MuniLand

Meredith Whitney’s “Great Migration”

By Cate Long
June 4, 2013

Since I write about muni issues every day, I couldn’t find where Meredith Whitney had covered much new ground in her book, Fate of the States: The New Geography of American Prosperity, which is released June 4. It felt like the book had been written over a year ago and was not in tune with current fiscal realities. For example, on page 117 Whitney says, “We have reached a breaking point for some states. There is no more money.” The only state that I know where that might apply is Puerto Rico. In fact, numerous states are seeing modest surpluses this year and some are rebuilding rainy day funds.

Bloomberg’s municipal columnist Joe Mysak drove straight to the heart of Whitney’s thesis:

We’re all moving to North Dakota.

Or South Dakota. Or somewhere out there in the middle of the country.

This is the thesis of Meredith Whitney’s “Fate of the States: The New Geography of American Prosperity.” The country’s “central corridor,” largely untouched by the housing bust, is going to drive the economy for decades to come.

The “smart money,” she writes, “is flocking to states with lower tax burdens and less strained budgets.”

Whitney’s contention that the population is moving to the central corridor of the U.S. is not supported by any data she can point to. Forbes wrote:

In fact, most of the top-10 states people are leaving are located in the Northeast and Great Lakes regions, including Illinois (60 percent), New York (58 percent), Michigan (58 percent), Maine (56 percent), Connecticut (56 percent) and Wisconsin (55 percent). According to Stoll, this reflects a consistent trend of migration from the Frost Belt to the Sun Belt states based on a combination of causes.

The data show that people are moving from the north to the south of the U.S. A county-by-county analysis of Bureau of Labor Statistics data performed by municipal data firm Lumesis is shown in the map below. Job growth over the past year is happening in numerous parts of the country. It’s distributed among low and high tax rate states. This undermines Whitney’s contention that new employment will be concentrated in low-tax areas  (California had strong job growth, though it is a high tax state).

Whitney’s book may be a useful intro for those who have not followed the fiscal struggles of state and local governments over the past five years. At 206 pages it’s a fast read. But I would encourage readers to view it as the opinion of one analyst who has often been wrong. In one memorable case, the Nevada State Treasurer Kate Marshall went after Whitney for her errors in calculating the liabilities of her state.

Muniland is a complex place with 50 micro economies, political practices and differences between state laws and constitutions. The best comment about Whitney’s book that I read was from fiscal analyst Kil Huh:

Comments
3 comments so far | RSS Comments RSS

I actually agree with Ms. Whitney. Muniland is in a bunch of trouble and the first big city to hit the skids will be Detroit.

Posted by surambaya | Report as abusive
 

With all due respect to Cate Long, she is exactly the type of analyst that Whitney was taking to task for being too complacent about the risks inherent in municipal finance. The fact there there are temporary budget surpluses or that demographic shifts haven’t materialized fully yet doesn’t completely undermine Whitney’s point. She never said they were going to happen overnight. I happen to think Meredith Whitney’s thesis is essentially correct will play out at the end. One has to live in California (or one of the other “housing bust” states) and simply look out the window to see the deep fiscal mess the cities are in. You are welcome to read my perspective on this topic here:

http://seekingalpha.com/article/1481651- straight-outta-stockton-meredith-whitney -comes-out-swinging-in-fate-of-the-state s?v=1370441607&source=tracking_notify

Posted by gkhanna | Report as abusive
 

I also agree with Whitney. California has negative equity of at least $137 billion (per state auditor’s latest report) and as many as $600 billion (if accrued and contingent liabilities are included as they would be in private sector accounting). So one year the state ends up with a $1 billion surplus and that means it can now spend freely? This is absurd.

Posted by EcouteSauvage | Report as abusive
 

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