The municipal bond market’s view of city budget woes, via Goodwin Procter’s take on the Pew report about struggling cities (which is worth reading):

A recent report issued by The Pew Charitable Trusts American Cities Project describes how the Great Recession has sandwiched municipalities between an increased demand for services and an inability to raise the revenue required to meet the cost of current services or legacy obligations.

This problem is widespread and comes at a time when state aid to local governments has also declined. According to the report:

State aid to local governments fell by $12.6 billion in FY 2010, with additional cuts in 2011 and 2012.

Simultaneously, local governments lost $11.9 billion in property tax revenue in FY 2010.

The stark reality faced by municipalities is that services must be cut and legacy obligations reined in.  Privatization of services, regional partnerships, layoffs and budget cuts appear to be the only way that municipalities can begin to operate in the black.  

While municipal defaults and bankruptcies remain rare, bankruptcy, or the threat of bankruptcy, will continue to be a useful tool for municipalities that must force compromises and lessen their debt load.  And, for the truly troubled few, it will remain the only way out of the current financial crisis.

Emphasis mine. There are of course other ways out of the mess, including other approaches to debt reduction or increasing revenues. But better to use the threat of bankruptcy to “force compromises.”

via The Municipal Sandwich | GoodwinProcter – MuniBK.

Pew’s report: “The Local Squeeze: Falling revenues and growing demand for services challenge cities, counties, and school districts“, published by the American Cities Project.