Randolph Kinney
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Meredith Whitney: Lack of Local Investing Creating ‘Ghost Towns’
http://www.moneynews.com/StreetTalk...g/2012/06/19/id/442804?s=al&promo_code=F3DD-1
Businesses in big-spending, tax-heavy states like California are investing elsewhere and are creating ghost towns back home in the process, says Meredith Whitney, founder of Meredith Whitney Advisory Group.
Business friendly states like Texas are seeing investments show up from other states, while in California, firms and even wealthier households can easily move.
The result, Whitney says, is that cities in California are quickly becoming ghost towns marked by falling housing prices and a fleeing tax base.
"Rich people, by the way, have the greatest mobility, so you leave effectively, these ghost towns, with high structural unemployment and a very low tax base," Whitney adds.
Local governments then raise taxes on the struggling citizens that remain to make up for the revenue shortfall, and the problem gets even worse.
"These towns keep having to raise taxes and you get the flight of the deep tax base anyway, Whitney says.
"In these towns where businesses are leaving and where taxes are going up, home values are going down and continue to go down."
Small towns aren't the only ones in trouble.
Stockton, Calif., a city of 292,000 people, is teetering closer to defaulting on some of its debt obligations, Moody's Investors Service concludes.
"A default is likely primarily because the city says that it will run out of cash on July 1 and that a bankruptcy filing will take place if negotiations with creditors fail to provide material concessions," says Moody's Vice President and Senior Analyst Gregory Lipitz in a report.
"While Stockton has several classes of bonds, the city's pension and lease obligations have the greatest risk of default and loss while its water and sewer and special tax bonds are more insulated from default risk."
http://www.moneynews.com/StreetTalk...g/2012/06/19/id/442804?s=al&promo_code=F3DD-1
Businesses in big-spending, tax-heavy states like California are investing elsewhere and are creating ghost towns back home in the process, says Meredith Whitney, founder of Meredith Whitney Advisory Group.
Business friendly states like Texas are seeing investments show up from other states, while in California, firms and even wealthier households can easily move.
The result, Whitney says, is that cities in California are quickly becoming ghost towns marked by falling housing prices and a fleeing tax base.
"Rich people, by the way, have the greatest mobility, so you leave effectively, these ghost towns, with high structural unemployment and a very low tax base," Whitney adds.
Local governments then raise taxes on the struggling citizens that remain to make up for the revenue shortfall, and the problem gets even worse.
"These towns keep having to raise taxes and you get the flight of the deep tax base anyway, Whitney says.
"In these towns where businesses are leaving and where taxes are going up, home values are going down and continue to go down."
Small towns aren't the only ones in trouble.
Stockton, Calif., a city of 292,000 people, is teetering closer to defaulting on some of its debt obligations, Moody's Investors Service concludes.
"A default is likely primarily because the city says that it will run out of cash on July 1 and that a bankruptcy filing will take place if negotiations with creditors fail to provide material concessions," says Moody's Vice President and Senior Analyst Gregory Lipitz in a report.
"While Stockton has several classes of bonds, the city's pension and lease obligations have the greatest risk of default and loss while its water and sewer and special tax bonds are more insulated from default risk."
