Federal Fiscal Reform's Impact at Lower Levels of Government

Some of the proposed solutions could be a boon to states, counties and cities, but other ideas could have negative implications.

"[T]he bipartisan deficit commission that Obama created, headed by former Clinton White House aide Erskine Bowles and former Sen. Alan Simpson (R-Wyo.), includes one recommendation that states and cities will abhor. It would make bonds issued by state and local governments, today tax-exempt, fully taxable.

That shift would increase the necessary yields on state or local bonds so sharply that roughly 30 percent would be added to the cost of practically every capital investment states or cities make, notes Frank Shafroth, a veteran of positions in the local state and local government field and currently adjunct professor at George Mason and George Washington Universities."