by Calculated Risk on 8/10/2012 09:20:00 PM

From the WSJ: Rising Health, Pension Costs Top the List as Municipalities Struggle to Recover From the Recession

Fiscal woes that have caused high-profile bankruptcies in California are surfacing across the country as municipalities struggle with uneven growth and escalating health and pension costs ...

Moody's Investors Service recently said that while municipal bankruptcies are likely to remain rare, it warned of a "a small but growing trend in fiscally troubled cities unwilling to pay their debt obligations."
...
Local government cuts are one factor slowing the broader economic recovery, offsetting stronger private-sector growth. State and local government spending and investment fell at a rate of 2.1% in the second quarter, according to the Commerce Department, the 11th consecutive quarterly drop. Local governments also have cut 66,000 jobs in the past year, mostly teachers and other school employees.

These state and local layoffs have been a significant drag on employment. I still think the layoffs will slow, but clearly many of these cities still have severe budget shortfalls.