If the City of Chicago Were a Bank …
By Bill Bergman, Chicago, Director of Research, Truth in Accounting:
One of the lessons we didn’t learn in the savings and loan crisis in the 1980s was the importance of “prompt corrective action” in bank regulation and supervision.
Back then, underwater “thrifts” were kept afloat with less-than-truthful regulatory accounting principles that hid their effective insolvencies, allowing well-connected parties to feast off the public purse, unleashing incentives that ended up trebling the cost to taxpayers.
In theory, “improved” legislation and regulation arrived, under the cry of “never again.” Among other things, the new systems developed “tripwires” designed to force intervention into failing institutions before large and/or widespread failures threatened the public purse again.
Less than twenty years later, the Big One arrived in 2007-2009, despite (or because of) these fixes.
How about municipal governments? Why do city and state “balanced budgets” sound like those “tripwires?”
For some perspective on questions like these, let’s take a peek at the Midwestern cities of Indianapolis, Chicago, and Detroit.
In 2013, Detroit filed for bankruptcy under Chapter 9 of the federal bankruptcy code. What did some simple financial trends look like in Detroit before, during, and after that development?
Indianapolis is a good place to start. The state of Indiana and its largest city have been in relatively good shape in the last decade, compared to their immediate northern and western neighbors. Here’s a look at the difference between general revenues and net expenses (leading to a bottom line measure akin to “net income” in the private sector) for the city of Indianapolis from 2006 through 2013.
The bottom line took a hit in Indianapolis in 2009 – not altogether unreasonable, given that the economy had entered the worst economic and financial crisis since (at least) the Great Depression. By 2013, the bottom line poked its head above zero, again.
How does that picture for Indianapolis compare to Detroit – which filed for bankruptcy in 2013? See below.
That 2009 downturn in Indianapolis doesn’t look so bad, compared to Detroit. And Detroit persistently spent hundreds of millions of dollars more than fees, grants, and tax revenue in the five years before its financial woes were addressed in bankruptcy.
The City of Chicago couldn’t possibly look as bad as Detroit, could it? For one thing, the City of Chicago has retained a greater measure of control over its destiny than Detroit, given the “home rule” authority it has under the Illinois State Constitution. And the City of Chicago regularly claims to operate under a “balanced budget,” which the city notes “is required by state law.”
That means Chicago spending should be in line with revenue, and it should be close or above zero, on the Detroit and Indianapolis charts above, shouldn’t it?
The red line above shows the “bottom line” measure for Chicago, which massively and continuously spent beyond its means in the last decade. Even amidst the recovery from recession, and after the election of a new mayor who was advertised as a solution for past financial mismanagement.
From 2010 to 2013, Chicago spent about a billion dollars a year more than it took in, borrowing to make up the difference. At least, in the numbers it was reporting to the public at the time.
That was as of a few years ago. Should we update this picture?
One thing that has happened is that state and local governments have finally implemented new accounting standards delivering pension liabilities to their previously under-reported debts on their balance sheets.
The new standards have had implications for the “income statement” (technically, the Statement of Activities) for state and local governments as well. Together, these changes call into question the validity of the previous results being delivered to citizens and taxpayers, similar to the way regulatory accounting principles delayed an overdue day of reckoning in the S&L crisis in the 1980s.
Especially in Chicago.
OK, are you ready? A shot of whiskey or two nearby? Let’s update the last chart above for the last two years, showing all three cities.
Wait a minute, why does this look so ridiculous?
Before touching on that, one thing the massive fall off a cliff in Chicago in 2015 does to the picture is hide a recovery of sorts in Detroit, where revenue has begun recovering expenses again.
But what about Chicago? How bad was 2015?
Reading the “Management Discussion & Analysis” section of Chicago’s annual report, we are informed that expenses in government activities rose over 50% in 2015, a big reason for the massive decline in the already-negative bottom line. But we don’t get much of an explanation for it beyond that, at least after that sentence.
What happened? Did the City of Big Shoulders grow another Shoulder?
Not really.
In 2015, the city revised the assumptions underlying the valuation of its pension liability. There were a few reasons for these changes, including an Illinois Supreme Court decision that arrived during 2015 rendering previous pension reforms unconstitutional.
What are we to infer, then, about the “real” trend in city finances, underneath accounting reports designed, at least in theory, to help citizens understand reality? How reliable are government financial reports, let alone government budgets?
Amidst the uncertainty, one thing we can hang our hat on, until it gets stolen anyway, is interest expense. Chicago’s interest expense has mushroomed in the last few years. In 2015, Chicago incurred over $850 million in INTEREST EXPENSE ALONE, over twice as much as it paid in 2009 — in a period with a significant decline in market interest rates.
How did the City of Chicago get away with spending beyond its means for so long, without any external intervention – even before 2015, and that Illinois Supreme Court decision?
One sad answer is that, in a democracy, voters don’t get off scot-free. Granted, they chose to trust systems that may not have been trustworthy. But in a sense, they dug their own ditch, too. By Bill Bergman, Chicago, Director of Research, Truth in Accounting.
So who is going to bail out the city’s pension funds? Check the bills in your mailbox. Happening now in Chicago. Read… This is How You’ll Bail out Municipal Pension Funds
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A lot of these financial analyses make my head spin. Not my thing. But, these articles make me wonder if mega-large cities are sustainable. Where large concentrations of people gather, certain basic services are required. That is a fact, not an opinion. That leaves the question as to what services will be provided and how they will be provided and paid for.
I recently read a book about the opening of the Federal Road into Georgia and Alabama. As the state of Alabama grew, other military roads and private roads were built. The public roads had a requirement that each precinct would have an appointed or elected commissioner and each household was required to provide a certain number of days labor, tools and materials for road maintenance and repair. Or pay a predetermined fine. Or you could pay someone to meet your responsibilities.
As society and industry evolved, the various strata of government took over the roles previously provided by the citizenry. Which gets me back to my original point. What services do people want? How will they be provided? And how will they be paid for? Perhaps we are reaching the point where large cities are too cumbersome to be viable. Whether city of bucolic rural area, if public services are provided, someone has to provide them and that someone is going to want to be paid.
night-train
Your comment reminds me of the New Orleans Levee District
“Mission Statement –
The Orleans Levee District is dedicated to protecting the lives and property of the citizens of Orleans Parish by constructing, operating and maintaining the Mississippi River and Hurricane Protection Flood Control Systems …”
We know how well that worked out. I think “dedicated” might have been overstating the case a bit.
Public agencies of this type are irresistible sources of political favors to those who have political debts to pay.
I see your point. Crooks always swarm to money. A corrupt-proof system doesn’t exist. There will always be an irreducible element of corruption in any system. But, again, when people choose to live in an area, services are needed. So, do we work harder to make the current system work, or seek alternatives? Or develop policies to discourage large cities?
One of the most little commented on ( anywhere) is what cheesy mickey mouse things those levees were/are.
An 8 ft high earth wall with a metal topper stuck in it?
They’re like something a farmer would build as a water retention pond, or his own personal levee.
Go to Holland, see what a dyke looks like.
I hear the Dutch offered to help New Orleans put up a proper dike system and were refused. Louisiana is like nothing so much as a banana republic dictatorship. The place gives me the creeps.
Don’t think it’s a matter of size.
I could quote a number of small towns and even villages between France, Italy and Spain which behaved with complete financial abandon.
As in Europe most local governments cannot issue their bonds, these spending sprees are financed with mixture of old fashioned bank loans and present revenues. If you want to know why the Italian and Spanish banking systems are such a mess, this is a good place to start.
During the housing bubble, banks tended to extend loans to munis by using projected revenues which invariably turned out to be far too optimistic.
One may wonder what these loans bought. The answer is depressingly simple: “infrastructures” nobody wanted and nobody uses and which quickly became too expensive to maintain, one time “services” to the population to buy votes and what I call the “monorails”.
Monorail comes from The Simpsons. In one episode the city of Springfield, where the show is set, has a one time revenue boost. Instead of using it to fix a variety of problems, the citizenry opts to build a monorail, the idea being pitched by a conman who is obviously looking to feather his nest.
Marge, one of the main characters, decides to get to the bottom of it and finds out this conman always singles out towns populated by yokels with far more money than common sense to perpetrate his scams.
I’ve seen this happen so many times I am not even surprised anymore.
My own little town blew many grands in an electronic panel to display informations to the citizenry. Yeah, it’s something out of the 90’s, but we are slack jawed yokels.
Eary this year the panel broke down. As the maintenance contract had not been renewed and warranty has run out (a classic case of engineered to fail), it would cost several grands to have it fixed. Yes, an electric engineering student could probably fix it for a minute fraction, but it’s public contracts we are talking about here.
But my town has no money this year because, get this, they had to carry out maintenance on the pavé the previous adminstration installed in front of the town hall and which almost bankrupted the muni.
So we are now stuck with a useless 90’s relic and, to make matters worse, no maintenance has been carried out on the sewers, meaning down in the center of the town they get flooded each time it rains. Mercifully I live up on the mountain…
You know what they say, ya can’t fix stupid.
One good definition of stupidity is you never learn from mistakes……..
Too much extraction by the rentier class. Generally speaking, they’ve been sucking more wealth out of the country than it actually produces. Happens every time.
In fact, the very survival of the average citizen is only on condition they are able to enrich the wealthy. Otherwise they’re disposable. And a larger fraction of the population becomes disposable all the time.
It’s federal, state, and local policy, because the electorate wants to be victimized. The U.S. is a democracy, isn’t it?
To me the piece says expenditures on municipal employees and their pensions are responsible. That’s not the rentier class.
Police and fire salaries and pensions (often starting around 50) have bankrupted several California cities, e.g. San Jose ( ya that San Jose)
The expenditures were quite affordable before the rentier class exempted themselves from taxation and decided to mooch off decent citizens for fun and profit.
The federal government showed a surplus when it still taxed the rich before Dubya, and now that it no longer taxes it rich it is trillions in debt. Leaving the U.S. on course to become another Haiti, and a lot of it is already there.
Where did the money go? Let me give you a hint: the working stiffs in Chicago don’t have trillions stashed away in offshore tax havens. That would be the rentier class.
I don’t know who you’re referring to with your “rentier class.” Originally, that meant the upper class that had capital invested in bonds and clipped coupons. That seems to me a totally outdated idea. The people these days who have (had) capital to put it in bonds have no income to live on forget about to tax and are whittling away at their principal.
The economy needs these people to provide capital for investment. Their tax rate being less than labor isn’t a bad thing.
And what is this nonsense about the FEDS taxing the rich before W? Please…
The tax code has two targets: 1. the middle class w2 wage earners who pay more and more every year and who get nothing for it, and 2. entrepreneurial millionaire types, to stop them from competing with the entrenched industry and the really rich.
Instead of a beggar thy neighbor attitude about who gets which tax breaks and ain’t that awful, I suggest that we put our energies elsewhere. First, learn how to use the tax code to pay less. The less money the political class has to play with the better. Second, understand it’s the spending not the taxing that’s the problem. Out money is flowing through a corrupt govt to the MIC, Big Pharma, Big Ag, the Tech Darlings and Wall Street due to corruption and corporate welfare. That’s the problem.
I have a foggy memory of Ronald Regan telling us we could cut taxes and raise spending, especially on $400 hammers for the military. But the best part of what Bush 41 dubbed Voodoo Economics, was that the wealthy capital class would invest their tax savings and create jobs for the rest of us. And they did invest their tax savings. Unfortunately, they invested most of it abroad.
But it sure sounded good.
Sorry Marty, I disagree with your contention that we need the really rich. We don’t. By and large, they have shown themselves to be of little real use, except for running Ponzi schemes. I do agree with you about corporate welfare, but who do you think benefits the most from that?
I didn’t say we need the “really rich,” whatever that’s supposed to mean. We need people to invest their money to provide capital. What we have now is something else.
Don’t conflate upper middle class with retirement savings–the people who now would be clipping coupons if it weren’t for zirp–with the “really rich” who got their wealth by sucking on the gov’t teet–the Wall Street criminals, and corporate welfare queens.
The true class struggle that has emerged in our fascist economy is between the 0.1% and their underlings who control the govt through their behind the scenes corruption that’s off the charts high and everybody else.
Those Reagan tax breaks didn’t do anything for the 0.1%. They NEVER paid much in taxes. But it did help the next 20-30%. That’s what was needed.
As I said, the beggar thy neighbor over tax breaks for the bottom 99.9% is ridiculous and simply falling into the divide and conquer trap. Concentrate on the real problem–outrageous spending on the upper 0.1%.
I am totally in favor or pointing out the misdeeds of the military Industrial Complex (and I am former US Navy officer who spent the time of Apollo 11 hiding north of the Soviet Union with 48 Hydrogen bombs instead of enjoying a TV spectacular)
But $400 hammers are a result of government numbers manipulation. Part of the contract terms for any purchase involves spare parts and tools for the life of the contract. How you distribute the admin cost of the contract is an accountant trick.
It was decided to apportion the costs equally among the items in the contract. So the airplane got the same expense as the tool box. Which meant that the hammer in the toolbox went from $5 to $400.
Similarly there is a difference between an ordinary toilet seat and a special seat made out of titanium that is required to stay shut during violent maneuvers on the aircraft and not spill a drop, even if upside down or involved in zero g excursions.
To say nothing about using a program like the Deep Submergence Rescue Vehicle (a submarine rescue project that was a fraud to begin with but dear to the hearts and minds of the mothers whose sons were in submarines). In actuality the DSRV was used as the public face of a major underwater spy mission against the Soviets. (which was far more useful than any DSRV ever would be). It allowed our leaders to know exactly what the Soviet military was thinking about and capable of doing during the many crisis that we initiated.
That happened because those cities gave huge tax breaks to the already rich and were unable to meet their pension obligations. Let’s not get started with “blaming the victim”. It is still a matter of the upper classes stealing money from the people.
The author hit on a point which is ignored in every financial crisis, the accountants lied. The accounting profession has gotten a free pass in many/all of these crises and they are always at the heart of every default. If they were criminally liable maybe that could get us to the rest of the crooks.
Excellent observation, Petunia!
That’s his mission as director of research at Truth in Accounting. They have a huge searchable data base about state and municipal finances (all 50 states). Great stuff. Check it out…
http://www.truthinaccounting.org/
wolf, where are we at on the worthless sf-la railroad issue? dumbest idea that ever came down the pike
It’s bogged down. Lawsuits, funding, uncertainty, mismanagement, lousy planning…
High-speed rail works when connecting two big urban centers, such as the Southland and the Bay Area, and it’s a great idea to build these systems. When I used to live in NY City, I took the Acela Express many, many times. It wasn’t even really “high-speed” in the modern sense. From Midtown NYC to the center of DC in 2.5 hours, in comfort with plenty of legroom and an outlet to plug in your laptop (15 years ago!). Faster than flying. And a lot less hassles.
BTW Amtrak is losing money on its other routes. But the NYC-DC is a cash cow. There are several trains an hour, and they’re often full. The third world – well, the emerging economies, as we say now – has bypassed the US in transportation. Think about it.
As an Accountant, I can tell you more often than not its NOT the accountant, but the rules we are forced to follow. Accounting standards for Governmental entities is very different from standards for private sector entities.
Best way to explain is kind of like cash basis vs accrual basis. Cash basis (ie Fund Accounting) hides future liabilities and consequently understates the problem. Certainly not a complete analogy but one most can grasp.
Also taxpayers bear more of the responsibility than anybody as they keep voting the corrupt politicians in office. You get what you voted for. Don’t like it; STOP voting them back in office.
Does this mean there are not bad accountants, hell no. Plenty to go around. But of all the professionals, accountants have one of the best records. Certainly better than Lawyers, Politicians, Bankers, etc.
But people need to look in the mirror for both the source of the problem and the solution. DON’T VOTE FOR THE STATUS QUO. Start thinking for yourselves for once and stop relying on Government to solve all your problems.
I agree. The accountants are doing their jobs as they’re told to do them. Truth in Accounting blames the politicians for trying to keep voters in the dark. And I support them in their efforts to shed light on what politicians are doing.
I also agree: ultimately, we have to look in the mirror when it comes to elected officials.
remember back in 2009 it was Congress that pressured the accounting standards board to allow the mark to fantasy accounting for financial institutions.
Just now the SEC has started an investigation into NON GAAP accounting, 7 years after it went nuts.
Where is the problem?
There is also the issue that the pension numbers from the actuaries are pure fantasy.
Ed; that problem is real and Has” to be down –if they forecast real earnings the cash paid into pensions goes up dramatically (it should) but there is no money to do it and perhaps limited borrowing capacity to do it.
As stated earlier we are running out of road to kick the can. Its going to be “show time” pretty soon.
Dallas police–more are retiring after the sad shootings there last month. The problem as we know it puts the asset level of their fund into question. Partly because of a few problem investments which all funds have. However its now become a bank run of sorts to panic first and get your money out and once the liquidity is drained out its over–
there is just way too much that’s been over-promised and under-delivered.
not sure how payback will be handled but there will be more losers than winners.
You have no idea how f up pension account is. Back in 2002 or 2003 IBM changed their ROR assumption on their pension plan and went form underfunded to overfunded and took the overfunded amount to the P&L and poof, they were profitable.
Given the current Bond yields, if any company with a defined pension plan shows an expected ROR above 3%, it should be considered misleading. That or they are chasing yield and the quality of assets in these plans are assuming significant risk above the plan mandates.
The soup d’jour now is ‘Adjusted’ earnings. Which is code for let’s add back “1 off” expenses to make EPS look better. Funny how the same “1 off” expenses show up every year.
AND Wall Street lines up to prostitute themselves to outright fiction.
FASB and the Fed Reserve have much in common and smart accountants don’t like either.
Honestly Wolf, how many well to do families plan on staying in a State while getting tax and fee’d to death as governments go bankrupt. Look for massive migrations.
What we have here is politicians and their parasitical bureaucrats making promises they knew they couldn’t keep.
Also, how long before we have a domino effect as other States and municipalities begin tumbling into the debt vortex?
William, to give your last question a shot: I don’t know how long it will take, but this is a slow-motion fiasco. It will take years. People knew Detroit would go bankrupt for close to a decade before it finally did. Four cities have gone bankrupt in California over the past decade. The next recession will take down a few more. It get’s interesting when states are buckling.
I’m currently finishing up an article about California. It includes a reminder of the IOUs with which it paid its suppliers in 2009 because it ran out of real money. Bankruptcy wasn’t that unthinkable at the time. And it’s not like we’re not paying enough in taxes!
But who is paying all those taxes? I admit I would never live in California precisely because I would get gouged with taxes and fees, poor though I am. Are the people at the top getting taxed heavily or are they basically getting a free ride and it is everybody in the middle and the small businesses that are getting soaked?
Good question. I can answer only one part of it. But that’s not the whole equation.
I know that capital gains taxes are a big part of CA tax revenues (entrepreneurs, employees with stock options, and others). That’s why CA’s budget gets in trouble when the stock market goes down.
Capital gains taxes are paid by those with assets. The poor rarely have a chance to get capital gains, and therefore rarely pay capital gains taxes.
Wonder what the Indy and Detroit charts will finally look like once the accounting departments reveal the truth?
Who pays for the extravagance showered upon the residents? Well it’s everyone, not only those who receive the pensions or live in the metropolis.
I don’t see how any city or state can allow itself or be allowed to spend more than tax receipts generate, and there must be a cushion in case a major employer moves to Mexico.
Of course the residents will be blamed and held accountable for decades of false accounting principles and there were no legally required insurance policy hedge(s) to protect the citizenry against fraud?
I’d rather move to Holland where the dikes are solid, Wooden Shoe?
Well put! I think the biggest drain on the public treasury is actually fraud and corruption. I know it played a huge role in the ruin of Detroit.
Putting this all together, and I know I am preaching to the choir, the US and states and locals governments have just about kicked the can down the road as far as it can go.
In business, if a union goes on strike to push for higher wage and benefits that the company cannot afford (that is a deal made under duress by the way), the company goes BK and the pensions in this case are turned over to the Pension Benefit Guarantee Trust with give or take a 50% haircut.
In government especially Illinois, a union goes on strike to get more pay and benefits which are unaffordable. The pension benefit promises were in lieu of current pay. However, in IL the pensions are guaranteed by the taxpayers, which dutifully, at least the ones paying large amounts of tax, move out.
There is not enough money around to satisfy everybody. Its time for a shared deal. If its delayed, as pointed out by Bergman, we just get deeper and everybody knows it.
So its time for all parties to “belly up” to the negotiation table to resolve the problems. Unions get a better deal that a 50% haircut if turned over to Pension Trust and Taxpayers pay up the remainder. Rather than wasting time and plowing thru more of the principal in the plans, cut the deals not to make things better.
This is a never ending cycle and something has to change.
I forgot, in Illinois salaries were “spiked” to allow union employees to retire younger and get full benefits, and then get another job and double dip. Of course there is no money for all of this sweet deal. And medical in most cases is covered fully.
Mickey: I can’t address municipalities, but many states have implemented two tier retirement systems. The original plans for current retirees and those hired before a specified date. A less attractive, higher cost to the employee, plan which has less of a defined benefit component for newer hires.
While some view the pension changes as reform to help the taxpayer, it is more of an attempt to ensure that every pension dollar in this country benefits Wall Street. Hedge fund dude John Arnold is spending big pushing for these changes. As are the Koch Bros.
The “State” system in America has stopped the whole country turning into greece at once, but it is starting to become publicly apparent city by city.
Look back at meridith whitneys list, the only thing she got wrong was the timing. As she did not understand how far the criminal politicians (predominantly Democrat) and the unions that own them, would be able to kick the can’s.
Probably as even she, could not calculate the levels of fraud, they would stoop to keep the ball rolling..
As for Accountants, much like Lawyers, They do very little that is illegal.
The problem is the existing laws and law maker’s, not the Lawyer Accountant, law applicator.
Bankruptcy is not a mark of final collapse, but a chance to finally fix things. It was the best thing to happen to Detroit in decades, following years of incompetent and corrupt political leadership. Now the sidewalks are being repaired, street lights replaced, and building renovation is going on all over downtown. Even the “neighborhoods” are getting better services, even though the worst areas are probably going to have to be demolished to end their disfunctionalism. Chicago should file Chapter 9 as soon as possible. Let the dumbasses who know nothing of how bankruptcy works cry doom, in reality bankruptcy could fix most of Chicago’s financial problems fairly quickly.
Sure. But keep in mind, bankruptcy destroys the assets of creditors (officially … in reality, they were destroyed earlier). So muni bondholders take a huge hit, and in some cases retirees take a hit (they did in Detroit but not in 4 California cities, though that might change in future bankruptcies).
I do agree, Chicago should go bankrupt, get back on track, fix its pension problems that way, and teach these overconfident muni bondholders that made all this possible a lesson about risk and losses.
I just want to remind those here that Arne Duncan, former Secretary of Education for 7 years under Obama until early this year was Superintendent of Chicago Schools before that for 8 years and handed over the billion dollar deficit of the CPS. That’s the type of resume Obama wanted for Secretary of Education.
I know people like him but that’s for agreeing with them.
He was a champion for charter schools –those turn out good students for a couple of reasons including they attract better students and educators. The educators that have a real passion for teaching. And Charter schools are not burdened by bureaucracy.
But the Unions do not want Charter schools and the unions want bureaucracy and tenure.
People are afraid to say Unions are not good for the US now. They were early on.
In the Austin area, ten of the 20 high schools in trouble with the state were charters. They constitute only a small percentage of the high schools by the way. What I have heard in the profession is the students hate them and the teachers profoundly discouraged. Many charters have a 100% turnover every year, year after year. I tried teaching at a charter school once and it was a complete farce. The previous math teacher handed out games and comic books to the students and made no effort to actually teach anything. Passing rates on the state test in math and science were consistently in the single digits year after year. The other classes were just about as frivolous as the math classes. Any public school with that pathetic a record would have been shut down and everybody fired. But apparently in Texas, charters are untouchable. I quit in disgust in 3 weeks. Please contact real educators before you so glibly swallow the lying propaganda put out about charter schools. There is no substitute for a public education system!
Government employee unions in Illinois are very powerful in state politics and particularly in the Chicago area. About 20 to 30 years ago there was a balance of political power between the D’s and R’s that kept excess in check to a far greater degree. That political balance was lost in the 1990’s and the government employee unions have effectively taken over the state and they own Chicago. When the good times were rolling the benefits and perks and salaries were larded on along with the fantasy pension liability numbers.
Chicago has a reputation as being as gorgeously corrupt as a South American dictatorship.
A lot of south American dictatorships were modeled on Chicago.
You seem to be in blame everybody but those responsible mode today.
The below, by you is simple BS.
“That happened because those cities gave huge tax breaks to the already rich and were unable to meet their pension obligations. Let’s not get started with “blaming the victim”. It is still a matter of the upper classes stealing money from the people.”
Those places padded Salaries and Pension for city employees and politicians for decades, knowing full well it was untenable.
larger Taxes on a small percentage of the population, would change nothing, even if you took all their income each year.
As there were simply too many city employees, past and present, drawing far to much. And due to draw, far to much, for to long. Then add NIRP to the equation.
Those city’s are simple a great example, of what always happens to Socialism and Communism. It falls over, when it runs out of other peoples money to steal, to further enrich, its own Socialist/Communist elite.
Every time.
The city’s weren’t Communist/Socialist, but the Politicians and Employees of them, were running a Corrupt Socialist/Communist system in them, to enrich themselves. As all Socialist/Communist administrators do.