Only 54 of 18,400 municipal bond offerings from 1970 to 2009 defaulted, according to a Congressional Budget Office analysis of local government finances, and most were issued for housing or health care facilities rather than water or sewer utilities.

Although the number's increased recently, six cities, counties, or towns defaulted during the four decades.

Declining property tax revenues are the main cause of fiscal stress that brought the 2010 value of defaults to $4 billion even though there were 241,000 fewer local government employees in November 2010 than there were at the start of the recession in December 2007.

Overall, local governments cut spending in real terms by 0.6% in 2008 and by 1.9% in 2009.

On average, budget allocations break down to:

  • 38% for education
  • 18% for social services, housing, and transportation
  • 16% for administration, interest, and items like unemployment compensation and employee retirement
  • 11% for water, gas, and electric utilities
  • 9% for public safety
  • 7% for parks and recreation, sewerage, solid waste management, and natural resources.

As enterprise funds, water and sewer districts have fared better than cities and counties during the recession. Other local government revenue sources include:

  • 36% from property, sales, and other taxes
  • 30% from utility, sewer, hospital, and tuition fees
  • 30% from the state
  • 4% from federal aid.

There are about 3,000 counties; 36,000 cities, towns, villages, and boroughs; 37,400 special districts; and 14,600 public school systems nationwide.