State and Municipal Bankruptcy, Municipal Bonds, and State and Local Pensions

A group of associations representing the interests of state and local governments has released a fact sheet targeting misconceptions in state and local finance.

A year ago banking analyst Meredith Whitney predicted 50 to 100 sizable municipal bond defaults or more.  The facts are in:  from 1970 to 2011, there were 65 rated municipal bond defaults; only five rated city or county governments defaulted during this period, according to Moody’s Investment Services.

While cities and counties have faced ongoing fiscal constraints,  the vast majority of them  are handling their debt service and pension obligations without breaking the budget.  Eleven national associations, including the Big 7 state and local government associations as well as four organizations which represent state and local finance (National Association of State Retirement Administrators; National Association of State Budget Officers; National Association of State Auditors, Comptrollers, and Treasurers; and the Government Finance Officers Association) have released a 2012 fact sheet, Facts You Should Know, to set the record straight.

Municipal bankruptcy, municipal bonds, and state and local pensions have been the target of increasing scrutiny from a variety of sources, most notably the U.S. federal government, which has considered the possibility of intervention in state and local financial matters.

Facts You Should Know goes into detail to provide the facts on state and local finances. Major themes include:

  • Defaults on municipal bonds are unique, and rare.
  • Debt service remains a small part of municipal budgets.
  • Most state and local pension systems have the assets to weather the economic crisis.
  • State and local governments are taking steps to improve their financial situations.

The overwhelming themes of Facts You Should Know include the notion that federal intervention in matters of state and local finance are unwarranted and unwelcome, and that state and local governments differ in function and scope and should be examined and treated differently under those inherently unique conditions.