Tuesday, August 3, 2010

States go deeper into debt

From Tami Luhby of CNNMoney.com on July 30:
NEW YORK (CNNMoney.com) -- The states are broke, and like many consumers, they're borrowing big time to get out of their fiscal binds.

The amount of debt that states are carrying spiked 10.3% last year to $460 billion, according to Moody's Investors Service. The debt is paid for through taxes and fees, making residents ultimately responsible.

The median personal share of this burden jumped to $936, from $865 in 2008. (To see how much the tab is in your state, click here.)

And it's likely that states will turn to the bond markets even more this year as federal stimulus money dwindles, experts said. After all, officials face an additional $12 billion shortfall for the current fiscal year and a $72 billion gap for fiscal 2012, which starts next July 1.

Debt "is a tool to help bridge the gap between the downturn and when the economy starts to recover," said Robert Kurtter, a managing director at Moody's.

States are relying on the debt markets in a variety of ways. With less cash on hand, some state officials are borrowing more to fund capital projects. Other states are engaging in so-called deficit financing, where they issue bonds to cover their budget shortfalls or restructure their debts to lower their monthly payments.

The good news for states is that it's a good time to issue debt. Not only are interest rates are low, but the American Recovery and Reinvestment Act subsidizes interest payments on certain municipal bonds. This is a marked change from late 2008, when the municipal bond markets were effectively closed for many issuers.

To be sure, not every state is ratcheting up its borrowing. Many states have strict laws governing their debt issuance. Some places, such as Nebraska and Wyoming, have virtually no debt. Others have to turn to voters to approve bond proposals.

In case you missed the link above, click here to find out your share of the state debt.


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