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Milken Institute Report – Ensuring State and Municipal Solvency

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Milken Institute Report – Ensuring State and Municipal Solvency”>Ensuring State and Municipal Solvency, October 2010

  • As the recession drags on, states and municipalities find themselves in a deep hole. For the first time since the Great Depression, income, sales and property taxes have declined in unison.1 The cyclical challenges are clear: falling tax receipts, high unemployment, tepid investment returns, and overall economic uncertainty. But even more daunting are the long-term structural issues that are simultaneously coming to a head: trillions of dollars in unfunded pension obligations, the escalating costs of other post-employment benefits (OPEB), record numbers of retirees poised to tap pensions and benefits, increasing longevity, and significant revenue/expenditure mismatches. Against this urgent backdrop, the Milken Institute and the Kauffman Foundation hosted a Financial Innovations Lab in July 2010. Unlike any previous meeting addressing current conditions in state and municipal finance, the Lab brought together a diverse group of state and local officials, union representatives, experts from the capital markets, money managers, academics, public-sector attorneys, and representatives from bond rating agencies. Together they explored both immediate fixes and broader strategies that could help prevent future crises. It’s clear that achieving long-term solvency for states and municipalities will require painful paradigm shifts. There is no simple approach that will work for all 91,000 local governmental units in the U.S. But the sooner governments address their long-term structural challenges, the better off they and their residents will be. The short-term expediency of simply laying off workers to meet hard budget constraints is not sustainable in the long run and will deprive citizens of services (safety, sanitation, education) they want and deserve.”
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