Unintentional Consequences

Local government has to issue bonds to raise funds earmarked for infrastructure improvements. Since the recession ended, local governments have not pursued bond sales since most of their budgets are upside down. Limiting bond sales constricts governments' ability to pave roads, repair bridges and build hospitals and parks. It is probably a good thing that local governments are trying to get their own house in order but……………… infrastructure and public properties will not receive required maintenance and improvements are curtailed.

"I just don't think people are in the mood to have governments issuing debt at this time, when they're making service cuts," said Howard Cure, director of municipal research at Evercore Wealth Management. "

For the first 5-months of 2010, about $170 billion was added to local government debt.

For the first 5-months of 2011, only about $85 billion was new municipal debt. According to the Bond Buyer, this volume is the lowest it's been since 2000.

Dresslar said. "Every dollar that you have to pay in debt service is a dollar that you cannot spend on schools, public safety, and health care -- the whole gamut of public services."

"Whenever you defer capital improvements you're going to have a bigger problem later on," said Cure, of Evercore. "Inevitably [bond] issuance will bounce back because infrastructure is in bad shape in this country, but right now the more immediate issue is balancing the budget."

The neglect of maintaining our infrastructure i.e. roads, water, sewer, drainage, parks, bridges, etc. will be profound and will have a lasting impact on how local municipalities grow in the future.

A greater burden will be shifted to “new” residents when they move into an area or to new housing and non-residential projects which may have adverse impacts on the existing infrastructure. Impact fees and improvement requirements will be expanded as communities recover.