Meredith Whitney and the Misinformation Campaign on Local Finances

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May 20, 2011, 12:48 ET

WASHINGTON, May 20, 2011 /PRNewswire-USNewswire/ -- Christopher Hoene, Director for the Center on Research and Innovation at the National League of Cities reacts to Meredith Whitney's latest commentary on local and state finances. He also counteracts the misinformation that is being to promote bad policy decisions. The response was made at NLC's blog www.citiesspeak.org.

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The blog can be read in its entirety at http://citiesspeak.org/2011/05/19/meredith-whitney%E2%80%99s-misinformation-campaign/

Highlights of the response include:

"In a piece that reads more like political commentary than market analysis, Whitney claims that fiscal pressures on states threaten economic recovery. But, this is hardly news. Over the last several years, NLC, a host of state-focused groups ... have been calling attention to state-local fiscal pressures requiring layoffs and service cuts, and the potential drag on the economic recovery.

"But, fiscal pressure from cyclical revenue declines and pension liabilities does not add up to Whitney's doomsday predictions of sizeable defaults and social unrest.

"Whitney's op-ed is an example of the misinformation permeating the national dialogue about state and local finances. She's in good company, as poorly constructed arguments about state-local insolvency have, in recent months, riddled airwaves and policy debates: confusion over structural deficits versus budget shortfalls, a lack of understanding of local municipal budgeting processes that place debt service payments above all else, and a near-total lack of understanding of the difference between municipalities with general obligation bonds as opposed to revenue bonds and conduit bonds.

"Once again, Whitney's 'call' is a distraction from the real story, which is about the difficult choices local and state leaders are making about delivering services. There are real implications when the wrong information is pushed and repeated over and over in the media for ratings, report-sales, and celebrity status.

"All of this combines into one big pot of bad smelling soup because American taxpayers are on the hook for paying more for services like schools and infrastructure projects. When Whitney and her supporters get it wrong on the corporate side, only her clients (and her clients' shareholders) suffer. When they get it wrong on the municipal bond side, communities and taxpayers pay the price.

"Add to this the fact that there has not been any real increase in sizeable municipal bankruptcies since Whitney made her now-infamous prediction in December.

"The real story, hidden by misinformation provided by Whitney and others, continues to be about the services that are being cut and the implications of those service cuts for communities. That's the real risk.

"Cities will survive, but we will see continued cuts to necessary services like schools, fire and police. And the evidence shows city leaders will cut the services rather than destroy city credit ratings. Investors should worry less about the risk of systematic collapse of the bond market and instead worry more about whether their local school, police department, or fire hall down the street needs a fundraiser to stay in service?"

To read the blog in its entirety, please go to www.citiesspeak.org.

The National League of Cities is the nation's oldest and largest organization devoted to strengthening and promoting cities as centers of opportunity, leadership and governance. NLC is a resource and advocate for 19,000 cities, towns and villages, representing more than 218 million Americans.

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SOURCE National League of Cities