This past Friday's jobs report showed continued strength in jobs numbers for state and local governments, led by the latter. This year, local governments have added 45,000 jobs, which may not sound like much, but municipalities had lost jobs in nearly every preceding month going back to the summer of 2008. (Total US nonfarm employment, by contrast, has been growing since February 2010).
But just as stability has returned to the state and local employment picture, borrowing costs have started to climb. Ben Bernanke's
June speech that the Fed is considering taking its thumb off the scales of the nation's money supply stimulated anxiety throughout all financial markets, including the municipal bond market.
Though still low by historic standards, yields are rising, which means higher interest rates for new schools and transit improvements. It is worth noting that total state and local credit market debt has not grown significantly during the easy money era. Total outstanding state and local credit market debt stood at $2.9 trillion in 2008 and is now almost $3 trillion, a 5% increase (figures are rounded), lower than the increase in corporate debt (17%) and, obviously, Treasury debt (88%). The golden age for capital improvements may be coming to an end before it ever got started.
One reason why state and local governments have not been a position to address their capital needs is because of elevated pension costs. Pension spending is up, but not enough to keep track with systems' actuarially-determined schedules. The Center for Retirement Research at Boston College's
recent survey of 126 of the nations largest pension systems' health found that, in 2012, sponsors contributed only 80% of their required payments.
the big problem many localities are facing is a decline in revenue, caused by reduced spending and sales tax revenue (thanks to Obamanification), the housing market collapse (property values dropping, foreclosures, etc), and a general lack of investment as a result of the Obama Recession. At the same time, costs for everything from healthcare to gasoline continue to increase, and demand for services continues to rise. Bad combinations.
