If you live in a major American city, you are probably oblivious to what goes on in the more rural parts of the country. To young urban professionals, the idea that America is facing some sort of crisis is seemingly absurd. After all, the stock market is making record gains, the tech industry is booming and Apple just released a new iPhone. What is there not to look forward to?
First Scranton, then America
I used to think this way before I came to Scranton, Pennsylvania.
Being from New York City, I assumed that opportunity was everywhere. I have friends who have become millionaires from blogs and apps. Celebrating things like the purchase of damn.com was routine, and I assumed this was typical of America. Coming to Scranton quickly put things in perspective for me. Why? Well, let me tell you what it was like to first step foot in this city.
The first thing you will notice when you arrive is that this is a ghost town reminiscent of some Eastern Bloc countries after the USSR collapsed. You will hardly find anyone in the downtown area past five o’clock. The next thing you will notice is that the government buildings look pristine, while business and private houses are either run-down or boarded up. The mall is abandoned and the people are pessimistic. In fact, the first thing Scrantonians will tell you is “Why did you come to Scranton? This place sucks!” They will tell you how the local government is corrupt and rife with nepotism and malfeasance. The “good” jobs in the city only go to the politically-connected.
I, of course, was flabbergasted when I heard all of this, and thought it wasn’t possible for something like this to take place in America. Little did I know I would uncover a crisis that has staggering implications for the entire country.
Ticking Time Bomb
When the Scranton budget came out last year, I decided to take a look at it out of sheer curiosity. What I found was a budget that looked like it was composed by a 1st year accounting student – who lists 30 million dollar line items under ‘miscellaneous’? Who audits the financial statement of local governments? The government – go figure.
The city has no money, but continues to operate as if it does. Now, the federal government can keep printing dollars and drive up inflation. Cities, states and municipalities are required by law to have a balance budget, so how does the Scranton government continue to operate? By selling public assets, leasing public property, borrowing, raising taxes and driving up fees. The most frightening thing about all of this is that Scranton has no way to ever pay back its debts due to the shrinking tax base (down 50% from its peak).
Why is this frightening? Because Scranton has pensions that are 85% underfunded which are due very soon. Pennsylvania alone has 500 municipalities with pensions in distressed status; meaning they are possibly facing insolvency. Pennsylvania has the 4th worst state pension in the country. All told, the United States of America has a pension problem worth 4.5 trillion dollars! This means that there is 4.5 trillion million dollars missing in the state, and municipal coffers that are supposed to be used to pay for government employee retirement. This means that at any moment a domino effect can ensue, sending a cascading panic into the bond market and then stock market when municipality after municipality and state after state finally come clean to say they have no money!
As a friend from Wall Street said, “This is a problem we all saw coming, but no one did anything about.” Thus, when you look at the crumbling city that is Scranton, please know that the rest of the country is next.
Gary St. Fleur
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