WASHINGTON — Revenues at municipalities may increase slightly in 2013 and additional municipal bankruptcies will be uncommon as state and local governments continue a slow economic recovery, speakers at a conference said here Tuesday.
But even if municipal health mends, lawsuits challenging the legality of recent pension cuts and other drastic measures taken by financially-strapped governments will continue through courts for years, and may eventually be decided by nation's highest court, said Frank Shafroth, director of George Mason University's State and Local Government Leadership Center who spoke on a panel at Governing's Outlook in the States & Localities Conference.
Shafroth, who is also director of legislative affairs and intergovernmental relations at the Municipal Securities Rulemaking Board, noted that unions in Rhode Island are challenging pension cuts in the courts, and CalPERS, the California Public Employees' Retirement System, has sued bankrupt San Bernardino, Calif., over deferred pension payments.
"I believe that in two to three years the United States Supreme Court is going to be making the decisions," said Shafroth.
But on the whole, speakers said municipal finances appear to be improving.
"We anticipate that municipal bankruptcies will continue to be few and far between," said Lisa Schroeer, director of credit market services at Standard & Poor's. She said many state and local governments continue to make cuts, and many have cut everything but core services.
In the past year, there have been more upgrades of public finance credits than downgrades, and 90% of public finance credits are rated A or higher.
But the percent of speculative-grade muni credits has increased slightly, indicating that financially-strapped municipalities continue to struggle, Schroeer added.
Many localities are "creatures of their state" and often look for financial help from their state, but in recent years states have cut services and financial aid, creating additional burdens for local governments, said Carol O'Cleireacain, an economic consultant and Brookings Institution fellow who worked on the Task Force on the State Budget Crisis, a nonprofit-funded program.
"This is not just a state-by-state issue, this is not just a locality-by-locality issue, this is a national problem," O'Cleireacain said. "Short of making the structural changes, we are only the next economic decline away from disaster."
Shafroth said cities' financial situations have "for the most part improved significantly" because assessed property values have increased and local governments have already made cost-saving cuts.
"The leanest and meanest level of government we have in the United States right now is at the local level, I think they are going to be very slow to restore lots of services and very slow to rehire," he said.