Monday, October 20, 2008

The Debts of the Spenders: The State of Disunion

Falling property values have thrown a massive wrench in the gears of state and municipal financing in the US. Local governments that relied on property taxes on ever unrealistic real estate valuations now find themselves in the uncomfortable position of re-evaluating their budgetary projections. Unfortunately for them, political promises are hard to break . . .especially to powerful interest groups such as state employee unions, seniors, and transportation agencies.

For ex: California's revenue shortfall has increased by $3 billion in 2 WEEKS since their budget bill was passed!

Translation: State income taxes will skyrocket in order to cover for a massive shortfall in property tax revenues. Moreover, municipal bonds have started to look attractive to investors again as governments are being forced to hike interest rates. Whether or not they will retain their tax free investment status remains to be seen as cash starved governments continue to look for ways to stretch their budgetary needs.


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