The finances of States, Counties and Cities appear to be in bad shape. Things may only be getting worse. Munis and Insurance or guarantees are not the whole story, not any more, not now.
As readers of this space know, "munis" is short for "municipal bonds," a broad one-word identification of all kinds of State, County, City and other Local Government-issued Bonds. Recently, Bond Insurance Companies became unable to sell Bond Insurance. Unregulated non-Insurance Companies have offered Credit-Default Swaps instead of Insurance as supposed guarantee agreements on the bonds. Some reports are that munis are not sellling; other reports have it that wealthy investors are buying munis anyway in order to avoid taxes under the incoming Administration.
Local Governments are facing financial situations that go way beyond munis. Their problems include paying higher returns on munis in order to entice investors. However, the fiscal problems of Local Governments reportedly only include munis and are not by any means limited to munis.
Governors in States including California and New Yok are expressing needs for a Federal bailout. Some of the problems States face at this time Include cuts to higher education. Courses are being cut, instructors are being released, and tuition is climbing rapidly at a time when people cannot easily afford increased tuition in particular.
The States are also concerned about their share of Medicaid reimbursements. More people are rapidly and involuntarily joining the ranks of the unemployed. They lose access to Employer-provided Health Insurance Plans. Medicaid, where available, assumes greater and greater importance as a social safety net.
Further, States are searching for ways to fund their Unemployment Insurance Funds. Reportedly, New York, Michigan, Indiana, Ohio and Souh Carolina have reserves on hand adequate to pay 3 months or less of the average Unemployment Insurance Benefits in their States. See, .e.g,, Keith B. Richburg and Ashley Surdin, "Facing Shortfalls, States Seek Emergency Aid From Washington" (Washington Post.com, Sunday, November 16, 2008). See generally Jennifer Steinhauer, "Facing Deficits, States Get Out Sharper Knives/Huge Revenue Decline/Deep Cuts, U.S. Loans, Hiring Freezes, Taxes Are All on Table" p. A1, col. 1 (New York Times Nat'l Ed., Monday, November 17, 2008).
Philadelphia, Atlanta and Phoenix are Cities that have already applied to the current U.S. Treasury Department to participate in receiving bailout funds. San Jose, Los Angeles and San Francisco are reportedly readying their own applications for bailout assistance, too. Reportedly, if the Federal Taxpayer Funds are received by these Cities they will be used for a variety of purposes including construction projects, pension and retirement costs, water-treatment facilities, and transportation projects. Adam L. Cataldo and William Selway, "U.S. Cities, Reeling From Deficits, Seek Bailout Cash (Update 3)" (Bloomberg.com, Friday, November 14, 2008). See, e.g., Money & Co. Blog, Los Angeles Times Online, Business Section, "Philly, Atlanta and Phoenix Ask Treasury For $50B For Cities" (Posted Friday, November 14, 2008).
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