Prediction No. 15

Municipalities with unemployment rates above twenty-five percent shall be filing for Chapter 9 protection under the Bankruptcy Code. The problem such municipalities face is indebtedness on municipal bonds against which future tax receipts were pledged. Those receipts shall not be paid as most municipalities rely upon its property taxes for daily operational revenue. Property taxes are based upon assessments of value for structures. Any municipality that has experienced high unemployment has also experienced a corresponding decline in the valuations of property. In a municipality experiencing twenty-five percent unemployment, decline in its property values has been far more than fifty percent. It means a municipality can't pay non-discretionary expenses, such as the pensions and medial insurance premiums for its retirees, in addition to those interest payments due upon its debt obligations. Municipalities shall therefore begin filing for protection under the bankruptcy code, beginning with those cities and towns situated in Michigan (Detroit). Those cities and towns which had depended upon manufacturing and construction and mining as sources of income for residents shall eventually follow Detroit's example by filing for bankruptcy. For every position that is lost in manufacturing, or in construction, or in mining; there are seven positions lost in service related occupations. The US has over fifty thousand municipalities which issue obligations secured by future tax revenue from property tax receipts, totaling almost three trillion in municipal bonds. Most of the bonds are held in public pension plans for retiree benefits. When the municipalities fail so do the bonds of the municipalities and pensions holding the bonds.