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Some governments at both the local and federal level are faced with rising expenses and declining revenues. To face these challenges, many governments are seeking sustainable, long-term solutions to balance their budgets. While some ideas may be more far-reaching than others, governments have the incentive to balance budgets, and maintain the debt service on their outstanding obligations.

There are multiple proposals at the federal level to balance the budget. Some Republicans are stressing to rein in spending to help the economy grow. Some Democrats are stressing investing in economic development and job creation to help the economy grow. The question is which programs should be reduced, and which programs are vital to economic growth? Both parties want to see the economy grow, but many are at odds with each other over how to best achieve it. According to the Center on Budget and Policy Priorities, interest on federal debt accounted for approximately 6% of the federal budget in 2010. While this figure is significant, politicians generally agree that continuing debt service payments is of the utmost importance.

At the local level, many governments are facing challenges over how to best serve their constituents. They want to continue to provide essential services, but a few municipalities have or are considering reducing them in response to rising expenses. From a bond market perspective, several municipal governments are dependent on the municipal bond market to help achieve their long-term goals. Many municipal bonds support specific projects such as infrastructure improvements, utilities, and affordable housing. These projects tend to create jobs and serve as a public benefit. Municipal bonds generally do not support day-to-day government operations. The majority of municipal bonds are supported by specific revenues, or have the debt service appropriated in the annual budget. By continuing to make debt service payments, municipalities will be doing their part in helping support economic growth, and helping reduce the unemployment rate.

Governments at both the federal and local level have a challenging task ahead. They will be faced with tough choices over how to reduce spending, and create economic growth. Fortunately, some politicians are beginning to look at the challenge from a long-term perspective, rather than establishing short-term fixes. This has contributed to investors being faced with a plethora of compelling investment opportunities. With the proper research and due diligence, investors have the ability to find great value in the current market place. We encourage you to discuss the current market with your Alamo Capital representative to help identify optimal solutions to your investment needs.

Billy Schmohl
Investment Information Coordinator

This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital.  Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.