Saturday, March 31, 2012
Cities get desperate when it comes to their debt
The federal debt is constantly covered in news, especially with policymakers starting to preliminary introducing budgets for the next fiscal year. However, how about municipal debt? Cities such as Detroit are considered in critical condition when it comes to the amount of debt they owe. Remedies include declaring bankruptcy, an oversight problem monitored by the state, or avoiding bankruptcy as all costs due to the negative stigma attached to the concept.
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4 comments:
I can't seem to locate the article you're talking about. But what will happen if a city has to declare bankruptcy? DO they have any collateral that can be taken away?
I was hoping the article would contain some discussion regarding the implications of the tax code for municipal debt. Although the wealthy have been roundly criticized in the media (particularly after the release of Romney's tax forms) for avoiding a high effective rate, they are largely able to do so due to their capital gains and investment in tax-free investments, of which municipal debt is a large proponent. If interest income from municipal debt were taxed, municipalities would probably have to finance at a much higher interest rate, and the debt burdens on cities would be substantially larger.
One of the options that these cities also have is to sell or lease assets to private industries. City-run assets and services may need to be turned over to the market in order to stave off bankruptcy.
I agree with Chris. As the economy continues to recover, it is likely that steps will be needed in the mean time to prevent more bankruptcies from having to be declared. Privatizing some public services may help this issue and may even make things more efficient for consumers.
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