The ongoing problems in the housing and credit markets,
caused by a toxic combination of wholesale deregulation of
financial markets by the federal government and imprudent
lending and investment practices by financial institutions, pose
significant challenges to local and state government officials.
Some of these challenges are obvious. How will cities cope with
an unprecedented number of foreclosures at the same time that
state and local tax revenues are decreasing? When will access to credit ease in a municipal bond market that has constricted as a result of both general credit concerns and questions about the companies insuring those bonds? As the magnitude and
seriousness of the current financial crisis becomes clearer, these obvious concerns may prove to be only the precursor to daunting new challenges. This article discusses the implications of the current financial crisis for local governments.