That will be one of the focuses for the next round of stimulus spending that Congress will be taking up. President Donald Trump said Tuesday that he expected aid to state and local governments would be part of that.
No state has defaulted on its debts since the Great Depression and even after the last recession only a handful of cities went bankrupt, since governments have broad ability to raise taxes.
The current economic contraction may leave states facing an even worse fiscal crisis than they did a decade ago, which has prompted growing calls from the nation’s states and cites for Congress to provide aid to help them make up for the taxes lost by the nationwide shutdown. The governors have requested $500 billion and cities $250 billion.
The bond market, however, doesn’t appear to be pricing in much risk of defaults. While prices tumbled during a panicked sell-off last month, they’ve since rebounded, with returns roughly flat for the year.
This article was provided by Bloomberg News.