Muni sweeps: Garden State warning
Fitch Ratings goes “negative” on New Jersey
New Jersey is a wealthy state with lots of industry, excellent higher education institutions and is a “bedroom community” for New York City. But still it faces substantial fiscal problems.
Dow Jones reports that Fitch Ratings has cracked the whip and put the state on “negative” watch. This is the same move that Standard & Poors made on the debt of the United States. Think of it as a shot across the bow. Generally within six months a rating agency will downgrade the issuer or remove the “negative” designation.
From Dow Jones:
Fitch Ratings lowered its outlook on New Jersey’s bonds to negative, citing concern regarding the state’s mounting budgetary pressure amid a significant and growing unfunded pension liabilities, particularly in the context of an already high debt burden.
The ratings agency also cited concerns about the state’s structurally imbalanced budget and the recent court challenge to local K-12 school district funding.
The state’s general obligation bonds are currently rated AA, which is two levels under AAA.
With full funding of the state’s annually required contributions to its pension systems to be phased in incrementally over a seven-year period, continued funding-level deterioration is projected through the medium term, and the resulting increases in annual funding requirements are likely to conflict with other budget priorities, such as property-tax relief and improved infrastructure.
Markit reported a one basis point drop to 147bp for New Jersey CDS on the warning.
Random Samplings, the blog of the US Census, has a weath of data out on state government retirement systems.
With 3.8 million Americans employed by state governments, the welfare of the state retirement systems is a valid concern, especially given the systemsâ€™ dependence on market strength.
According to new data released today, state retirement systemsâ€™ assets fell $641 billion in 2009, a big drop even by 2008 standards when retirement systems saw losses of $152 billion.
Most of the losses in 2009 were because of a $485 billion decrease in earnings on investments, following a loss of $440 million the previous year.
Total contributions to retirement systems were $65 billion. Employee contributions increased 5 percent to $33 billion.
The 2009 Annual Survey of Public-Employee Retirement Systems provides valuable information.
It reports annual financial activity for the nationâ€™s 222 state administered public employee retirement systems, including cash and security investments holdings, securities, receipts and payments.
For the first time the Census Bureau is releasing actuarial liability data, which projects the total obligation to cover costs for providing pensions to former and present employees.
Down, down, down…
Nothing good to see here. From Reuters “Equity fund inflows rebound, munis lose again-ICI”.
Municipal bond funds, once again, were the only major fund category to experience net redemptions. The sector had a net outflow of $1.15 billion in the latest week, bringing the 24-week total to $44.4 billion.
Closing down corruption?
New York elected officials, lobbyists and placement agents will be permanently barred from dealing with the state’s pension fund under new rules Governor Andrew Cuomo proposed on Tuesday.
“The pension fund should be kept pure, and money belonging to taxpayers should not be the plaything of elected officials,” the freshman Democratic governor said.
As state attorney general, Cuomo investigated how the selection of the $132 billion pension fund’s investment managers was corrupted.
New York’s state pension fund has just one trustee — the state comptroller.
The former state comptroller, Alan Hevesi, was sentenced on April 15th to as long as four years in jail for accepting luxury trips from a California venture capitalist seeking to manage some of the state pension fund.
Cuomo’s investigation sparked similar probes around the United States and prompted a crackdown on placement agents or brokers, who were often able to exploit political allies to reap millions of dollars of fees from investment firms, including prominent hedge funds and private equity firms.
“Pay to pay” or bribe your way in
The SEC Historical Society is hosting a “fireside chat” with two former chairmen of the Municipal Securities Rulemaking Board (MSRB) on “pay to play”. It’s at 2:00pm ET today and can be heard here.
States have empty coffers for unemployment benefits
As persistently high unemployment has drained the funds that are used to pay jobless benefits, more than two-thirds of the states expect to raise taxes on businesses this year to replenish them, according to a survey of labor agencies released Wednesday.
Unemployment taxes remain low by historical standards: the survey, by the National Association of State Workforce Agencies, found that states have effectively cut the unemployment tax rate on businesses by 64 percent since the unemployment program began collecting taxes from employers in 1938.
The stubbornly high unemployment that has upended the lives of millions of Americans has also depleted the unemployment trust funds of most states: 32 of them owe the federal government more than $48.3 billion that they borrowed to continue paying jobless benefits.
Unless Congress acts, that money will have to be repaid – with interest. The survey found that seven states were thinking about borrowing from the private sector to repay the loans.
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