The Credit Crunch and Municipal Bonds…NY Times
In “Under Strain, Cities are Cutting Back Projects,” Mary Williams Walsh of the NY Times reports on the impact of the credit crunch on municipal bond markets. As you might guess…the impact has not been positive.
The article concludes with an analogy from Thomas G. Doe, president of Municipal Market Advisors. Doe says that while there won’t be widespread default on municipal bonds, local government budgets will tighten up because of credit scarcity.
“It’s no different from a family budget,” he said. “We’re not going to go out to dinner any more. We’re not going to buy a new car. That’s the similarity.”
What does this mean for local municipalities?
It increases the importance of prioritizing projects, choosing those that will yield the highest return. Sewers, bridges, rail lines, and roads are all investments for a local government. Even more than usual, local municipalities will be forced to choose wisely between competing priorities in the face of increasingly scarce funds.