Stretched local governments will be providing even less

One of the biggest unreported stories in America concerns how the economic meltdown is affecting local governments.

It's a huge story because it has implications for every American family. While the media camp their satellite trucks in Washington and New York, the real story is in the heartland.

It's not about some ambiguous $700 billion bailout that many Americans don't understand. It's about regular taxpayers who are going to see significant changes in their local governments - changes unlike any they've seen before.

Local governments throughout the country are struggling to make ends meet, and millions of Americans will be affected by significant decreases in services, significant increases in taxes, or both.

If your local government is telling you something different, it's not true.

Towns and cities are especially susceptible to economic downturns. Many municipalities manage large pension funds that have suffered, much as your 401(k) has. But they are also stuck with defined-benefit pension plans, many of which were significantly underfunded even before the economic crisis.

When increases in pension costs are combined with rising gas and utility prices, most local governments will struggle to make ends meet. Add to that a poor housing market, lack of development, and lower sales-tax collections, and it's a bona-fide calamity.

Local governments will have to respond, and I would expect the response to be more drastic than anything we've seen in decades. Although towns operate under different sets of rules from one place to the next, I would expect their responses to be along similar lines: dramatic increases in real estate and/or income taxes, and severe reductions in services and capital expenditures.

Expect, for instance, to see fewer roads paved in your towns; asphalt prices have risen nearly 70 percent in some parts of the country. And expect to see fewer upgrades to water and sewer plants.

For older cities and towns, with infrastructure that's already crumbling, this will be particularly devastating. Many will be forced to incur even more debt simply to take on the projects that directly affect public safety. They may have to do the same just to keep up with day-to-day maintenance.

The bulk of a municipality's budget goes to salary and wages, particularly for police and other public-safety employees. While I hear the cries for cuts in personnel every year, there is a very real relationship between hard economic times and increased crime. I don't think most towns will want to sacrifice public safety, nor do I think the general public will tolerate cuts in that area.

But get ready for serious cuts in just about every other aspect of local government.