As the New Year begins, local governments and municipalities are looking at the financial future for 2014. It does appear that public finance will be more stable than the last few years, but this does not mean it will be easy. There are several issues driving the finances of local governments in 2014.

The flow of money out of the municipal market will continue through the year. This is primarily due to rising interest rates. Analysts are predicting a 12% decline in overall municipal bond sales. This decline will make it harder for local governments to borrow money.

Credit rating agencies continue to disagree on the financial stability of municipalities. Some will continue to downgrade more local governments than they will upgrade, while others have a more positive outlook citing the stabilizing of housing markets and municipalities’ fund balances. They note that cities and school districts have adjusted their expenses appropriately. They all agree, though, that conditions will remain more difficult for local governments than they were before the recession began in 2008.

The proposed bi-partisan budget deal has had a stabilizing effect on local governments. The new budget gives a two year window of stability to these governments. State and local programs that rely on federal grants and other funding should have a clearer picture of their operating budgets.

Although the financial outlook for most municipalities is not as positive as it was pre-2008, it does appear to be on the mend.

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