Municipal Bond Defaults Unlikely

Writing for The New York Times, Iris J. Lav argues that state and local borrowing is far less susceptible to annual budgetary concerns because it is, by its nature, long term.

"[T]his fear of an imminent bond crisis reflects a profound misunderstanding of the differences between the short- and long-term challenges facing state and local governments, and what these governments can do to address them. Indeed, such talk hurts those governments in the long run by undermining investor confidence and raising their borrowing costs.

Municipal bond default is actually quite rare: no state has defaulted on a bond since the Depression, and only four cities or counties have defaulted on a guaranteed bond in the last 40 years. A few minor bond defaults do occur each year, usually on debt issued by quasi-governmental entities for projects that didn't pan out, like sewers for housing developments that never were occupied."