How bad are municipal finances?
The Center on Budget and Policy Priorities estimates that budget shortfalls for just state governments will top $650 billion over the next three years. This is worse than the Great Recession.
Analysts are warning about a tsunami of credit-rating downgrades and defaults. The only reason why the $3.9 trillion muni-bond has yet to collapse is because the Federal Reserve triggered a $2.3 trillion Main Street Lending Facility program that acquires state and municipal bonds.
But this measure only provides a temporary band-aid.
States, counties, and cities are going to be drowning in so much debt that they will be unable to recuperate their losses. Plus, many jurisdictions were already up to their necks in red ink.
Some experts say that their rainy-day funds are better than what they were a decade ago during the financial crisis. However, their cushion is insufficient to handle the economic fallout from the coronavirus pandemic.
Here is an interesting chart from Bloomberg that examines the states with budget gaps:
And all this madness does not even include the pension crises facing too many states due to overpromises by politicians.
Pass the razor blades!
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