Muni sweeps: New growth or decay?

May 19, 2011

The New York Times food writer, Mark Bittman, has written the loveliest piece about his visit to our nation’s most devastated urban area, Detroit. He says there are little seeds of hope and change growing there:

Imagine blocks that once boasted 30 houses, now with three; imagine hundreds of such blocks. Imagine the green space created by the city’s heartbreaking but intelligent policy of removing burnt-out or fallen-down houses.

Now look at the corner of one such street, where a young man who has used the city’s “adopt-a-lot” program (it costs nothing) to establish an orchard, a garden and a would-be community center on three lots, one with a standing house. (The land, like many of the gardens, belongs to the city and is “leased” for a year at a time. But no one seems especially concerned about the city repossessing.)

A young man who adopts eight lots and has bought another three has an operation that grows every year and trains eager young people. A Capuchin monastery operates gardens spanning 24 lots, five of which they own; at one of them, I meet Patrick Crouch, who’s supervising 10 gardeners-in-training and reminds me that “community gardens are not just about ‘gardens’ but ‘community.’”

It would be wonderful if harsh economic conditions fostered “community” rather than crime and decay. Maybe we are seeing the true resilience of the American people in Detroit.

Fund streak broken

From Daniel Bases of Reuters:

U.S. municipal bond funds broke a 26-week streak of net outflows as investors tilted back into the sector for the first time since November, data from the Investment Company Institute showed on Wednesday.

ICI, a U.S. mutual fund industry trade group, reported a net inflow of $38 million for muni bond funds for the week ended May 11.

The outflow streak had seen a cumulative $45.3 billion leave the sector as investors were spooked by headlines about fiscal crises facing states and cities after the recession induced by the financial crisis.

Whitney predicts insurance firms will panic sell munis

Meredith Whitney has moved on from her forecast of “50 to 100 ‘sizable’ municipal-bond defaults in 2011″ for cities and states and is now predicting that insurance firms will be forced to dump their municipal bonds when credit-rating agencies do wholesale rating cuts. This prediction ups the game she is playing tenfold.

From Investment News:

There will be a “waterfall” of credit-rating cuts in the $2.93 trillion municipal debt market as rating companies scrutinize state and local off-balance sheet liabilities, said Meredith Whitney, the banking analyst.

“Once these municipal bonds get downgraded, there will be forced selling by the insurance companies,” said Whitney, who founded New York-based Meredith Whitney Advisory Group LLC in 2009 after leaving Oppenheimer & Co. “Then you’ll see an opportunity to go in and buy quality issues because there’ll be indiscriminate selling.”

N.Y. School Superintendent Gets Salary, $316,245 Pension

Posted without comment from Bloomberg:

James Hunderfund, who earns at least $225,000 a year as a school superintendent on Long Island, is also entitled to a $316,245 annual pension from a previous administrative post, according to a compilation of pension data by the Empire Center for New York State Policy.

Hunderfund retired in 2006 as superintendent of the Commack school district, also on Long Island. His current contract with Malverne stipulates that he receive an annual salary of no less than $225,000 through June 30, according to Empire’s report, which used a database from the New York State Teachers Retirement System.

The average pension for educators retiring in 2010 was $52,270, compared with $38,924 for all retirees, the report said.

BABs were money savers, says Treasury

Reuters reports:

Treasury found that issuers of the bonds, which paid them federal rebates equal to 35 percent of interest, saved $20 billion, said John Bellows, acting assistant secretary for economic policy.

“In its less than two years of existence, the program was decidedly a success — in addition to lowering borrowing costs, it helped to restore a badly damaged municipal finance market and supported job creation through thousands of much-needed infrastructure projects,” Bellows wrote in a blog post.

Build America Bonds ended when the stimulus plan expired in December. From April 3, 2009, through Dec. 31, 2010, state and local governments sold 2,275 BABs equal to $181 billion.

SEC proposes new rules for credit raters

I haven’t read the 518 pages of new rules that the SEC has proposed for credit rating agencies yet. But I’ve read the SEC’s “Fact Sheet” and there appears to be a few positive changes for muniland:

  • Separation of the “sales” and “analysis” roles for credit rating staff
  • If an analyst leaves and joins a rated issuer, the agency must then must conduct a “look-back” on past ratings
  • Standardization of agencies’ default and transition reporting (i.e., cleaning up the numbers)
  • Strengthening of credit rating methodologies
  • Establishment of standards of training, experience and competence for credit analysts
  • Application of rating symbols in a consistent manner across asset classes
  • Filing NRSRO registrations in Edgar
  • Filing NRSRO compliance officer reports

Mini sweeps:

The Atlantic: Miseducation Nation

Standard & Poor’s: What are the risks of alternative financing for the muni sector?

Bond Buyer: Standard & Poor’s Cites VRDO Repayment Risks

Wall Street Journal: States May Turn to Munis to Repay Unemployment Loans

Advisor One: Forget Schwarzenegger Scandal: California Tax Receipts Ease Budget Blues

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