There are now 10 states in the US that are insolvent and expected to file for bankruptcy in the near future.
Those states are California, Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin. These states account for one third of the US population and is significant. Think of it is more then 33% of the US going bankrupt.
Why They Are So Bad Off Financially – High Foreclosure rates, high unemployment, budget deficits, political and legal blocks to having a balanced budget, poor money management.
Real Estate – Declining real estate values cause homeowners to have their house prices adjusted for purposes of paying lower property taxes causing a drop in property tax income revenue. High foreclosure rates means unoccupied homes. That means no taxes on phones, water, cable, Internet etc. More lost revenue. There are very few new housing starts, which means lost jobs and no payroll taxes, and no sales taxes on building supplies and materials. There is also a loss of revenue from building permits and other revenue. A lot of retail space and office space is going vacant which again means lost revenue.
High Unemployment – This means a drop in state income taxes and a drop in city and county taxes as well. This also causes high unemployment benefits with extensions, which hurts the state especially with a shortage of employers paying into the fund due to a large amount of lost revenue.
Result of States Filing Bankruptcy – There will be reductions and loses of pensions for retired workers. There will be layoffs among state workers. There will be defaults in part or in full on financial obligations the state cannot fulfill. The bankruptcies will roll downhill and cities and counties will start to go bankrupt. Prisons will be turning to early release and letting large numbers of inmates out early. Prisons will close and department of corrections staffs will be curtailed. Newly convicted criminals will be steered into supervised release, house arrest, and other programs. There will still be a lot of convicts, just not a lot of people doing prison time. First responders such as police, highway patrols, and department of corrections law enforcement personnel, fire personnel, ambulances, sewer, water, and other personnel will be laid off out of necessity.
Thirty-four states have cut higher education aid and twenty-five states have reduced elementary school aid. Twenty-Seven states have reduced health care benefits for low-income people. Twenty-six states have hiring freezes. Twenty-two states have lowered employee’s wages. Thirteen states have announced layoffs. The worst is yet to come this is the tip of a massive iceberg.