"States are regular bond market issuers, so they do care about their debt ratings, and have done everything they can to prevent public attention focusing on their crises," Whitney says. "They've even taken cities into receivership to prevent them from going bankrupt. But municipalities are only occasional issuers. They're much less concerned with bond market ratings than with the real pain they're already suffering."
Alabama's Jefferson County has actually gone bankrupt. Stockton, California is all but ready to do the same. And all you have to do is look to Detroit—or any of the nearby auto towns named after a Buick model of one sort or another—and you see fiscal crisis playing out right now. Look in your own backyard—or at the potholes on your neighborhood roads—and you will likely find the same.
Consider the email I received on March 7 from former New York State Assemblyman Richard Brodsky about Yonkers Mayor Mike Spano's recently formed Commission of Inquiry into what he refers to as that city's "Great Unraveling." (Brodksy is serving on the commission.)
"[Yonkers has] a budget of about $1 billion and a budget gap in the upcoming year that looks like it can't be bridged. There are reasons aplenty. Like may urban centers the Yonkers manufacturing base disappeared, the middle-class moved out and the people simply can't afford the property and sales tax burden that ensured. Anti-tax fervor hit and elected officials refused to raise recurring revenues. Gimmicks, one-shots, borrowing for operating expenses, assets sales, and assorted maneuvers 'kicked the can down the road' for a couple of years…The city has now run out of gimmicks."
And then he sounds very Whitney-like: "It's as though we stand on the shore and watch a tsunami gather and shrug and hope we'll get through it…That needs to change, and if the list of endangered cities gets larger this will force itself onto the national stage. [For now] the great national battle about the size of government and the level of taxation will be played out in the streets of small cities across America, with school kids, garbage pick-up, fire-protection, and safe streets competing with each other for inadequate resources. It's an ugly way to solve a problem."
In late February, Whitney signed a deal to write a book about the trouble that isn't going anywhere, even if her bond-market prediction was a misfire. Titled Downgraded: Why the Next Economic Crisis Will Be Local, it's on a fast turnaround for November publication.
Whitney isn't that interested in talking about her words on 60 Minutes anymore—why would she be?—but it's hard to argue with the fact that a prominent voice succeeded in bringing more focus to a real and pressing issue and helped change the conversation. Thirty-six freshly elected governors were listening in 2010. Or at least a few were—the likes of New Jersey's Chris Christie, Florida's Rick Scott, and Indiana's Mitch Daniels—but they and their successors are going to be playing the fiscal prudence game for years to come.
I have argued at length and one more than one occasion with Whitney that she made a mistake when she got too precise on TV. She doesn't agree. But we do find common ground about the fact that continuing to play "Gotcha!" over those 20 or so words is missing the forest for the trees. "Look at Greece," she says. "They're not in technical default. That doesn't change the fact that it's the biggest sovereign debt writedown in history. It's all the same in the end."
