“More U.S. cities set to enter default danger zone”

A Reuters story suggests more municipalities are having trouble keeping up with their debt:

Bond defaults were $25.355 billion in 2011, or nearly five times the value of defaults in 2010, according to Lehmann. In 2012’s first quarter, defaults totaled $1.245 billion, or more than double the $522 million of last year’s first quarter.

Municipal bankruptcies, such as last November’s landmark, $4.23 billion Chapter 9 filing by Alabama’s Jefferson County mainly because of its excessively expensive sewer system mocked as a Taj Mahal project, have picked up, too.

Chapter 9 municipal bankruptcy filings doubled to 13 in 2011 from six in 2010, but still remain rare among the more than 60,000 issuers, with only 49 of the 264 cases since 1980 being towns, cities, villages or counties, according to James Spiotto of Chapman and Cutler LLP. States are ineligible for Chapter 9.

Outsized pension-deficit payments and other liabilities, as well as depressed local economies or failing government projects such as Harrisburg’s trash incinerator, often herald crises, according to Ciccarone.

While much of the focus has been on the national debt and national figures (such as unemployment, jobs created, where to set the tax brackets, etc.), all of this is trickling down to the local level. Since many municipalities and local taxing bodies are heavily dependent on property taxes, a decrease in housing values and a continued sluggish housing market suggests many communities will struggle to find revenue. In other circumstances, local bodies might be able to look to states and the federal government for monetary help but they have their own issues during this economic crisis.

I would love to see experts speculate on where this all will end up in five or ten years. Are we legitimately in danger of a lot of municipal governments defaulting? If so, how will this affect local services? How will residents respond to what will be more fees and taxes even as their services might decrease? Could the wealthier people respond with their feet and move to more financially solvent communities?

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