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Closer to Home: Let’s Talk About Municipal Finance

Posted by Larry Doyle on March 20, 2009 12:29 PM |

It appears that almost every financial road lately leads to Washington. Wall Street banks, Detroit based automotive companies, and large insurance companies have all come to Washington to find the financial support that private markets will not provide. Although these large behemoths have attracted the bulk of the media’s attention, the financial health and well being of our state and local municipalities has an equal, if not greater, impact on our personal lives and financial standing.

With municipal pensions rocked by the selloff in the stock market and tax revenues declining as incomes plummet, what will happen to our state and local budgets? Virtually every municipality in the country is faced with the same predicament – that is, rising liabilities and declining asset values and revenues. How do they handle that widening budget deficit? Increased layoffs and rising tax rates both put a greater burden on our communities but they are a reality.

As financial conditions for states and municipalities become more challenging, the ability to raise funds in the municipal bond market becomes more problematic. I have recently noticed that rates on a host of municipal bonds have been increasing as the reality of this situation becomes more evident.

What is a state to do? Well, what has every other entity in need of financial help done? No, it’s not time to call Ghostbusters, but do not be surprised to see calls to Uncle Sam to provide a degree of insurance for municipal bond issuance. House Panel May Call for Federal Guarantees of Munis

While most people may view this sort of Federal insurance as appropriate in the midst of all the other government backstops, I would raise the question of  “once the Feds get into a market, how do we ever get them out?” My concern then becomes that the long term cost to taxpayers, at both the local level and federal level, will inevitably be HIGHER.

“You can pay me now or you can pay me later!”


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