Talking to Delaware’s governor about spending

I spend almost no time looking at the balance sheets of the healthiest states in muniland. They happily chug along collecting taxes and providing services, with rarely anything newsworthy to make me crack their books. When I was contacted last week to do an interview with Delaware’s Governor Jack Markell, I wondered if there was even anything I wanted to discuss about his AAA-rated state.

In fact, it was wonderful to hear a public official talk about his approach to refining and improving the way government delivers public services. It was a change from battling fiscal crisis with a budget ax.

Moody’s wrote about Delaware in a February, 2013 General Obligation bond rating action:

The outlook for Delaware is stable. The combination of the state’s strong structural governance features (including frequent revenue forecast revisions), speedy actions to deal with downward revenue revisions, the use of recurring solutions to solve gaps, a low-risk debt profile and high pension funding ratio will result in the state coming out of this recession in a strong position relative to its peers.

Delaware has an independent economic advisory council – the Delaware Economic and Financial Advisory Council (DEFAC) – composed of several dozen business leaders and academics who annually project how much revenue will be available to budget. This process, established in 1977, creates a non-partisan platform to build a state budget. Markell says that he and the legislature stick with the DEFAC numbers when developing the budget.

Detroit bankruptcy hearing – Closing arguments

Tweets from the final day in the federal trial to determine if Detroit is eligible for Chapter 9 bankruptcy protection:


Detroit bankruptcy hearing – Day 8

It was the last day of testimony in Detroit’s bankruptcy eligibility hearing. Here are some tweets leading up to the closing arguments on Friday:


Tweets from the Bloomberg muniland conference


Detroit bankruptcy hearing – Day 7

It is a real hand-to-hand fight in Detroit as creditors seek to establish that emergency manager Kevyn Orr did not conduct “good faith” negotiations prior to filing Chapter 9 bankruptcy for the city. It’s surprising that the city is not arguing that there were too many creditors to negotiate. The bankruptcy code allows a debtor to use this provision to escape conducting negotiations. Here are tweets from Tuesday:


Detroit bankruptcy hearing – Day 6

The sixth day of Detroit’s bankruptcy eligibility hearing was about whether the city negotiated in good faith with creditors. Detroit’s emergency manager Kevyn Orr (@MotownEM) returned to the stand to continue his testimony. Orr was appointed emergency manager on March 14, 2013. Here is the coverage from journalists and others on Twitter:


Infrastructure requires funding; Where will it come from?

Twitter was abuzz over a chart that was posted on FT’s Alphaville. Quack, quack, quack went Twitter, we need infrastructure spending to boost the economy! Of course nobody mentioned that Republicans, who recently shut down Congress to prove a point, are loath to increase spending. So where could additional money for infrastructure spending come from?

Here is a quick summary of possibilities.

The U.S. government: The likelihood of increased federal spending on infrastructure is almost zero, unless Congress wants to raise the federal gasoline tax. Congress has not increased the gas tax since 1993, not even to keep up with inflation.

State and local municipal bond issuance: This is where the bulk of current infrastructure spending comes from today. Municipal budgets have been constrained. New municipal bonds issued through the end of October fell 14.9 percent to $262.85 billion, according to Thomson Reuters. It’s not likely that state and local governments have significant balance sheet capacity to issue more debt. Here is the current outstanding municipal debt and how it is distributed (source: Sifma):

Muniland’s Central Transparency Platform: My survey

The MSRB has published a concept release about how it should design the new Central Transparency Platform (CTP). For the first time ever in muniland it will also gather and collect information on bids and offers before bond transactions occur (pre-trade). This information will be made available to the public. Here is how the MSRB describes the project:

With respect to pre-trade price transparency, there is currently no central location in the municipal market through which such pricing information is made broadly available to the public in a comprehensive manner. To the extent that pre-trade pricing information is available, it is typically provided by electronic networks operated by broker’s brokers, alternative trading systems (ATS) and other similar systems,[7] although such information also has sometimes been provided through non-electronic venues as well.

Typically, access to pre-trade pricing information is limited to market participants engaging directly with such venues and may be further limited to information regarding only those potential transactions involving the particular market participant, with information consisting of some or all of the bids and offers entered for a potential transaction.

Puerto Rico’s bond market and its ratings: How bad it is?

Puerto Rico’s creditworthiness continues to decline as its economy contracts, but its ratings have remained at the Baa3 and BBB- level (the lowest investment grade rating). Moody’s says it affirmed its rating because Puerto Rico’s government has taken substantial steps to raise tax revenues.

Puerto Rico’s bonds are trading as though they have junk ratings. There has been a lot of resulting talk about the disconnect between Puerto Rico’s investment-grade ratings and the yields on its debt.

Part of the increasing yields on Puerto Rico’s debt is due to a shrinking investor base. Several large structural shifts took place as the local Puerto Rico market blew up, killing demand for bonds from investors. U.S. municipal mutual funds had substantial redemptions and were often forced to liquidate some of their Puerto Rico holdings. Even more stress was added by the announcements of SEC investigations into the disclosure by mutual funds of the risk of these securities. It’s a perfect storm of regulatory and market challenges for Puerto Rico.

Detroit’s bankruptcy hearing – Day 5

On Tuesday Detroit’s emergency manager Kevyn Orr returned to the witness stand to be grilled by creditor attorneys. This is likely to be some of the most important testimony of the eligibility trial.

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