Turns out our nation's counties and cities are in much worse financial shape than previously believed - and the impact of the fiscal cliff could drag these municipalities down even lower.
A recent report by the New York Federal Reserve determined that while Moody's Investment Service reported only 71 defaults from 1970 to 2011, there were actually 2,521.
That's because Moody's only reports on the defaults of rated bonds, which are safer for investors. Taking all U.S. muni bond defaults into account, the default rate is actually 4%, not 1%, according to The New York Times.
It's not just Moody's that missed on municipal bond default statistics. The Fed's combined database indicated 2,366 defaults from 1986 to 2011, compared with Standard & Poor's 47 defaults during this same period.
And now the looming fiscal cliff, scheduled to be reached on Jan. 2, 2013, could drive up many more city debt levels to dangerous highs.
If Congress doesn't agree on a solution, $530 billion in tax increases and reductions in federal spending will take place at the start of next year. According to a recent study by the Congressional Budget Office (CBO), going over the fiscal cliff could take the United States -and its cities and counties - back down into the valley of another recession.
That's when muni bond defaults could tick up.