That's true but something of a red herring when considered in the context of most local governments' total budgets. Payroll costs usually dwarf gas costs.

That's true, but that just makes under-budgeting for gas more problematic. If you can't borrow short-term to pay for unexpected expenses, you have to start firing people. And if they are union-protected that may not be immediate.

Locally, city services are being squeezed by gas prices; fire, public works and particularly police are about to run through their gas budget for the year.

That's true but something of a red herring when considered in the context of most local governments' total budgets. Payroll costs usually dwarf gas costs.

I mention that in the context of the Cook County budget. The Board has been complaining about the high cost of gasoline but not mentioning that the budget increases due to rising payrolls are an order of magnitude more than the budget increases due to rising fuel costs.

This is a subject I've posted about pretty extensively. In Cook County's case most of its budget problems are related to healthcare costs (including Cook County Hospital). Everything else is pretty controllable and sustainable but that's rising completely out of proportion to revenue streams.

Without delving more deeply into the matter I'd guess that local governments are seeing problems in the credit crunch for the same reason that lots of companies are: they've gotten into the habit of using short-term credit as a method of dealing with their cash flow issues. That's an okay strategy during periods of low interest rates and easy availability but, well, that's not right now.

Here's my question, are the banks having a liquidity crisis? Meaning, are they not lending out money because they don't have enough to lend out, or are they not lending out money because they're afraid of taking on even more bad assets? If it's the latter, what would happen if we give them good assets? Specifically, what if the government takes a loan from the bank, at a higher interest rate then it's credit worthiness would usually get, so that the banks have some known good loans on the books, and at a relatively high interest rate for their risk.

The government can then funnel that money through the SBA, offer rates that are lower than what the banks are currently offering, but higher than what they have offered historically. Or the Fed can open up lending to non-banks, again at a higher rate than banks have loaned at historically so that we don't compete with them once they get back on their game.

Once things get better, the government can try and sell the loans to the banks, which should be appealing to them because they would have a higher interest rate than they would be offering at that time.

Now I'm no economist, this was just a little outside-the-box thinging, it may be the worst idea ever (though it will be hard to beat the no-strings-attached $700 billion payout idea).

The second, that I've been talking about credit problems on the part of local governments for the last week, is directly related to Alex's point. Without delving more deeply into the matter I'd guess that local governments are seeing problems in the credit crunch for the same reason that lots of companies are: they've gotten into the habit of using short-term credit as a method of dealing with their cash flow issues. That's an okay strategy during periods of low interest rates and easy availability but, well, that's not right now. There's also a credit-worthiness issue (which ties the two observations together) but I doubt that's the primary problem.

From what I hear, people with good credit can still get loans. I guess some of these local governments are high risk. With some of their records of spending for years more than they brought in, I would have to agree.

Why on earth would Washington start a construction project before issuing the bonds to pay for it? That's almost impossible to do. I'd check that story.

Publicly issued bonds are backed by governments so they are still very safe investments. The money fleeing the mortgage market is looking for someplace to go so I expect bond sales to be okay.

Property taxes will not likely suffer much. Property is not reassessed on a regular basis and certainly not enough to have a material effect on current revenues. I'm not aware of any place that collects sales tax on real property. If I'm wrong please correct me.

The relaxation of accounting rules yesterday should also free up credit as banks adjust their balance sheets.