Muni sweeps: The central muniland battle

June 15, 2011

The central muniland battle

The new healthcare law, commonly called “Obamacare,” will necessitate a large expansion of the Medicaid program. Medicaid is a federal healthcare program insuring low-income people. It is funded jointly by the federal government and states, but its mandates are dictated by the feds. The Washington Post reports on the conflicts that are arising under this dynamic:

Faced with severe budget problems, Republican governors are escalating their fight against federal rules requiring states to maintain current levels of health-care coverage for the poor and disabled…

…This week, 29 GOP governors wrote a letter asking congressional leaders for greater flexibility in spending Medicaid dollars. They say that would give them much-needed control over the soaring cost of Medicaid, often the largest single item in state budgets.

Across the country, governors are concerned about the burgeoning cost of Medicaid, which in fiscal 2010 consumed nearly 22 percent of state budgets, according the National Association of State Budget Officers. That’s larger than what states spent on K-12 public schools.

Medicaid’s share of states’ budgets ranged from 7.3 percent in Wyoming and 7.5 percent in Texas to 32.8 percent in Illinois and 37.1 percent in North Carolina, according to NASBO.

More states cast wary eye on Wall Street

Another state wants to know what Wall Street is doing with municipal credit-default swaps. From IFR:

In response to a request by the State of Illinois’ Governor’s Office of Management and Budget to explain their municipal credit default swap activity, Goldman Sachs, JP Morgan, Bank of America Merrill Lynch and Morgan Stanley said they entered into trades regarding municipal CDS on the state of Illinois between January 1, 2011 and March 31. The banks, however, said they did not enter proprietary trades regarding Illinois CDS.

Selling the people’s patrimony

Dylan Ratigan has teamed up with the Huffington Post to investigate the small but growing trend of Wall Street buying public assets. From Huffington Post (emphasis HuffPo’s):

On Wall Street, setting up and running “Infrastructure Funds” is big business, with over $140 billion run by such banks as Goldman Sachs, Morgan Stanley, and Australian infrastructure specialist Macquarie.

Goldman’s 2010 SEC filing should give you some sense of the scope of the campaign. Goldman says it will be involved with “ownership and operation of public services, such as airports, toll roads and shipping ports, as well as power generation facilities, physical commodities and other commodities infrastructure components, both within and outside the United States.” While the bank sees increased opportunity in “distressed assets” (ie. Cities and states gone broke because of the financial crisis), the bank also recognizes “reputational concerns with the manner in which these assets are being operated or held.

The funds themselves are clear when communicating with investors about why they are good investments — a public asset is usually a monopoly. Says Quadrant Real Estate Advisors: “Most assets are monopolistic in nature and have limited competitors, creating the opportunity for stable, long-term investment returns. Investment choices include economic assets and social assets.” Quadrant notes that the market size is between $12-20 trillion, roughly the size of the American mortgage market. “Given the market and potential return opportunities, institutional investors should consider infrastructure a strategic investment allocation.”

Follow Dylan Ratigan on Twitter.

Mini sweeps

Los Angeles Times: Problems in municipal market extend beyond California firm

Reuters: Scenarios: How California could meet its budget deadline

San Francisco Chronicle: State budget: Dems attempt bypass GOP, avoid taxes

Marketplace: New Jersey to close round one of bids for offshore wind

Bloomberg:Princeton Borrowing as Capital Spending Recovers: Muni Credit

The Detroit News: Snyder goes in search of better state credit rating

Sustainable Cities Collective: The Squeaky Wheel Gets The Bike Racks

Transportation Nation: Quiz: What are the Top Seven Transit Systems in the U.S.? — Some Surprises

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