of California’s Proposition 13. This is obviously subject to much debate. On one hand, it is clear that Prop 13 restricts the amount that property taxes can be raised which reduces the amount of revenues raised by municipalities. On the other hand, it is clear that many city leaders have grossly mismanaged funds and simply over-promised on pension and health care benefits to get elected in the short-term.
My opinion is that the rise of city bankruptcies is more directly caused by unchecked spending and unfunded liabilities than a decrease in revenues. After all, the mayor of San Jose (certainly not a rust belt city) recently speerheaded a ballot measure to force government workers to pay more towards their retirement costs. In his words, if left unchanged, San Jose would soon be left with a single worker–the one person it would hire to cut the checks to all the retired city workers. In other words, NO city services would be provided, the city would simply exist as a pension and health care provider.
One added benefit of Prop 13 is that it protects taxpayers from unreasonable property tax increases in order to cure these unfunded pension costs.
In the words of Joel Fox, one need only look to Chicago:
At the same time that Detroit declared bankruptcy, Chicago is teetering on the edge. According to the Wall Street Journal, a third of the city’s operating budget is dedicated to debt and rising retirement costs. Chicago’s mayor, Rahm Emanuel, warned that to meet the bill the city might have to raise property taxes 150%!
Without Prop 13, California taxpayers in Stockton and San Bernardino and other communities with unbalanced books would face a similar threat. Prop 13 prevents taxpayers from having to make up for mismanagement and elaborate perks offered by government officials that put their cities in a financial hole.