The Municipal Meltdown. Current Health of U.S Municipalities (Videos / Links)

Sunday, October 19, 2008

The Municipal Meltdown. Current Health of U.S Municipalities (Videos / Links)

We have seen forced liquidations in every asset class except U.S treasuries recently, and surprisingly it has affected the investment grade general obligation municipal bond market, normally a safe haven like treasuries. Counties, cities and school districts have been directly affected by the credit crunch which rely on taxes and continuous funding for various local projects. The result of the housing bust and mortgage meltdown have lowered real estate taxes significantly which are a huge portion of revenues. Plus revenues from building permits, business licenses, sales tax, and state aid are falling due to the slowdown. So now, just like the banks, debt coverage could become an issue which is why some municipalities are looking to cut programs and even seek short term funding from the Fed. However, the new commercial paper program structured by the Fed does not extend to municipal issuers.

Earlier this year Vallejo, CA went bankrupt (video below) and now Jefferson County, Alabama is on the verge of seeking bankruptcy protection. Go to my post a few days ago 'Jefferson County, AL - Possibility of Biggest Municipal Bankruptcy'.

Vallejo, CA Files for Bankruptcy

Officials at municipalities have publicly stated they don’t understand why Wall Street gets a bail out while municipalities get left in the dark. Municipalities run the backbone of our country's day-to-day operations! The Treasurer of Arizona came on Bloomberg recently stating they will have a cash crunch if the credit markets don’t improve, and have asked the Government for funding. Also watch recent Bloomberg interviews with the treasurers of Florida, Massachusetts, and California.

Credit Crunch Spotlight – Arizona