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alstry (35.03)

Why would you buy a municipal bond???

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July 23, 2009 – Comments (3)

As some of you know, credit creation and spending drove our economy for the past twenty years.

Municipalities borrowed trillions and spent the $$$$ supercharging our economy.

Looking at Cities, Counties, and States currently....more and more are having a difficult time servicing debt and paying employees at the same time.  Now that tax receipts are evaporating, who in their right mind would loan money to a municipality?

If they can barely cover their existing debt service with existing revenues, how could municipalities cover more debt with less income?

Detroit is on the brink of bankruptcy.  So are many cities in California.  Jefferson County Alabama is on the brink and Philly is really chilly these days.

It is amazing, America is debating health care while our municipalities are imploding and few are commenting.

 

3 Comments – Post Your Own

#1) On July 23, 2009 at 11:47 PM, alstry (35.03) wrote:

From the WSJ:

SACRAMENTO, Calif. -- State lawmakers on Thursday evening were preparing to vote on a proposal to close a $26 billion budget deficit, but the plan likely will be a stopgap that passes the state's financial woes on to the next year and the next governor.

The state will probably amass an additional shortfall of as much as $10 billion during this fiscal year, economists say, calling revenue projections for the proposed budget too optimistic. And the financial woes will likely persist for at least the next several years. Though lawmakers are cutting $16 billion in spending, they are closing the remaining $10 billion gap with borrowing, accounting gimmicks and asset sales that will be impossible or difficult to replicate in the future.

$16 billion in cuts this year....$20 billion next year???  What kind of debt rating will CA get if it tries to float bonds?

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#2) On July 24, 2009 at 12:38 AM, Donnernv (< 20) wrote:

Why don't you ask/challenge Bill Gross at Pimco?  It would be fun watching you get your ass handed to you on a platter.

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#3) On July 24, 2009 at 7:56 AM, alstry (35.03) wrote:

Donner,

Many cities are teetering on bankruptcy right now before the state raids funds, imagine more than double the cuts NEXT year.

 

From CalRisk:

Placentia city officials are howling in effort to keep state hands out of their coffers. The plan to seize millions could bankrupt the city, they say.

"We may have to declare bankruptcy – that's how serious this is," said City Administrator Troy Butzlaff. "This is something the system can't endure. We just avoided bankruptcy by doing all the right things; by cutting back, by getting concessions from staff, by cutting $4.5 million over last year's budget."
...
Butzlaff said earlier this week the state legislators' budget proposals could take roughly $900,000 from gas tax money, $800,000 from property tax money, and $400,000 from the Redevelopment Agency.
...
"Some of my cities are in good shape, some are teetering on the edge," [State Sen. Bob Huff, R- Diamond Bar] said. "It's not fair for the state to outsource its miseries to the local level."

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