An Epidemic of Bad Budgeting
Bad fiscal practices like these are increasingly common among local governments, which claim that Covid-19 required extraordinary measures. A recent study by Matt Fabian and Lisa Washburn of Municipal Market Analytics, examining 442 municipal bond offerings in the second half of 2020, found that at least a quarter used the money for “direct deficit financing” (floating new debt to close budget gaps) or “indirect deficit refinancing” (issuing debt to pay for projects that governments previously had financed with tax revenues). That so many local governments resorted to such financing so quickly—just months after the lockdowns began—suggests how little financial flexibility and reserves many of them had.