The Next Tsunami? Municipal Defaults
Think the Economy Is Bad? Wait Till the States Cut Back
New York Times
State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.
The above is an issue that concerns me a lot. As property values fall so to tax receipts. As profits fall so do tax receipts. As building slows so does usage and permit fees. As sales slow, so do sales tax receipts.
The problem is most municipalities budgeted for rising revenues and borrowed and spent accordingly. Most have had their head in the sand about the reality of falling revenues. Very shortly, that reality is about to smack them in the face.
I am not sure we have ever had period where government was so leveraged and revenues slowed so dramtically. Quite frankly, I am not sure how we solve this one short of mass governmental bankruptcies.