The 30,000-foot view of muniland

By Cate Long
October 18, 2012

The Bond Dealers of America, an organization representing national middle-market bond dealers, held its national conference in Chicago last week. I did not attend, unfortunately, but the agenda was a good mix of regulatory and legislative perspectives from the buy-side (mutual funds, insurance firms, asset managers) and electronic trading platform executives.

What interested me most was a presentation by Amy Laskey, managing director of the Public Finance Group at Fitch Ratings, who provided a 30,000 foot view of the current state of muniland. These are the best sections that present a mixed-to-positive picture:

Review of Recent Rating Actions

• Average local government general obligation rating remains ‘AA’ but trending towards ‘AA-’

• 12% downgrade rate YTD

• Upgrades scarce

• Multiple downgrades

• Increasing divide between strong and weak credits

• Expect more isolated cases of default, bankruptcy

Revenue vs. Spending Trends

• Moving in opposite directions

• Flat to declining recent revenue performance

• Property tax

• Sales tax

• State aid

• Natural spending growth

• COLAs [cost of living adjustments], step increase

• Inflationary growth

• Pension, health care increase

Sound Reserve Levels

• Reserves remain strong for most local governments despite some declines during the downturn

• Once the prolonged nature of the downturn became clear most managers turned to recurring budget solutions

• Unrestricted reserves at the end of fiscal 2011 average well over 20% of spending for governments rated in the ‘AA’ category

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/