The U. S. economy is diverging by geography as never before.
The Phenomenon – businesses and taxpayers are migrating away from large metro areas in high tax states, in favor of mid-sized metro areas in low tax states. NYC, Chicago, LA, Seattle and dozens of additional legacy metro areas are seeing their tax bases deteriorate at very high rates. Most of these same cities grew their expenses by 40% during Covid, and have struggled to balance budgets since 2024.
The Consequences – property taxes represent 50% to 70% of taxes collected at the local level. Median price property values are stable, while the top quartile is off by 30% from the highs of 2023 in deteriorating metro areas. As a result, as municipalities are forced to cut back departments providing health & human services, education, police & fire, the taxpayer exodus accelerates. As economic activity collapses, operating risk has risen substantially with some national retail outlets citing Y/Y declines of 70% in the most problematic locations. Rising credit risk and risk of fraud align with these same locations. The downward spiral mirrors what was observed in Detroit, which led to its eventual bankruptcy.
Conversely – capital investments provide great insight as to what the future will look like. The U. S. is in the early stages of a manufacturing renaissance, with the build out being concentrated in upper Midwest, down through the South and Southeastern states. The investments in manufacturing and energy production dwarf all previous waves of capex. Inbound taxpayer migrations are paralleling the investment locations.
Within the presentation, we will provide deep insights regarding managing downside risks as a priority. We’ll then shift to an opportunistic posture for capitalizing on what is shaping up to be rapid development and growth in selected areas.
Speaker:
Paul Hill, Chief Economist - JSI Analytics