Sunday, July 21, 2013

Municipal pension crisis

As should have been obvious a long time ago, the issues surrounding Detroit's bankruptcy filing are not limited to Detroit. has provided a list and a map of all 36 of the municipal bankruptcies in the United States snice 2010. A major factor in these bankruptcies has been unfunded pension obligations. This problem exists in municipalities throughout the country. This crisis was predicted more than 30 years ago:
As for state and local pensions, they are in shambles. . . . . A 1975 survey of 44 Pennsylvania cities revealed that over 75% of them had pension programs that were not adequately funded. . . . Pension fund debt literally threatens the future survival of state and local finances.
Gary North, How You Can Profit From the Coming Price Controls, pp. 6-7 (1980).

While the 1975 data may be old, it wasn't old in 1980 when North wrote his book (yet the whole issue has been ignored until circumstances forced it into the headlines). In the last 30+ years, the problem has only grown worse. Those pension programs did not somehow get more solvent since the 1970's. Municipal spending has increased and hiring has increased (until very recently). Tax bases have declined - both in terms of population and property values (especially in the past 5 years).

As the pension crisis spreads and worsens, real estate values in the affected municipalities will reflect that crisis.

Click here for previous commentary on municipal default.

Sunday, July 14, 2013

Monroe Township sewer fee collection

Pennlive reports that Monroe Township has been successful recently in collecting tens of thousands of dollars of past due sewer charges from residents. Monroe Township is not the only municipality that has accumulated thousands of dollars of unpaid sewer charges. But it may be one of the few that has made an effort to collect the charges instead of simply waiting for the homeowners to sell the real estate.

Numerous municipalities are strapped for revenue and have resorted to imposing or increasing fees of dubious legitimacy in recent years (inspection fees, fines, occupational taxes, etc.). But how many municipalities have made efforts similar to Monroe Township to collect on delinquent, legitimate, pre-existing sewer charges instead? How many have even seriously considered this option?

Monday, July 8, 2013

Electricity prices rising; War on Coal.

I have written previously about rising electricity costs resulting from the shutdown of coal generators in the northeastern United States.  The coal shutdowns are necessitated by new federal regulations that are expected to cause more than 200 plants to close. Electricity rates are expected to rise drastically by 2015. 

Last week, an advisor to President Obama provided further context, advocating a "war on coal:"
Daniel P. Schrag, a White House climate adviser and director of the Harvard University Center for the Environment, tells the New York Times "a war on coal is exactly what's needed." Later today, President Obama will give a major "climate change" address at Georgetown University.

“Everybody is waiting for action,” Schrag tells the paper. “The one thing the president really needs to do now is to begin the process of shutting down the conventional coal plants. Politically, the White House is hesitant to say they’re having a war on coal. On the other hand, a war on coal is exactly what’s needed."
Record electricity prices were seen in the United States in May. 

This news should affect decisions about how buildings are heated, pricing strategies for rental units and whether utilities should be included in the tenants' rental package.