Another article on why munis are a risky investment

[Ad Orientem]

ALBANY — It was not a good week for New York’s cities and counties.

On Monday, Rockland County sent a delegation to Albany to ask for the authority to close its widening budget deficit by issuing bonds backed by a sales tax increase.

On Tuesday, Suffolk County, one of the largest counties outside New York City, projected a $530 million deficit over a three-year period and declared a financial emergency. Its Long Island neighbor, Nassau County, is already so troubled that a state oversight board seized control of its finances last year.

And the city of Yonkers said its finances were in such dire straits that it had drafted Richard Ravitch, the former lieutenant governor, to help chart a way out.

Even as there are glimmers of a national economic recovery, cities and counties increasingly find themselves in the middle of a financial crisis. The problems are spreading as municipalities face a toxic mix of stresses that has been brewing for years, including soaring pension, Medicaid and retiree health care costs. And many have exhausted creative accounting maneuvers and one-time spending cuts or revenue-raisers to bail themselves out.

The problem has national echoes: Stockton, Calif., a city of almost 300,000, is teetering on the verge of bankruptcy. Jefferson County, Ala., made the biggest Chapter 9 bankruptcy filing in history in November and stopped paying its bondholders. In Rhode Island, the city of Central Falls declared bankruptcy last year, and the mayor of Providence, the state capital, has said his city is at risk as its money runs out.

New York City’s annual pension contributions have increased to $8 billion from $1.5 billion over the past decade.

Read the rest here.

[stone]

In the UK, local government stays in credit. They don't issue bonds, instead they keep a cash float (unfortunately for our local authority it was in an Icelandic bank in 2008 ). To my mind if an authority doesn't issue its own currency, then it definately makes sense to keep it in credit not debt. To be honest, to my mind Euro zone countries would probably be better off staying in credit for that reason.