The past few years have been a continuous and near-total fiscal disaster for state and local governments. The one exception is borrowing costs, which have been generally low. Indeed, they're now lower than they were even before the recession hit. In 2007, when the stock market peaked at over 14,000, unemployment was below 5%, housing values were still sky-high, and revenues were pouring in, it was more expensive for state and local governments to borrow than it is now (Chart).
There have been only two blips: a sell-off during the 2008 financial crisis, and late 2010, when yields spiked because of historically-high levels of supply and Meredith Whitney's infamous call on 60 Minutes that "hundreds of billions of dollars worth of defaults" were impending.
The Federal Reserve's attack on interest rates, as well as the looming threat of federal income tax increases, soon to intensify, have helped keep money cheap for state and local borrowers.
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