Muni sweeps: Investing in shared infrastructure

May 18, 2011

Investing in shared infrastructure

My favorite article this week is by William Alden of the Huffington Post. He brings out an element of the municipal bond market that I’ve long believed could be the future of muniland: the propensity of people to invest in projects and entities that they have a first-hand experience or a connection to.

War bonds, issued to pay for World War I and II, are a case in which investors moved their savings to particular investment products for emotional, social or patriotic reasons.

Alden highlights a new retail bond program I hadn’t heard of yet (emphasis mine):

Massachusetts’ new program, Build Mass Bonds, will offer $1,000 bonds to individual investors during a special order period this coming weekend. The state hasn’t offered a bond that small in more than two decades, according to a release.

The Massachusetts Treasury invoked a sentimental sense of allegiance to the state.

“These bonds are about more than interest rates and maturity dates,” state Treasurer Steven Grossman said in a release. “They’re about giving more people an opportunity to invest in our shared infrastructure, the roads, bridges, parks and campuses that they utilize on a daily basis.

Amen. Investing in municipal bonds can be more than an effort to maximize your personal wealth. It can be a vehicle for helping create a safer and more prosperous community. I think this is called “social investing.” Let’s bring “social investing” to muniland.

More tax collected from the wealthy

Many states are reporting increased tax collections, but it’s coming mainly from the well-to-do. It’s likely that governors and legislatures will use these revenues cautiously and judiciously. The recent pain of revenues falling off a cliff has to be front of mind for them.

The New York Times reports:

Now, as states tally their tax collections for the all-important month of April, states including California, Michigan, New Jersey, Pennsylvania, Rhode Island and Texas are reporting that tax collections appear to be better than they had feared. As welcome as the news is, though, tax collections can be highly volatile, and there is still plenty of reason for caution.

Much of the increase in California tax collections came not because of especially robust job or wage growth — wages grew at less than 1 percent last year, officials said — but rather because much of the income growth and capital gains in the state were concentrated among California’s highest earners, who pay the highest tax rates.

“While this is to be expected, given the stock market recovery and the good earnings of California’s top performing companies,” the state warned in its revenue report, “such recovery rates of growth are not likely to be sustained.”

Whitney’s new gloomy doomy

The Financial Times reports:

Meredith Whitney, the outspoken Wall Street analyst, who predicted a wave of defaults by troubled US municipalities, has warned that the rising cost of states’ retirement schemes could redirect funds away from public services and ultimately hurt the US economy.

Ms Whitney, who shot to fame for spotting trouble at large Wall Street banks ahead of the financial crisis, forecast “state arbitrage” whereby the weakest states, namely California, Illinois, Ohio and New Jersey, face the risk of large emigration of their highest tax base – companies and high net worth individuals – to stronger states that have better managed their finances over the years.

Be sure to read is Whitney’s op-ed in today’s Wall Street Journal. I’ll write more about this later.

Bailing out the American Dream

Every politician sets priorities. As ThinkProgress points out, it is a little surprising that New Jersey Governor Chris Christie has made a private project a priority for public funding given how constrained public funds are in the Garden State:

Yet there appears to be one project that Christie does not mind subsidizing to the tune of hundreds of millions of dollars. For years, a group of developers have been building the Xanadu Meadowlands complex, a massive retail and entertainment complex — complete with indoor water park, skating rink, and 600-foot ski slope — that has been under construction for the past three governors. Yet despite $1.9 billion being spent on the project with little progress, Christie recently struck a deal with the company that built the Mall of America to rescue the project, at huge taxpayer expense.

Late last month, the deal was announced and Xanadu was renamed the American Dream @ Meadowlands. As a part of the deal, Christie will have the state up to $200 million in financing and will also forfeit a similar amount of sales tax revenue:

Though the Christie administration has criticized Xanadu, once calling it a “failed business model,” and the governor said he was uncomfortable getting the state involved in private development, the state would provide $180 million to $200 million in low-interest financing and forfeit a similar amount in future sales-tax revenue. The administration has argued that the project is too big and too far along to let it lie fallow.

Mini sweeps

Marketplace Radio: States collect more taxes than expected

Bond Buyer: Walter to Issuers: Work With Us

The Big Picture: Munis

Business Insider: Look Who’s Buying Munis Again

Bondview: New Tool For Municipal Bonds Could Shock Investors

Forbes: Will the Real “New Subprime” Please Stand Up?

Investment News: Friend of Rahm: PFM Group buys rival from new Chicago finance chief

MPBN: Proposals to Tighten Maine’s Bonding Process Draw Opposition

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