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  • Gary Death Countdown

    Posted by TM Lutas on December 27th, 2009 (All posts by )

    [UPDATE: A follow-up Gary Death Countdown post is here.]

    It’s much more likely not to happen than to happen but the clock is ticking for the death of Gary, Indiana. State law imposes property tax caps on all local governments far below the level Gary has grown accustomed to. Gary finances 80% of its $80M+ general fund operations through the use of property taxes. A vote on including the tax caps in Indiana’s Constitution is widely expected in 2010.

    Gary has appealed and gotten special exemptions at a level unique in the state to maintain higher taxes while undergoing adjustments to bring government down to a size that can survive on anticipated revenue. Absent that relief, Gary’s 2010 property tax receipts would drop from a projected 62.9M to 28.1M.

    As a condition of the transitional relief, a financial monitor was required for Gary and its related municipal districts (sanitary, storm water, public transport corp, and airport authority). The transition ends in 2012. If Gary has not adjusted sufficiently that it can handle somewhere between 20-30M less in revenue by that time, the 5th largest city in Indiana will be forced to declare bankruptcy.

    Complicating matters are at least $34M in outstanding debts on top of its impending structural deficit. The term at least is used advisedly because unlike most cities, and most private organizations of its size and complexity, Gary uses a cash based accounting system. Future obligations that have not been presented for payment are not accounted for at all in a cash based system. The city government literally doesn’t have the capacity to accurately know what it owes. Because of the lack of information the financial monitor is forced to guess at some basic information.

    The current Gary financial monitor’s report makes for frightening reading. Property tax revenue is scheduled to drop 50%+. There is no likelihood of a local income tax and Indiana does not share its sales tax revenue with local government. One of two casinos operating in Gary has entered bankruptcy and even before then a dispute with the casino operators disrupted payments to Gary. The bad news keeps on rolling for 265 pages.

     

    36 Responses to “Gary Death Countdown”

    1. Dan from Madison Says:

      Every year I vacation in Michigan and drive by Gary on the way there. The downtown area always reminds me of what one of the old cities behind the Iron Curtain used to look like.

    2. Mrs. Davis Says:

      Perhaps they need a band, a boyz band.

    3. Bruce Says:

      Thank God JFK broke US Steel. Otherwise Gary might still be chock-full of those pesky manufacturing jobs.

    4. Xennady Says:

      Manufacturing jobs are icky. American can’t do them anyway. Plus just think how prosperous the rest of the world is now because of all those dirty jobs Americans just won’t do!

      Isn’t that wonderful!

      The real problem is that Gary just doesn’t have enough Free Trade.

      That would fix things right up.

      Yep.

    5. Keith D. Milby Says:

      If you are still in Gary, you deserve what you get.

    6. Grant Says:

      If I remember from my days at IU in the early 1990’s, U.S. Steel was smelting about as much steel as they had several decades before. The technology changes in the steel industry just meant that they were using over 90,000 fewer workers to achieve that result. The old labor intensive furnaces could not compete with newer technology. Add in venemous racial politics on both sides of the divide and you had a recipe for disaster. Finally, there might just be a ever so minor problem of political corruption in Gary. Shocking though that notion may be.

    7. John Says:

      I’m a little puzzled by this. In the part of Indiana I inhabit, the cap on property tax is easily gamed by ducking through the mile wide loop hole left in the process… They capped the percentage of “assessed value” but left the ability to set assessed value entirely to the taxing government… if 1% of $100K is too little, they simply up the assessment to $200K.

      As far as I understand it, the taxing body sets the “levy” then divides that by the caps, then sets the assessed value for all property to that figure. The assessed value of individual property then becomes a political process. It does seem to help a little if you squall really loudly to your state reps, county commissioners, and the papers, but really all that does is shift the burden to your neighbors. As far as bankrupting a city, I can’t see how that could work under the system as I understand it.

      http://www.agecon.purdue.edu/crd/localgov/Second%20Level%20pages/topic_ptax_overview.htm

      ps. maybe there’s something in that pdf that explains it, it’s too big for me download.

    8. Anonymous Says:

      Green jobs would fix Gary in a jiffy!

    9. DaveP. Says:

      Another highly-unionized, Democratic Party stronghold bites the dust due to incredible fiscal mismangement and jobs fleeing to more hospitable locations.

      But, of course, there can’t be a connection.

    10. Koblog Says:

      If Gary is even slightly like Detroit they’ve lost:

      – most of their hateful ungreen, CO2-spewing manufacturing
      – the tax-paying jobs that went with the manufacturing
      – the ability to hold the value of their property/homes

      Meanwhile, government has bankrupted itself via promised ridiculous and ever-increasing retirement and medical benefits to unborn generations of public workers and sweetheart deals for retired politicians their wives and friends.

      The average value for a house in Detroit is $5,700.00. (You read that right, fifty-seven hundred dollars.) Down from $7,000 a few months back.

      A city doesn’t raise sufficient property tax on homes they can’t sell or are not even inhabited.

    11. RM Says:

      Don’t worry Detroit and Gary, the rest of America will be joining you soon. Change we deserve for electing the President based on his skin color rather than the content of his character.

    12. TMLutas Says:

      First of all, welcome Instapundit readers.

      This is likely going to be the first of a series. I live in Lake County and if Gary truly craters it’s going to affect my personal taxes. On the other hand, if Gary turns itself around, it’s going to do wonders for my family’s economic opportunity. I will be paying close attention.

      Keith D. Milby – If Gary goes belly up, it returns as an unincorporated portion of Lake County, IN. All the people who left Gary for the neighboring communities end up getting caught up in the drama they long thought they’d left behind.

      John – The page you refer to seems to be from around the early 2000’s. In 2007 the caps were reworked to avoid exactly that sort of trick. Assessments are now calculated based on actual market prices for comparable homes over the past two years. This is called the “true tax value” and is relatively new. The new system just started to kick in this year (2009) and will fully kick in come 2012.

      Koblog – Gary is much smaller than Detroit which means, I hope, that the scale of the failure won’t take the entire region with it for too long. Gary’s now under 100,000 in population and has a larger neighboring municipality, Chicago within commuting distance. Detroit has no larger nearby municipality that can absorb the consequences of its mistakes.

    13. The Dude Says:

      The problem is that the same criminals who run Gary and Detroit are now in near absolute power in Washington.

    14. bgarrett Says:

      It sounds like Gary may become an excellent place to live, since it wont have any government employees to bother the residents.
      FREEDOM!!

    15. Slocum Says:

      Koblog – Gary is much smaller than Detroit which means, I hope, that the scale of the failure won’t take the entire region with it for too long. Gary’s now under 100,000 in population and has a larger neighboring municipality, Chicago within commuting distance. Detroit has no larger nearby municipality that can absorb the consequences of its mistakes.

      Yes, in size, Gary is more comparable to Flint, MI (which is in similarly disastrous shape). But Detroit does have larger neighboring municipality within commuting distance. There are about 5 million people in SE Michigan and fewer than 1 million of those live in Detroit itself. So there definitely are places to commute to from a house in Detroit, and the freeway system is good. The problem with those < $10K houses is that they're in decaying, unsafe neighborhoods and both the city government and Detroit school system are broke. How many people are willing to live in such conditions even when the houses cost $0? (Answer: not many, that's why houses can be had for less than $10K)

    16. Jonathan Walz Says:

      Gary is Indiana’s Detroit.
      I suspect every state will have its own homegrown Detroit soon (or sooner rather than later.)
      Gary is reaching the point in the death spiral where things seem to be spinning quickly out of control, but they have actually been out of control for decades. The only difference now is that there is no reasonable way back.
      The city is the consequence of years of liberal central planning. As the money runs out, the central planners run out of funds to play with and the population suffers. We’ll see if this produces some rational political backlash, though highly unlikely, as I said…. it is Detroit all over again.

    17. The Rich Wasp Says:

      The situation in Gary just keeps getting worse. A few years ago a friend of mine was working a contract for the state government which sent him all over the state. He spent at least a couple of days in Gary. The small group he was with went out to lunch. They tried finding an ATM machine and couldn’t. So they asked a cop, who laughed and said they didn’t have any ATM machines in Gary.

    18. Joel Says:

      The residents of Gary just need to be patient, Obama dollars are surely on the way. Once they have a fair amount of Obama money things will be alright. They can hang-out at the corner and enjoy the day, then repeat each day. Their children will receive a good education and be fine. Retirement will mean even more time spent at the corner watching the day go by….God I love Barrack Obama.

    19. Mike Says:

      Enough manufacturing jobs have been exported to everywhere but the USA that the tipping point has been reached. There are now not enough good jobs to support an American style economy, or even to buy the cheap Chinese crap in the stores. The unions and company managers are jointly to blame, but mostly the unions because they wouldn’t stop pushing when the point of profitability was reached. Management were happy to relocate offshore to achieve astronomical profits and get back at the unions. They both killed the goose that laid the Golden Egg. Gary is just a microcosm of the American economy to come. This could all change overnight, literally, if we would drill for our own oil and build refineries, but the Green/Global Warming cabal WON’T ALLOW economic recovery. The Greens are a shill for Gore and Strong and their 1 World Government model, and for that model to work, Americans must be kept prostrate.

    20. Roger Godby Says:

      I recall taking the bus to Chicago around 1990 and stopping in Gary (and Hammond). Panhandlers and hookers in the bus station. Streets with ripples like Lake Michigan frozen in mid-breeze. Inhabited houses with the white plugs for spray-in insulation and, occasionally, charred areas around the windows. As we pulled out, I got to see more inhabited homes with cars out front up on blocks, yards with trash, often large (e.g., a dead washing machine). It’s all sad, as I know people in their 40s from the Region who can say they knew when Gary used to be a nice place to live.

      Went to college with some kids from the Region whose fathers were millworkers. They mainly came from Crown Point. Don’t know the commute time or mills’ locations, but it seems Gary was doing its best to scare away taxpayers decades ago.

    21. Duke Says:

      I’m no fan of Obama by any stretch, but sarcasm on Obama fixing Gary I think is misplaced. Nearly all would agree the past policies, whether environmental, labor, increasing tax burden or overly restrictive land use, largely drove manufacturing from those places like Gary and Detroit where it had been long established. There’s no one person responsible, there are many over many years and all but a handful are long off the scene. So lets look forward.
      I say we focus on basics, beginning with elected office. No more votes for promises of candy or quick fixes. The green jobs panacea has proven illusory and worse in Spain and everyewhere else its been pushed. Vote against all politicans who are in bed with unions or specific industry; loyalty must be to the voters at large.
      We must vote for politicians who promise CUTS in gov’t expenditures, which means WE accept cuts in services and programs. Otherwise we’re burdening our own kids with the debt we’re piling up. Besides, gov’t does a poor job in providing those services anyway so let a thousand new flowers bloom in its place.

    22. John Says:

      TMLutas

      John – The page you refer to seems to be from around the early 2000’s. In 2007 the caps were reworked to avoid exactly that sort of trick. Assessments are now calculated based on actual market prices for comparable homes over the past two years. This is called the “true tax value” and is relatively new. The new system just started to kick in this year (2009) and will fully kick in come 2012.

      TMLutas:

      I followed the debate etc. pretty closely this year, and I’m very skeptical of your interpretation. My tax bill went up 88% in 2008… I assure you that the value of my property didn’t go up anything like 88% (probably down actually).

      I suspect that “comparable homes” is just a name for the political process I referred to above. Do you have a more recent link where I can read up on how this is calculated now?

      It seems to me that as long as they start with the levy (how much they want to spend) and back out from there that there is no effective cap on the tax, and therefore no relief for those of us paying it, and no danger to Gary apart from the usual one of any parasite destroying its host.

      I did find this page: http://www.in.gov/dlgf/4988.htm which is seriously obfuscated, but does say “TAX RATE = Estimate of funds to be raised/net assessed value.” I think that googling “indiana property tax how calculated” doesn’t produce a state web page giving the exact formula speaks volumes about the attitude of the folks in Indianapolis.” They want this to be obscure.

      It *appears* to me that they are using the “true tax value” merely as a means of allocating the burden among tax payers, rather than as a limit to the total “levy”.

    23. Chester White Says:

      “The current Gary financial monitor’s report makes for frightening reading.”

      Why is it frightening? Anyone with any sense doesn’t live there. When Gary goes under, move everyone out and bulldoze the damn place. Should have been done years ago.

    24. Slocum Says:

      Nearly all would agree the past policies, whether environmental, labor, increasing tax burden or overly restrictive land use, largely drove manufacturing from those places like Gary and Detroit where it had been long established.

      But successful cities (Chicago, San Fransisco) in the U.S. lost their manufacturing too and did not die–in fact, they are richer and in better shape than they were back in the days when Chicago had its steel mills and stock yards. Look at Detroit — situated on the Great Lakes almost as a mirror image of Chicago. It’s the southern gateway into Canada, about half way between Chicago and Toronto. There’s no effing reason Detroit shouldn’t be a great city like Chicago or Toronto even without manufacturing. It’s not the economic downturn or the loss of manufacturing — Detroit has been dying since the 1960s, during good and bad times in the auto industry (and in Michigan and the metro region). It has been corrupt, inept governance that has destroyed Detroit.

    25. TM Lutas Says:

      Bgarrett – Unfortunately, you’ll still have Lake County politicians running your life if Gary loses its municipal charter. Freedom? Not quite.

      Slocum – For large family/clans with a mix of well off and young working class people there is an opportunity. You essentially buy up a neighborhood, pay for extra security, rehab the housing stock, put up CCTV cameras everywhere, and move in enough of your relatives so that there’s a core group of people who care. The problem with doing it in Detroit is that death spiral cities latch on to remaining areas of functionality and tax/regulate them to death in an attempt to stay alive just a bit longer.

      The Detroit suburbs are filled with people who tried to escape from Detroit. Lake County is filled with refugees from Gary. The psychology of both populations is to contain their poorly run neighbors, making it difficult for them to be “overrun” Chicago has a different attitude.

      I very much agree with your second comment.

      Jonathan Walz – The difference is that Detroit is the county seat of Wayne county, Michigan. The county seat of Lake county, Indiana is Crown Point. You kill Detroit and you kill the county, not just the city. With Gary it’s different. I’m hoping that makes a difference.

      Joel – Obama dollars have already arrived via the ARRA. Gary has used those dollars to hire extra police and now cannot cut the police force for the next three years. This makes public safety budget cuts much more difficult. Unintended consequences, meet Gary.

      Mike – I pray for the day when you won’t be saying “the Greens” but rather have access to a quick report that identifies each politician doing it, the acts they are responsible for, and their major opponent in the next election. The impersonal nature of “the Greens” lets a lot of bad actors off the hook. That’s not your fault. I am working on this problem.

      John – I think you were very close. On the same site look for circuit breaker information ( http://www.in.gov/dlgf/8225.htm ) and you should get more specific information.

      Chester White – The differing fates of Trabant and Dacia (both E European communist era car brands) are the reason why bulldozing and starting over may not be the best idea. Trabant shut down, Dacia retooled and partnered with Renault. Today new models are being sold in a couple dozen countries and it’s making popular cars and sports increasing brand equity. I hope you agree that the latter is the better solution. It’s the same with Gary.

    26. Slocum Says:

      Slocum – For large family/clans with a mix of well off and young working class people there is an opportunity. You essentially buy up a neighborhood, pay for extra security, rehab the housing stock, put up CCTV cameras everywhere, and move in enough of your relatives so that there’s a core group of people who care.

      But land and houses in better areas in the region are just not so expensive that a group with that kind of ability would want/need to locate in the city of Detroit itself.

      The problem with doing it in Detroit is that death spiral cities latch on to remaining areas of functionality and tax/regulate them to death in an attempt to stay alive just a bit longer.

      Well, yes. Property values are low, but tax rates are high. If you do manage to build something of value, the taxes will get onerous very quickly.

      BTW, what blows my mind as much as the $7K blue-collar houses in Detroit are lovely, 5000 sq ft arts & crafts mansions in green neighborhoods for next to nothing:

      http://www.trulia.com/property/photos/1094355402-19430-Suffolk-Dr-Detroit-MI-48203

    27. Bruce Says:

      Grant- JFK broke US Steel in 1962. By 1970 Gary was a sufficiently notorious slum that Obama could claim moral credit for helping Gary steelworkers. Maybe the old mills have kept output about even since the 70s?

    28. Jonathan Walz Says:

      Slocum, I’m not optimistic about the situation as quoted in your previous post

      But successful cities (Chicago, San Fransisco) in the U.S. lost their manufacturing too and did not die–in fact, they are richer and in better shape than they were back in the days when Chicago had its steel mills and stock yards.

      Chicago is in bad shape, and the worst is coming in the next year when real estate taxes will be re-assessed. The city is already out of money, taxed to the limit, the free-fall that is coming when revenues drop (severely) will probably be similar to Gary and Detroit where it is not just city services which are affected but actual blight, the decay of buildings, the flight of business and affluence. Chicago is well on its way to ruin, not that I am a doomsayer by nature, but most cities and local governments have seen their apex and are now sliding towards contraction because revenues cannot be sustained over the ever expanding trend in spending.

      Gary is just a step in the path. Detroit, Chicago, Los Angeles, New York, San Francisco….. Not all cities, some will do well, but those run over the long term by liberal mayors and governors, many will fail.

    29. Jonathan Says:

      Nice website, Jonathan Walz.

    30. david foster Says:

      A big part of the problem with integrated steel companies like US Steel and Bethlehem Steel was the emergence of the mini-mill, which makes steel from scrap rather than from iron ore. Start-up mini-mill companies, like Nucor, were very aggressive and innovative, and grabbed a lot of share from the big established firms. Excellent writeup on Nucor in Richard Preston’s book “American Steel.” An analysis of the strategic failings of “big steel,” and much else, in “The Innovator’s Solution,” by Christensen & Raynor.

      Mini-mills use large quantities of electric power, and the war on energy being conducted by the Democratic Party could do grievous harm to this industry.

    31. Bruce Says:

      David Foster- thanks for the recommendation. I’ve only read his ‘Innovator’s Dilemma’.

      You’d think a mini-mill would have the capital to run its own coal furnace, with a greenhouse on the roof. Zero carbon emissions.

    32. david foster Says:

      Bruce…I have a review of the newer Christensen/Raynor book here.

    33. TMLutas Says:

      Jonathan Walz – The cities that can reduce their cost basis while most retaining their attractiveness will fare well. Those that are inflexible and cannot adjust fast enough will fail. The great majority will be be in between the extremes. It isn’t foreordained that any city will thrive or fail in my opinion. Instead it is a matter of the flexibility and innovation of its political class. Chicago may very well be doomed but it’s not inevitable.

    34. Joseph Somsel Says:

      San Francisco is not doing well at its core.

      It has become something of a bedroom community for Silicon Valley and its properties are part of an international market given its location and scenic assets.

      However, the middle class (except for the Silicon Valley commuters) is going quickly leaving the rich folk with the views and a bunch of poor doper slackers and welfare types.

      You can get a job there waiting tables on Fisherman’s Wharf or selling tie-dye shirts in the Haight-Ashbury but even the financial and corporate centers have moved to the ‘burbs (Chevron, for example, in San Ramon, Clorox in Oakland, etc).

      San Francisco is dirty with more and more weirdos roaming the streets.

    35. vimothy Says:

      An unnecessary problem with a simple solution: the Federal government gives it the money it needs.

    36. Resident Says:

      One thing to add –

      Miller is the beachfront area of Gary and one of the few places you can by an elaborate property on the lake for a very reasonable price. Of course, since property prices in this area of Gary are at $100,000+ property owners have been pretty much subsidizing this city.

      It will be interesting to see what happens to this area of Gary. Some people there have been interested in de-annexation but that’s pretty expensive. Other people in this area have been hoping for a state takeover. Of course, most think that’s the last thing “My man Mitch” or anyone in Indianapolis really wants to do.

      It would be interesting to see what you all think about this matter.