Low Rates Shrink Government Income

The Bond Buyer reports:

Low short-term interest rates continue to erode the investment income of state and local governments.

While interest on bank deposits and other short-term investments contribute a small percentage of municipal revenues, the squeeze on investment income is yet another pressure at a time when most sources of state and local government revenue are under significant stress.

Municipalities that have filed financial statements for fiscal 2010 show a drastic decline in investment earnings. According to Merritt Research, the median city in 2010 reported investment income of $593,000, down 28% from fiscal 2009 and 72% from fiscal 2008. The median school district’s investment earnings tumbled 72% from 2009 and 88% from 2008.

All this thanks to Federal Reserve.