"If a government can't sell bonds, they might as well close the door," Riordan says

U.S. cities and states may need more than $1 trillion of federal assistance in the next three years to stave off financial failure, former Los Angeles Mayor Richard Riordan said.
 
Local governments are in a "race to the bottom" and U.S. taxpayers will inevitably be called on to bail them out, Riordan said.
 
"It's not just L.A., it's not just California, it's all over the country, you're going to see all these entities become totally insolvent," Riordan said. "I think the federal government has to come in and have a list of what the states have to do to be saved."
 
States, recovering from the longest recession since the Great Depression, have projected budget deficits of $116 billion for fiscal 2011 and 2012, according to a report last month by the National Governors Association and the National Association of State Budget Officers.
 
State public-employee pensions are underfunded by $438 billion and estimates using different accounting methods suggest a number as large as $3 trillion, according to an April report from the American Enterprise Institute for Public Policy Research.
 
Investors won't keep buying municipal debt to help cash-strapped cities and states finance operations, Riordan said.
 
"If a government can't sell bonds, they might as well close the door," Riordan said. "If you can't do that, you're out of cash, you're out of business."
 
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