Vallejo Woes...spreading

USA Today has an article discussing the problems facing Vallejo, CA which went into bankruptcy earlier this year. The forces that inflicted the damage on Vallejo are being felt across the country. Here's an excerpt.

A convergence of forces — the housing bust and credit crunch, tax revenue shortfalls, pension fund costs for public employees and the shaky economy and financial markets — are making it increasingly hard for municipalities to balance their budgets.
"We're seeing a lot of governments around the country entering a period of flat or declining revenues," says Gabriel Petek, a municipal-bond analyst at Standard & Poor's. "I don't expect this to turn into an avalanche, but there may be isolated instances of distress."

I agree with the assessment, right up until his prediction this won't be an avalanche. I think local and state governments are going to get slaughtered. They will be forced to downsize budgets across the board and will still need to borrow to maintain spending. This will be a short-term fix with long-term repercussions that won't be good. States have already started to raid rainyu day funds and borrow against future "income". The estimates and numbers will be way off and in the wrong direction. This will get ugly.