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State and Local Government Squeeze is On

Squeeze is on for the state and local government borrowers. With options dwindling austerity destined to become only recourse. To the extent these governments avoid tax hikes, the budgetary axe will have to fall. Union agreements will be destroyed, pension funds will reorganize, and all will come face to face with a new reality: harsh beyond all previous expectations.

America’s states and cities took another hit Wednesday – California Bond Woe Bodes Ill for States

California saw tepid demand for its latest bond sale while other governments pulled about $700 million worth of borrowing deals this week. Investors continue stepping away from the municipal bond market…

After pouring billions into municipal bond funds most of the year, investors pulled $115 million out of the funds last week, the Investment Company Institute said Wednesday. That was the first weekly outflow in seven months, ICI said.

“The tax-exempt municipal bond market is a cold, cold world right now for issuers and taxpayers,” Tom Dresslar, a spokesman for the California State Treasurer, said late Wednesday. He added that the state decided to cancel another $267.3 million bond sale it planned to price next week “in light of market conditions.”

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