MuniLand

In an unprecedented move, Massachusetts Governor Deval Patrick has signed into law a state-level cap on healthcare spending. This effort, which seeks to reduce the cost and raise the quality of healthcare in the state, is an extension of the universal healthcare system that former Governor Mitt Romney championed and signed into law. Today 98 percent of Massachusetts residents have healthcare. The Boston Herald explains the political background of the legislation:

State Rep. Steven Walsh (D-Lynn), who co-chaired the committee that crafted the bill, said the program is expected to save at least $150 billion over 15 years and that the average family will save about $2,000 a year.

“That’s real money for real working families,” Walsh said.

Although creating the new agency is estimated to cost about $30 million, Walsh said other departments are being consolidated.

Both Walsh and a spokesman for House Speaker Robert A. DeLeo dismissed the idea that the bill was rammed through, pointing out it was four years in the making and that Walsh’s Committee on Health Care Financing visited 54 hospitals, held 800 meetings with doctors and patients and talked to a dozen academic experts.

Moody’s details the components of the legislation (subscription required):

Just a little Monday silliness. (Hattip The Daily Bail)

Good Links

WSJ: Ravitch and Volcker expose the growing state fiscal crisis

Bloomberg: U.S. public pensions earn 1.15 percent, the worst showing since 2009

Reuters: Pension debt overwhelms bankrupt San Bernardino, California

Bond Buyer: Investors benefiting from MSRB’s RTRS, says former SEC official

Voice of San Diego: Where borrowing $105 million will cost $1 billion: Poway schools

@Twitter Talk

“New York spends more on Medicaid than Florida, Texas and Pennsylvania—combined” on.wsj.com/QBo9ei#muniland

For decades, municipal bond insurers like MBIA, Ambac, FSA and Assured Guaranty were the big kahunas of muniland. They used their AAA balance sheets to stand behind smaller, lower-rated issuers. These small issuers were able to pay a lower yield when they brought their bonds to market after they paid a small insurance premium to the bond insurer for its service. Everyone in the market loved it because at least half of the market was AAA-rated, based on the insurer wrap, making investing and trading very easy for everyone. With insured bonds, you didn’t need to differentiate between a bond rated A or bond rated AA- when trying to figure out a price, because they all carried the AAA wrap.

But the bond insurers all blew up during the financial crisis because they had heard the siren song of Wall Street and in their greed insured a lot of mis-rated mortgage-backed securities (MBS). As their losses on MBS rose and their capital base eroded, the insurers were stripped of their gold-plated AAA ratings and a number of them failed. Only Assured Guaranty and MBIA were left standing, but MBIA is not writing new policies, and Assured Guaranty has been the only insurer still writing insurance for cities and other municipal entities until recently. In July Build America Mutual (BAM), a new firm staffed by former executives of Assured, was formed.

BAM is structured as a “mutual” insurance firm whereby the cities and towns that have insurance policies written on them own the firm. The towns that buy insurance for their bonds pay a fee composed of two parts. One is the actual insurance premium that goes into a pool to cover losses for any policyholder in the mutual. The second part of the fee is a surplus charge, with the charges pooled together to create greater claims-paying ability. Here is how BAM describes it:

Firefighter Hays explains what a “Jump Company” is for the Evanston, Illinois “5 Alarm Tweet Along”.

Good Links

Army Times: Defense contractors rally against budget cuts

SEC: SEC names John Cross director of the Municipal Securities Office

Watchdog.org: SEC report reveals house of bonds turned into den of thieves

Rockefeller Institute: States continue to collect more taxes through early 2012, report finds

Cultural Landscape Foundation: New Jersey’s “done deal”: destroying a historic resource

Treat yourself to a visual delight as you gaze on the wonders of America’s statehouses. Photos by Dan Vock of Stateline.org.

Good Links

Reuters: Municipal adviser bill advances in U.S. House

MSRB: MSRB announces new board members for 2013

AllianceBernstein: The underfunded pension: States take action

CPER: Fiscal insolvency under AB 506: death by a thousand meetings

The Sun: San Bernardino files for bankruptcy

Bloomberg: Police chief’s $204,000 pension shows how cities crashed

NYS Comptroller: Most cities in stress, struggling to keep financial houses in order

@Twitter Talk

New #SIFMA research: US #muni bond credit report (trends, stats, issuance, etc) bit.ly/OnRpzq

The SEC released its long-awaited report on muniland disclosure and price transparency yesterday. Ten years from now, every retail investor will want to say a word of thanks to Commissioner Elisse Walter, even if only half her recommendations on transparency and investor protection are implemented. Unfortunately, her term as SEC commissioner expires June 5, 2013, which leaves her less than a year to get the ball rolling on her proposals.

The report is composed of two primary areas: The first part concerns better disclosures by municipal bond issuers about their finances, and the second addresses the market structure for trading municipal bonds. It’s the second part that contains the really game-changing parts of the report.

On disclosure, the report recommends institutional changes, such as the requirement that muniland participants adopt the standards of the Government Accounting Standards Board and make timely and audited financial disclosures. The report recommends that conduit borrowers (think non-public entities like non-profit hospitals and private colleges) be subject to the same registration and disclosure standards as corporate securities and barred from using exemptions that municipal issuers rely on. Conduit issuers happen to have the highest incidence of defaults, and investors need the greatest level of disclosure for these securities.

Couple years ago I wrote about trash as an indicator for U.S. GDP. Here is something to keep an eye on this Q:twitpic.com/abugye

— Michael McDonough (@M_McDonough) July 26, 2012

Hat tip: Business Insider.

Good Links

Fiscal Times: 5 percent of Americans spend 50 percent of healthcare dollars

SEC: Report on the municipal securities market

Reuters: SEC seeks more investor protections for U.S. municipal bond market

Bond Buyer: SEC muni report seeks 15 major legislative, regulatory changes

WSJ: SEC seeks controls on muni market

NASRA Issue Brief: Public-pension-plan investment return assumptions

ZeroHedge: On the financial press

Fox News: Unions essentially owned Vallejo’s leaders, whom they helped get elected.

@Twitter Talk

The Cartel: Behind the Scenes in the Libor Interest Rate Scandal spon.de/adICL via @spiegelonline

The Cato Institute’s daily podcast tries to answer the question: Will your local cops use drones?

Good Links

NYT: Bill Keller: The entitled generation

NYT: Excellent recap of the Chris Christie road show

The Record: Stockton seems to win medical benefit ruling

San Bernardino Sun: Loss of redevelopment money adds to San Bernardino’s financial crisis

The Press Enterprise: San Bernardino County seeking voter approval for future pension increases

The muni market’s overseer, the Municipal Securities Rulemaking Board (MSRB), is taking aggressive action to survey muniland indices following the Libor scandal. The board is asking index providers to disclose more about how certain indices are developed. The MSRB has no direct authority to regulate indices because, as with Libor, they are maintained by private companies and are outside of the board’s legislative mandate to regulate dealers. Alan Polsky, the current chairman of the MSRB, said in a press call that the board did not believe that there was any wrongdoing in this corner of the market, but that increasing transparency would enhance investor confidence. Here’s what he stated in a press release:

“Like other regulators, the MSRB is concerned about the transparency surrounding the development of market indices,” said MSRB Chair Alan Polsky. “We plan to review indices used by the municipal market – and develop educational materials about their use – to ensure that the market operates fairly and transparently.”

This is exceptionally good news because the municipal markets generally lag behind the equity markets in the transparency of their indices. You could easily calculate the value of the Dow Jones industrial average yourself, because information on all of the Dow’s components are publicly available. The same can’t be said for the Bond Buyer 20 index.

The Wall Street Journal‘s David Wessel has a new book about the federal budget and the politics around it. From NPR:

The book is called Red Ink: Inside the High-Stakes Politics of the Federal Budget, and it breaks down the budget in stark terms: how the government spends its money, who pays what in taxes, and why politicians can’t reduce a potentially catastrophic debt load.

Good Links

USA Today: Comparing droughts: 1934 and 2012

WSJ: California still dominates foreclosure scene

Reuters: California official chastises SIFMA over eminent domain “threats”