America's Latest Export: Empty Municipal Coffers

[Purveyor]

Financial Armageddon, the meltdown, the crisis, or whichever title fits the bill this week, is about to enter another even more damaging phase in America.

And it would pay for the rest of the world to take notice because a fair amount of evidence has piled up in recent months to prove the adage about America sneezing and everyone else catching a cold.

--SNIP--
So what's next? What could possibly come along in the middle of this series of economic nightmares to make things even worse? How about a total depletion of local government finances that pay for the things that make up the very fabric of American society. Imagine that rippling across the rest of the world, reducing public services to skeleton operations.

Arnold Schwarzenegger, the former Terminator star turned governor of California, wrote a rather troubling letter to Paulson a couple of weeks ago warning him that the Golden State is in need of about $7bn to meet short-term spending needs.

The money is raised in the bond market to pay the wages of police officers, teachers, judges, attorneys, the National Guard and every other civil servant you can think of. It is also used to pay for the general upkeep of the state - the roads, bridges, tunnels and the essential infrastructure.

California State Treasurer Bill Lockyer is trying to raise a bond issue to help meet the payment, but it is proving very difficult with the debt markets being locked up as they are. And time is running out. Schwarzenegger needs to raise the money before the end of this month or thousands of policemen, teachers and other civil servants will not be paid, prompting who knows what kind of industrial action and civil unrest.

MORE...

GUARDIAN OBSERVER UK: http://www.guardian.co.uk/business/2008/oct/12/usa-government-borrowing

[nichomachus]

1. I've been teeling this to anyone who would listen -- for years

This is the plan -- this is the Norquist goal -- to bankrupt governments at every level so they can't provide any services to citizens.

They're succeeding tremendously. I've been keeping a file of these stories from various communities. I call it my "We had no choice" file, because that's what they say almost in unison every time they close a school, lay off cops and firefighters, cut library hours, whatever -- "We didn't want to do it, but we had no choice."

The GOP is a cancer eating the US from within. We need to cut it out and destroy it.

[lapfog_1]

2. Municipal bonds should never be used to pay "ongoing regular" expenses

They are the instrument by which cities and town... and even states use to raise money for capital improvements, infrastructure if you will. Since the payout on those bonds is from future tax revenue (Property taxes, sales taxes, levies, usage fees, etc), to use it to meet the salaries or rents would be extremely foolhardy. What do you do in the next year when you have to pay salaries again (and now the first installment on the bond)??