Saturday, July 3, 2010
State and Municipal Meltdown?
One of the things I remember hearing over the last couple of years (I think it was on KFI's John and Ken show) was that during the real estate boom, California's spending went up 90% over ten years.
Now that our property tax revenues are going to decrease to mid-90's levels again, do you think that the state will be wiping out some of that spending? Or do you think California and the other states will start looking for more revenue in the form of higher taxes or a federal bailout (which will result in higher taxes for everyone)? Or will they just default. And, btw, where is the Federal government getting their money?
I have personally seen rising rates in municipal water and sewer charges due to overspending. Connection charges some of my rentals went from $78 to $215 per unit, which only further decreases the value of the rental. This has happened because jurisdictions flush with increased property tax money went on spending sprees.
States and municipalities cannot print their own money. I wouldn't be investing in any state or municipal bonds. In fact, it would probably be a good idea to get out of them, or find out who insures them and short their stock (much like it would have been wise to short AIG at the appropriate time). Find out the fiscal year and plan accordingly.
There are still nearly a million homes that are in default that haven't made it back onto the market, yet. Deutschebank estimates that houses that are worth less than the mortgage on them will increase from 25% to 50% in the US.
I think we're in for a world of hurt by the end of the year, as states and cities scramble for money.
This just came in on Drudge:
(10:52 AM PST)