Governments Collapsing In Tough Economy

In the Wall Street Journal today, an article is published that details how cities are disincorporating as a result of the declining economy. Cities are dissolving themselves in order to escape city union contracts, among other things.

As the recession batters city budgets around the U.S., some municipalities are considering the once-unthinkable option of dissolving themselves through “disincorporation.”

Benefits of this move vary from state to state. In some cases, dissolution allows residents to escape local taxes. In others, it saves the cost of local salaries and pensions. And residents may get services more cheaply after consolidating with a county.

In Mesa, Wash., a town of 500 residents about 250 miles east of Portland, Ore., city leaders have initiated talks with county officials about the potential regional impact of disincorporating. Mesa has been hit by a combination of the recession and lawsuits that threaten its depleted coffers, leaving few choices other than disincorporation, said Robert Koch, commissioner of Franklin County, where Mesa is located.

Two California towns, Rio Vista and Vallejo, have said they may need to disincorporate to address financial difficulties; Vallejo filed for bankruptcy protection last year. Civic leaders in Mountain View, Colo., have alerted residents that they are left with few options but to disincorporate because the town can’t afford to pay salaries and services.

Incorporation brings residents a local government with the ability to raise money through taxes and bond issuances. It also gives them more control of zoning decisions and development, and usually provides for local services such as trash pickup and police as well.

On the national level, the Federal government would simply cease to exist. You’re probably wondering that’s not possible. Well, given the extreme financial conditions of borrowing nearly 50 cents of every dollar spent, fighting two wars, having massive entitlements like Social Security and Medicaid that cannot be funded at current levels of taxation, having government expand at unparalleled levels, and the fact that Americans are already spending nearly half their income in taxes and other compliance costs as is; perhaps the Federal government may have to disincorporate.

The problem is cultural, we Americans have never learned to live within our means. That’s why we have the credit crunch and that’s why we have these outrageous government programs we can’t fund. We need to have a serious discussion about the role of government and how we should pay for it.

I’m one of the original co-founders of The Liberty Papers all the way back in 2005. Since then, I wound up doing this blogging thing professionally. Now I’m running the site now. You can find my other work at The and Rare. You can also find me over at the R Street Institute.
  • Ben Weiss

    I wish people would quit lumping social security in with medicare and calling them collectively, “Entitlement programs” and they saying (erroneously) that that contribute to our financial problems.

    The truth is that Medicare is -indeed- a problem. Social Security, on the other hand, uses less than 1% of GDP. Get a grip. Just because you don’t like it, that is no reason to lie to yourself and others.

    Otherwise, I agree with you.

  • southernjames

    “The problem is cultural, we Americans have never learned to live within our means.”

    Don’t paint us all with that samem broad brush, Kevin.

    Some of us have lived within our means our entire lives – paying off in full and never having defaulted on any loan; never having excessive credit card debt (and in my case – no rolling credit card debt at all, anymore); dutifully contributing to the company 401K plan assuming that it, along with the value of the home we bought, would retain its value and modestly grow as the years go by; not taking unethical or illegal short-cuts in our business dealings, not cheating on taxes, etc. etc.

    Now we’re just faced with paying for others who haven’t lived within their means.

    A dumbass bank who lends $150,000 to somebody who has no chance of ever paying it back has representation. A dumbasss who borrows $150,000 he has no chance of every paying back has representation. A car company and its union making crap nobody wants to buy…has representation. Etc.

    People like us? Turns out, there is a name for people like us:


  • southernjames

    “same”, not “samen”…typo.

  • thomasblair

    Ben Weiss,

    Where did you get your 1% figure? I ask because it’s bullshit. SS paid out $612b in benefits in FY 2008. 2008 GDP was approximately $14.28t (as reported by the IMF and CIA Factbook). This is 4.3% of GDP and 21% of the 08 budget.

    Medicare paid out $682b in FY 2008. This is 4.8% of GDP and 23% of the 08 budget.

    I wish people would quit lumping social security in with medicare and calling them collectively, “Entitlement programs” and they saying (erroneously) that that contribute to our financial problems.

    Tough. Grow a pair. They are entitlement programs and they will (thankfully) bankrupt the federal government. As of one year ago tomorrow (and in case you’ve not heard, there have been some small changes in the last 12 months), Dallas Fed President Richard Fisher gave a speech which, among other things, put a dollar figure on the unfunded liabilities of SS, Medicare, and Medicaid. The sum? Ninety-nine point two trillion dollars.

    saying (erroneously) that that contribute to our financial problems.

    What’s erroneous? They will bankrupt the US Government.

  • Steve

    Kevin is right in his generalization, and a little optimistic in his solution. We have been having the discussion since the Declaration of Independence and this is where it has led. The discussion Kevin wants to have I imagine would go much like discussions with North Korea, or Iran, or mid-east peace talks. I have come to believe it is a natural progression that cannot be turned around. It will have to play out to its eventual failure and perhaps some new constitutional scholars will emerge to create the 2nd United States. My suggestion is to bring about the end as quickly as possible. I do not say this lightly, and would like to be convinced otherwise.

    I am a patriot to the idea of freedom. Since my country and many of my countrymen have sold their freedom for ease of living and better feelings of self, I no longer am compelled to tie my patriotism to this nation.

  • tfr

    What you mean is *politicians* have never learned to live within their means. Most of us who aren’t on the gov’t dole are already doing so, else we’d be out on the street. Although with the “public debt” enshrined within the 14th amendment, and with the all too convenient ability to promise the world and deliver, regardless of cost, simply by borrowing wealth that does not yet exist, I can’t see any way out. I, too, believe that our current system will have to crash and be rebuilt from the wreckage.

  • Kevin

    What I mean by “Americans have never learned to live within their means” is not only the abuse of consumer credit that many Americans were engaged in; but also the support by a majority of American voters of all sorts of government programs (from socialized medicine, oops I meant universal healthcare, to government schools, to defense projects that are 20 years out of date, to well, you get the point) without supporting the necessary taxation to pay for them.

    The concept of cutting taxes while raising spending is the biggest example of “not living within means”.