As we watch the slow funding-death spiral of Sacramento County—one among many local governments suffering—the major funding source for the Parkway, it is instructive to examine how local governments in general have wound up in such a precarious position.
This article from the Manhattan Institute did that.
An excerpt.
“Speaking to the Wall Street Journal last week, the comptroller of Harrisburg, Pa., sounded downright glum as he explained his city's diminishing prospects of meeting a big upcoming bond payment. Harrisburg has just $1.2 million cash on hand and faces payroll costs alone of about $3 million a month. Even worse, it has about $17 million in debt payments coming due, a result of a series of "dizzying debt deals" according to a local newspaper. "We can't raise taxes; they're already very high," the comptroller explained. "If we did, people would just leave."
“At least Harrisburg can take comfort in that it is not alone. A decade of exuberant, oftentimes unnecessary and occasionally barely legal borrowing by states and municipalities on top of rising employee costs have prompted increasing talk of a wave of defaults on municipal debt unlike anything since the Great Depression. So heated has the talk become, in fact, that the California legislature is considering a bill that would make it harder for its municipalities to declare bankruptcy because of worries that many will want to do just that (this is the same legislature whose own state government had to issue IOUs last year to pay its bills).
“Increasingly, public officials have blamed their debt woes on the sharp drop in tax revenues from the recession, and so a clamor for bailouts has been growing. But as the debt crisis intensifies we should look more closely at its causes. Although in theory a market where governments can issue tax-free debt to fund long-term projects seems like a good idea, in practice the municipal bond market is increasingly abused by politicians who use the debt to finance ill-advised projects that taxpayers don't want, or employ borrowing to evade tax and spending limitations in state constitutions or local laws, or who simply see debt as the source as another pot of money for political patronage.”
