The decline in property values, homeowners relocating after bankruptcy, and dwindling revenues from investment portfolios are causing local governments major headaches. It’s easy for a typical consumer to understand the revenue angle directly attributable to the first two, but what many fail to realize is how poor investment decisions from local officials can affect the services taxpayers receive for their tax dollars.

Nearly every state runs some kind of government investment pool offering city, county and state governments a seemingly reliable place to park their cash. Government officials say these funds are attractive because they offer better yields and lower fees than the typical bank account. Many of these funds are invested in subprime-related securities.

The consequences of a government fund losing money can have a direct impact on local counties, towns or schools. Over time, a municipality might have to raise taxes or cut spending if it loses access to some of its cash. Governments inability to withdraw funds from a Local Government Investment Pool can even cause a school district to bounce checks to its vendors in order to pay its teachers.

Finance experts say the situation is nearing epidemic proportions as the subprime mess gets worse.

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