Muni sweeps: Municipal unrest
Mayors take out the pitchforks
William Alden of Huffington Post writes about a “testy” encounter between mayors and federal officials. The federal dollars for municipalities from the American Recovery Act have basically ended and revenues for state and local governments remain weak. We should expect to see more of this.
The federal officials on stage were speaking in broad, theoretical terms. But the mayors wouldn’t stand for that. They knew what needed to get done, they said. What they wanted from Washington was the dollars to do it.
“We should not be expecting or depending on top-down permission from the White House or Washington to have us advocate for this stuff,” said R. T. Rybak, mayor of Minneapolis, who stood up and addressed the other mayors. Earlier, [Philadelphia] Mayor [William] Nutter had complained about the seeming hypocrisy of federal lawmakers who go to ribbon-cuttings and ground-breakings, even if they never supported the legislation for those projects. Rybak heartily commiserated.
“I’ve seen those guys at the ribbon cuttings. And it pisses me off,” he said. “But I go out and organize at election time and tell people exactly who delivered and who did not.”
Douglas, of the White House Domestic Policy Council, said federal officials are doing what they can to help. But political gridlock can muck up the process.
(Reuters photo of Philadelphia mayor William Nutter.)
Muni funds three times more expansive than muni bonds
Yes, it’s cheaper to own individual bonds than to own a municipal bond fund. Here is the data from Financial-Planning .com:
A new study by BondDesk Group suggests that buying individual bonds in the retail market (trade size under $100,000 par value) is among the most cost-effective ways to access the fixed-income market. And in a rising-rate environment, individual bonds will have a paper loss, but as long as they are held to maturity and there is no default, they will return their principal in full.
The weighted average expense ratio for municipal bond funds was ~ 64 basis points (0.64%). Moreover, the fees are annual, so the money is diverted from investors’ accounts each year and transferred to the fund management companies.
BondDesk’s study estimated the retail transaction costs for individual municipal bonds in 2010, and found the median expense 23 basis points of yield (0.23%) for a municipal bond.
This is significant because it establishes a baseline for comparing the costs of buying bonds to the costs of owning funds.
Green eye-shade proposal
If accounting information is not your thing please skip this section. It’s really deep in the weeds stuff!
The National Association of Bond Lawyers have proposed a standardized way for municipalities to report their pension funding status.
From an excellent article in the Bond Buyer:
In its pension-disclosure guidance, National Association of Bond Lawyers suggests, that issuers set forth a pension system’s historical funding status based on actuarial and market values, dating back 10 years.
The group also suggests that issuers provide a 10-year actuarial value table with a host of data and calculations, including the actuarial value of assets, accrued liabilities, unfunded liabilities, the funded ratio, member payroll and the ratio of unfunded liabilities to member payroll. The information for the actuarial table, the guidance says, can typically be found in the plan’s financial statements.
[John] McNally said one of the lessons he draws from the SEC’s New Jersey case is that an issuer cannot cherry-pick actuarial methodologies from one year to the next in an effort to conceal fiscal distress or deceive investors about a plan’s overall health.
In fact, SEC officials have started broadcasting that message to actuaries. At an annual meeting of the Conference of Consulting Actuaries last fall, Peter Chan, an assistant regional director in the SEC’s Chicago regional office, warned public pension actuaries to “beware of issuers who cherry-pick actuaries based on expected conclusions,” according to a power point presentation of his remarks obtained by The Bond Buyer.
“Don’t manipulate actuarial methodologies to assist [an] issuer conceal or deceive,” the presentation said. “Don’t be passive if you are aware of inaccurate statements or questionable practices, particularly to conceal or distort your actuarial analysis.”
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