Grand Rapids, MI -- (ReleaseWire) -- 08/07/2013 -- In today's world it is hard to stay abreast of everything that is happening financially. Dennis Tubbergen, a financial advisor, author, radio show host and CEO of PLP Advisors, LLC can be counted on to give a hand when it comes to understanding the latest events in U.S. and world economics.
Whether people enjoy his monthly newsletter at http://www.moving-markets.com or his blog at http://www.dennistubbergen.com, Tubbergen is dedicated to sharing his viewpoints and opinions. On August 6, 2013 his blog was titled Another Example of a Municipality Feeling the Pinch of Economic Winter.
"While all eyes are on the City of Detroit as a result of their recent bankruptcy filing, other municipalities are feeling the pinch of economic winter," began Tubbergen. "Rosy investment assumptions on pension funds and declining tax revenues have municipal managers and politicians thinking outside of the box in order to attempt to balance budgets. “The Providence Journal” reported recently that the City of Woonsocket, Rhode Island has elected to send supplemental tax bills in an effort to get last year’s books in the black.
Below are highlights from the July 28, 2013 article Tubbergen quotes.
When about 30,000 supplemental tax bills are mailed out Tuesday, it will be, city officials hope, the last major part of a five-year plan to balance the city’s books, pay off an $8.1-million deficit and stabilize the pension fund.
The supplemental tax will raise $2.5 million from multifamily residential real estate and motor vehicles, and the money will be used to balance the 2012-13 budget, which ended June 30. That assessment is also built into the 2013-14 tax rate, along with a 4-percent tax increase and a cut in the homestead exemption, which means the average homeowner in the city will see a 23-percent increase in his or her tax bill.
The article continues:
The average residence in Woonsocket is worth $150,000. Assessor Christopher Celeste said that meant a tax bill of about $2,952 in the last budget year. But this fiscal year, with the cut in the exemption and the rate increase, that owner will owe about $3,629, an increase of $677.
Added to that is a nearly 19-percent supplementary tax on vehicles. That revenue is being applied to the 2012-13 budget year.
"Here is the potential problem with that approach – people move and tax revenues decline further," explained Tubbergen. "Take a Woonsocket resident who is upside down in her mortgage. She now gets a property tax bill that is 23 percent higher than the prior bill and pays more to operate her vehicle in Woonsocket. This action by city governance could easily be the catalyst to get her to move; she might decide to walk away from her house and just start over."
Tubbergen adds, "Interestingly, these current supplemental tax bills are to pay for last year’s budget. That’s the type of thinking that can work for awhile in an economic autumn season but is doomed to fail in an economic winter season. By taxing from today’s production to pay off yesterday’s consumption, the city will have less of today’s production to spend today."
In other words, states, Tubbergen, the deficit problem will probably get worse rather than better. In an economic autumn season, when tomorrow’s production may be greater than today’s production, that strategy can work. On the other hand, if tomorrow’s production declines or even stagnates, the strategy backfires.
"That’s what is happening in many municipalities all across the country," concludes Tubbergen. "As I’ve stated previously, I believe this trend will continue and intensify as this economic winter season progresses."
To read the blog in its entirety go to http://www.dennistubbergen.com and select his August 6, 2013 entry.
About Dennis Tubbergen
Tubbergen’s syndicated radio show can be heard on metro Michigan stations WTKG 1230 AM and WOOD Newsradio1300 AM and 106.9 FM.
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of PLP Advisors, LLC and has an online blog that can be read at http://www.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to www.moving-markets.com.
The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.