A recent article clearly and succinctly describe why we are having a Municipal Bond crisis and why state and local governments are struggling. We’ve covered many of these in the past, but it is nice to consolidate the problems in one clear article.
- The recession
- Spending boom
- Healthcare costs
- Pension costs
Tax revenue, at its worst point in early 2009, fell 11% from previous years level. Most Municipalities count on taxes as their primary revenue source. As the economy recovers, tax revenue will slowly increase.
During the boom years of the mid-2000s, state and local tax revenue rose 36% and government happily spent that money. Now we are adjusting back to the new normal.
Healthcare costs continue to rise. Medicaid spending is approximately 22% of all state spending. Clearly we need some type of healthcare reform.
Some states are way behind in funding their pension liabilities. Some assume that the long bull market would fulfill most of the obligations. Clearly this assumption needs to be rejiggered. It is the time to pull back on these generous pensions. In aggregate, more than 80% of state pension liabilities are funded.
Additionally some states have underfunded Unemployment Funds.