CBO releases report on local governments’ fiscal stress
Local governments continue to face fiscally challenging times, but default on municipal bonds and municipal bankruptcies continue to be rare, according to a new Congressional Budget Office (CBO) report. Along with information on the use of municipal bankruptcy and default, CBO's "Fiscal Stress Faced by Local Governments" describes the economic conditions and budgeting practices that can put fiscal stress on local governments, and it reviews the options available to local, state and the federal government for addressing such financial difficulty.
According to the report, of the 18,400 municipal bond issuers rated by Moody's Investors Service from 1970 to 2009, only 54 defaulted during that period, most of which were special districts that had issued debt to support housing or health care facilities. Only six cities, counties or towns defaulted, though the number of defaults has grown in recent years, and this year's defaults exceeded $4 billion.
The decline in property taxes has been the primary cause of fiscal stress for local governments, according to the CBO report. Most governments have responded with budget cuts, and the report notes that there were 241,000 fewer local government employees in November 2010 than there were at the start of the recession in December 2007. Overall, local governments have reduced spending in real terms by 0.6 percent in 2008 and by 1.9 percent in 2009, according to the report.
Download "Fiscal Stress Faced by Local Governments."