Racine County – A Ravaging Decade of Rising Taxes, Debt, Expenses and a Fleeing Population Comprised of The Best and Brightest

All information is taken from the Racine County 2016 CAFR – available from the Racine County Finance Department by clicking HERE

If the Reader can bear taking a long hard slog through a lot of numbers the details of the dire financial straits of Racine County can be fully comprehended. Tax levies and rates have risen while expenses and debt have grown;  the population has remained mostly stable because the best and brightest young people flee the region and relocate elsewhere; taxpayer funded government salaries and benefits only increase which forces government to cut employee and services – or raise taxes to an unbearable level; new growth must be FORCED because the large, private Employers which once made Racine County an economic powerhouse have shut down, left the area, or moved their larger operations elsewhere. Hence we see the all out gamble by a desperate Racine County counting on Foxconn to come to the rescue; if only to buy time and forego the hastening of the inevitable regional collapse.

Racine County is Fast Approaching the Seneca Cliff

The transient burst of economic growth which will come from the massive stimulus of government spending and debt along with the promise of tens of thousands of high paying jobs will keep alive the illusion that Racine County has a bright future  of positive growth. In reality, it doesn’t. Instead, regional collapse is the most likely outcome from the Foxconn SCAM.  Debt can buy time by pushing future demand into the present – but this will lead to ever increasing deficits when the future arrives and demand collapses – forcing  more debt, bankruptcy’s,  and eventually regional collapse. The time of collapse for Racine County, and the State of Wisconsin approaches.

For those further interested in the Seneca Cliff, Ugo Bardi describes it in his post: The Seneca effect: why decline is faster than growth

What Wisconsin and especially Racine County needs is Reorganization.

Note that sometimes Bankruptcy is labeled REORGANIZATION. The Foxconn SCAM won’t help Wisconsin, only Reorganization will.

What is ‘Reorganization’

Reorganization is a process designed to revive a financially troubled or bankrupt firm. A reorganization involves the restatement of assets and liabilities, as well as holding talks with creditors in order to make arrangements for maintaining repayments. Reorganization is an attempt to extend the life of a company facing bankruptcy through special arrangements and restructuring in order to minimize the possibility of past situations reoccurring.

Even California Governor Jerry “Moonbeam” Brown recognizes that the free for all of endless and overly generous taxpayer funded pensions and benefits can’t continue on forever.

From the Sacremento BEE:

California should be able to reduce public employees’ pension benefits, Jerry Brown argues

Gov. Jerry Brown got most of what he wanted when he carried a proposal to shore up the state’s underfunded public employee pension plans by trimming benefits for new workers.

Five years later, he’s in court making an expansive case that government agencies should be able to adjust pension benefits for current workers, too.

A new brief his office filed in a union-backed challenge to Brown’s 2012 pension reform law argues that faith in government hinges in part on responsible management of retirement plans for public workers.

The filing embraces a cluster of recent court decisions that hold public employees are entitled to reasonable pensions, but not necessarily ones that are calculated on the most favorable formulas for them.

Advocates who say California can’t afford the benefits it has promised to 1.8 million public workers and pensioners in the California Public Employees’ Retirement System in particular cheered the governor’s arguments.Despite the pension changes Brown championed, the state’s two largest public pension systems are still severely underfunded. CalPERS, with $343 billion in assets, and the California State Teachers’ Retirement System, with $220 billion, each have a little more than two-thirds of the assets they’d need to pay the benefits they owe.

Both systems also are asking local governments and schools to pay more money to fund the pensions of their employees, a trend that some local government advocates say is “crowding out” their ability to fund services.

“There comes a point where you can’t become any leaner than you are,” Tulare City Manager Joe Carlini told the CalPERS Board of Administration last week.

Pensions will be ‘on the chopping block’ in next recession, Jerry Brown says

Gov. Jerry Brown this week predicted that his 2012 pension law will survive union challenges in court and blow a hole in the so-called “California rule” that has restricted changes to public employee retirement plans for half a century.

“When the next recession comes around, the governor will have the option of considering pension cutbacks for the first time in a long time,” Brown said at a news conference this week where he unveiled his 2018-19 budget plan.

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Some Historical Background on the Conditions Which Will Lead Racine County to Collapse

The State of Wisconsin, and in particular SE Wisconsin (Detroit West) has never truly recovered from the effects of the of the 1944 Bretton Woods decision. By the late 1960’s, the war ravaged economies of Europe and Japan had recovered and began to export their products to the US.  These imported products had a cost advantage over American made products and as sales increased, the overseas flow of dollars increased, causing huge economic problems for the US and eventually leading Nixon to repudiate the Bretton Woods agreement. At the same time, conventional oil in the US peaked, and energy costs increased as the easy to find and low cost to extract oil had been exploited, and now energy costs would only increase. Eventually the gold-backed dollar was replaced with the petrodollar, but BAU (Business as usual -post WWII Boom) had gone bust in the late 1960’s and America would never truly recover.

Since the late 1960’s the large Corporate private employer’s who created a wealthy SE Wisconsin have closed down, moved major operations Overseas, to Mexico, or Southern States, or perhaps remain as just a token headquarters left in Racine. Any expansion of their workforce is always dependent upon taxpayer subsidies, lower wages, reduced benefits, and will likely disappear once the tax incentives are gone.  All tax incentives are is tax shifting, away from Corporations and onto Residents, which means that the cost of living goes up, usually way out of proportion to the wages of the local privately employed workforce. Government employees have been largely shielded from this by taxing authorities being able to almost indiscriminately raise taxes and fees which has lead to a huge disparity between the standard of living for the privately employed worker versus that of a government employee. This is an unsustainable condition, which calls for a correction, and it will come one way or another. Foxconn must succeed in the highest possible terms, or reorganization/bankruptcy will result.

Of course, for Foxconn to succeed, numerous regulatory obstacles to growth have been removed by government decree, and many of the acts of State and local officials are unconstitutional and being done under the color of law. Any potential environmental degradation is being willfully ignored by the WI DNR by Legislative Decree! Then, if a manufacturing facility is actually built, it will need to be able to produce large quantities of LCD TV’s at a Globally competitive cost and avoid obsolesce by future technological advances, conditions  which automatically precludes high labor, material, energy and transportation costs; while high labor costs will be necessary for the workers at Foxconn to afford living in a high tax region. This creates a conundrum with no viable solution. It is a dilemma for Racine County, which will lead to failure and reorganization. In attempting to recreate the conditions of the post WWII era, Racine County has doomed itself to economic collapse.

More Reading
For those who wish to consider the effects of past oil shocks,  recommended reading:  Historical Oil Shocks; James D. Hamilton;  NBER Working Paper No. 16790

This paper surveys the history of the oil industry with a particular focus on the events associated with significant changes in the price of oil. Although oil was used much differently and was substantially less important economically in the nineteenth century than it is today, there are interesting parallels between events in that era and more recent developments. Key post-World-War-II oil shocks reviewed include the Suez Crisis of 1956-57, the OPEC oil embargo of 1973-1974, the Iranian revolution of 1978-1979, the Iran-Iraq War initiated in 1980, the first Persian Gulf War in 1990-91, and the oil price spike of 2007-2008. Other more minor disturbances are also discussed, as are the economic downturns that followed each of the major postwar oil shocks.

The complete paper may be accessed by clicking on:  Historical Oil Shocks

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The Burden of Bretton Woods

When President Nixon took office in 1969, inflation, excessive balance of payments deficits and a dwindling gold supply placed significant pressure on the value of the U.S. dollar and the American economy. It was due to these factors that President Nixon made one of his most consequential decisions in office. On August 15, 1971, in an address to a national television audience, he shocked the world with an announcement that the United States would no longer honor its commitment to redeem dollars for gold, effectively ending the era established at Bretton Woods, an agreement developed at the United Nations Monetary and Financial Conference held in Bretton Woods, New Hampshire in 1944. His decision, backed by his most senior economic advisors, initiated the era of the American fiat currency and a global floating exchange rate.

Following World War II, war-ravished and destitute countries needed access to liquidity to recover from their economic malaise. Because of its ample gold supply and its post-war global position, the United States agreed to act as the world reserve currency and as the anchor of the new international monetary system. In essence, the U.S. became the de facto post-war financier of world production.

For the next twenty years, the world experienced an era of substantial economic growth, spurred by high demand for the American dollar and a post-war liberal trade policy. For a time, this system worked well. A U.S. balance of payments deficit (a calculation of dollars spent on imports, foreign military engagements, and foreign aid minus exports) was welcomed as a way to offset the dollar shortage.

But by the 1960s, the expansion of global production and trade increased the amount of dollars circulated worldwide — so much so that dollar circulation far outstripped the U.S. gold supply. There simply was not enough gold to back excessive liquidity, making it evident that the U.S. dollar was overvalued.

At the cusp of the new decade, excessive deficits and dwindling confidence in the U.S. dollar not only threatened the American economy but the world financial order. The uneasiness surrounding the leading currency prompted private financial holders to exchange their dollars for gold. Central Banks quickly followed, with Japan and France leading the way. In the second week of August 1971, the British ambassador appeared before the United States Treasury and asked that $3 billion be converted into gold to act as “cover” for all their dollar assets. It was then, in the midst of impending economic calamity, that Nixon had to confront the major crisis.

Read more: https://www.nixonfoundation.org/2016/02/the-burden-of-bretton-woods/

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How Petrodollars Affect The U.S. Dollar

After the collapse of the Bretton Woods gold standard in the early 1970s, the U.S. struck a deal with Saudi Arabia to standardize oil prices in dollar terms. Through this deal, the petrodollar system was born, along with a paradigm shift away from pegged exchanged rates and gold-backed currencies to non-backed, floating rate regimes.

The petrodollar system elevated the U.S. dollar to the world’s reserve currency and through this status, the U.S. is able to enjoy persistent trade deficits, and become a global economic hegemony. The petrodollar system also provides the United States’ financial markets with a source of liquidity and foreign capital inflows through petrodollar “recycling.” However, before the effects of the petrodollars on the U.S. dollar can be examined, a brief history lesson is in order. (For more, see: Global Trade And The Currency Market and US-Saudi Relations: A Complex Scenario.)

History of the Petrodollar

Faced with mounting inflation, debt from the Vietnam War, profligate domestic spending habits and a persistent balance of payments deficit , the Nixon administration decided to suddenly (and shockingly) end the convertibility of U.S. dollar into gold. In the wake of this “Nixon Shock,” the world saw the end of the gold era and a free fall of the U.S. dollar amidst soaring inflation. According to, Dr. Bessma Moomani in the article, ” GCC Oil Exporters and the Future of the Dollar,” through a series of carefully crafted bilateral agreements with Saudi Arabia beginning in 1974, the U.S. was able to promote bilateral political and commercial relations, market imported U.S. goods and services, and help recycle Saudi petrodollars (more on this later).

Through this framework of economic cooperation, and more importantly, petrodollar recycling, the U.S. managed to influence Saudi Arabia to persuade the other members of Organization of the Petroleum Exporting Countries (OPEC) to standardize the sale of oil in dollars. In return for invoicing oil in dollar denominations, Saudi Arabia and other Arab states were able to secure U.S. influence in the Israeli-Palestinian conflict, along with U.S. military assistance amidst an increasingly worrisome political climate that saw the Soviet Invasion of Afghanistan, the fall of the Iranian Shah and the Iran-Iraq War. Out of this mutually beneficial agreement, the petrodollar system was born.

So does anyone actually believe that the WRS is solvent, responsible, and sustainable? Beneficiaries and mathematically challenged Politicians excluded.

Wisconsin Retirement System Benefits Summary

The Department of Employee Trust Funds administers a number of benefit programs available through Wisconsin public employers. Most government employers in Wisconsin other than the City of Milwaukee and Milwaukee County participate in the WRS. WRS employers may also elect to offer various insurance programs offered through ETF.

The following types of benefits are available through the WRS:

  • Separation Benefits. If you terminate employment and apply for a benefit before age 55 (50 for participants with some protective category service) you will receive a separation benefit. A separation benefit is a lump sum payment of your employee required contributions plus accrued interest. If you are not vested in the WRS a separation benefit is payable regardless of your age.
  • Retirement Benefits. A retirement benefit is available to vested WRS employees after you terminate employment and have reached age 55 (50 for participants with some protective category service). Retirement benefits are based on both employee and employer contributions, and are usually paid as a monthly annuity payable to you for life.
  • Additional Contributions. As long as you remain employed under the WRS you may make additional contributions to your WRS account. Additional contributions earn the annual effective rates of interest.
  • Buying Creditable Service. While you are actively employed under the WRS you may be eligible to buy creditable WRS service, which will increase the benefits for which you are eligible when you terminate employment. There are only certain types of service that you can buy, and the most common are your six-month qualifying period (applies only to non-teachers who began WRS employment before 1973) and WRS service forfeited by withdrawing your employee contributions.

The taxpayer funded WRS is not long term sustainable or fair to those who labor in the private sector!

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Of course the current WRS system of funding is unsustainable – as witnessed by the documented last 10 years if Racine County’s financial history. The day is fast approaching when tax revenues will only meet salary/pension/benefit requirements and services will end. As Racine County begins it’s descent along the Seneca Cliff -the decline will be steep and take away residents breath, jobs, and remaining wealth. The impending disaster – via numbers:

The 2016 Racine County CAFR is available by clicking: 2016 Racine County CAFR

The Total Racine County Tax levy went from $277,621,142 in 2006 to $332,487,927 in 2015 – yielding an  increase of $54,866,785; while the population  has remained largely stagnant in the 195,000 range – meaning that each individual in Racine County has an ever increasing tax burden. Now consider the effects of large amounts of property being removed from the tax rolls by Non-Profits and TID’s, unemployment, and the flight of Industry and Manufacturing away from SE Wisconsin, and the reason for the steeply increasing costs on the remaining taxpayers becomes apparent. Owning Land and Assets for those in the private sector  in Racine County has become a major cost and liability. As for the per person capita income, this number is skewed to the high side by those in Government who are commanding 6 figure + salary and benefit packages while the masses toil for $10 -$15/hr, many without benefits such as medical, vacation, or pensions.   For example $100,000 (overpaid government employee)+ $25,000 (underpaid factory worker) = $125,000. Divided by 2 = $62,500. This solves the problem for the Politicians who are looting those in the private sector who toil for low wages, perhaps no benefits, and no pension because they can point to a number and claim that a large percentage of the population is doing well – when they aren’t!

Racine County Tax Levies 2006 – 2015

Racine County Population 2006 – 2015

Do you need proof that the system is rigged and tilted in favor of the Looters who occupy positions of government power? HERE IT IS!

From the JT:

Proposal to review city positions paying over $100,000 stalls

RACINE – A proposal to review vacant high-paying city positions in hopes of finding cost-saving opportunities failed to move past the Finance and Personnel Committee on Monday.

City Administrator Thomas Friedel countered that the city already vets any position when it becomes vacant, including studying how cutting the position would affect services and waiting for months to fill such vacancy to see if a department can still function.

There are about 150 city positions that are paid, through salaries and benefits, more than $100,000 a year.

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WHOA! What? Wait! Isn’t everyone in Racine County making $100,000 + a year Plus a Tax Free Fringe Benefit worth at least $25,000?

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Note that in 2007 there were 912.25 full time positions in Racine County Government, while in 2015 there were only 822.75, for a decrease in full time employment of  89.5 positions! So, Racine County, despite decreasing full time employment by nearly 90 positions, operating costs continued to climb! Demands for services nearly doubled,  Revenues decreased,Expenses and Deficits increased, and property tax rates increased. This is unsustainable and is proof positive that Racine County is in the early stages of collapse.

Racine County Full Time Employment

Demand for Services

The below isn’t a BALANCE SHEET – it is PROOF of IMBALANCE!

Revenues have continued to fall, expenses increase, while deficits are constant and ever increasing. It is like a patient experiencing a heart attack, or teeters back and forth like former Drunk Racine County DA Rich Chiapete attempting to walk a straight line! Revenues went from a high of $115,423,634 in 2007 to a low of $106,569,973 in 2016! Expenses continue to exceed revenues, leading Racine County on a path to continuous deficit spending and increasing borrowing/debt. Spending peaked in 2012 at $130,180,981 resulting in a massive deficit of $15,781,431.

 

In 2016 the Revenues of Racine County were $106,569,973, while the expenses were $115,714,050, so yet once again, in a continuing cycle, expenses exceeded revenues, this time by $9,144,077

With the State Legislature in Madison cutting income taxes, and reducing Intergovernmental Transfers along with placing a cap on property tax rates – the only way to solve the problem is to reduce government employees salaries/wages/benefits; end caps on property taxes ; increase the income tax; and require government employees to make meaningful contributions to their future retirements/benefits from their OWN pockets.

The General fund has been largely stagnant since 2011 and in slow decline – another indicator of impending collapse.

The Tax Levy has remained largely stagnant, some property values have declined, while tax rates have increased. Yet another indicator of the impending economic collapse of Racine County.

Debt has steadily increased, along with the per capita share (each individual person) providing more evidence that Racine County stands on the precipice of collapse:

While Property Taxes are out of control, especially in the City of Racine – which cost Residents $30.32 per thousand in assessed value! But watch out – when rates go down, value increases; when value decreases, rates increase! The game is rigged and the Politicians always win – the price paid only increases! Then there are fees – which are no different than taxes – and which always increase, but somehow – they don’t count in the cost to own property! Out of control costs lead to free-fall economic collapse and implosion.

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Meanwhile Racine County Executive Jonathan Delagrave continues to proclaim that Happy Days are Here Again – as the promise of tens of thousands of Foxconn Jobs distracts the masses – but the reality is that Racine County is about to slide down the slippery slope on the declining side of the Seneca Cliff – leading to regional collapse.

Sing alongside the Incompetent  Willfully Ignorant Racine County Board of Supervisors!
So long sad times
Go long bad times
We are rid of you at last
Howdy gay times
Cloudy gray times
You are now a thing of the past
Happy days are here again
The skies above are clear again
So let’s sing a song of cheer again
Happy days are here again
Altogether shout it now
There’s no one
Who can doubt it now
So let’s tell the world about it now
Happy days are here again
Your cares and troubles are gone
There’ll be no more from now on
From now on
Happy days are here again
The skies above are clear again
So, let’s sing a song of cheer again
Happy times
Happy nights
Happy days
Are here again!

Meanwhile – in Local City of Racine News:

Talking Racine episode 54 discusses the early beginnings of Machinery Row. In 2012 thirty-nine jobs were scheduled to be expanded into a Machinery Row building. Supervisor Monte Osterman gets relocated from Machinery Row. An ethics complaint is filed on Osterman over the relocation.We bring the perspective down to the local level to discuss issues that affect our own city of Racine, WI.

And when Racine County Officials begin to block the messages of Cindy and myself – ya’ know – we are TOO HOT TO HANDLE! (Too CLOSE TO THE TRUTH) HEY  Mr. County  Sup. Mark Gleason – this one is for U!

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