MuniLand

Inbox me if you want to put the #TransformingDetroit logo on your site or blog. twitter.com/mayordavebing/…

— Mayor Dave Bing (@mayordavebing) July 23, 2012

Yesterday Detroit celebrated its 311th birthday. Cheers to the city. We’re hoping for a transformation, too.

Good Links

Harpers: The price of gun control

Council of State Govts: The Book of the States 2012

Federal Transit Administration: Database of federal grants for transit asset management projects

Fresno Bee: Some investors worry Fresno might be California’s next bankrupt city

Bloomberg: Los Angeles water users escape swap thanks to Twist

Bond Buyer: In the wake of Libor scandal SIFMA explains how its muni swap index is set

Municipal advisers, those muniland professionals who are hired by public officials to evaluate their needs for financing and guide them through the underwriting process, don’t receive enough attention. Generally, they are paid by a government entity but also receive fees from the banks who underwrite the deals. Dodd-Frank set out to restrain potential conflicts in this space by requiring municipal advisers to register as such and imposing a fiduciary duty on their activities.

Now, however, some members of the House of Representatives are trying to roll back the portion of Dodd-Frank that would impose this fiduciary duty. A first-term congressman from Illinois, Robert J. Dold, whose prior professional experience was operating a pest-control business, has proposed legislation to strip the fiduciary duty requirement from Dodd-Frank. His bill currently has 35 co-sponsors.

Typically, municipal officials have little to no experience in financial markets. A financial adviser is on hand to untangle the complexities of different financing structures, guaranteed investment contracts (GICs) and derivatives. For public entities to get a fair deal, it’s critical that they get conflict-free advice from their financial advisers. The big Wall Street banks have for years sold highly complex and expensive products to poorly informed governments. See, for instance, these episodes from 2008:

After the tragic murders in Aurora, Colorado last Friday, the debate over gun control in the U.S. has been reignited. Policymakers would do well to study the case of Australia’s gun-control laws, which were put in place following a comparably tragic incident in 1996. After a man killed 35 people and wounded an additional 21 with two semi-automatic rifles in the Tasmanian town of Port Arthur, Australia passed a law that banned all such rifles, along with semi-automatic and pump-action shotguns, and then created a restrictive system of licensing and ownership controls.

The national government also undertook a gun buyback program. This involved each state and territory establishing and operating a system through which gun owners and dealers could surrender the newly prohibited weapons in return for compensation. Arrangements were also made to compensate firearms dealers for loss of business related to these newly prohibited firearms.

Interestingly, the Australian government only set the policy parameters for the program and left it to each state and territory to establish how to enact it. Because of the variance in the territories’ methods, there’s an interesting data set researchers were able to use to analyze the effectiveness of the program:

An interesting, on-the-ground look at the bankrupt city of Vallejo, California (via the Huffington Post).

Good Links

WSJ: U.S. cities with bigger economies than entire countries

Reuters: Public pension funds to face calls to set realistic targets

Council of State Govts: State pension systems on the rebound

Reuters: New bond insurer endorsed by National League of Cities

Reuters: Residents seek dissolution of a New York tax district

Reuters: Stockton made scant headway in U.S. pre-bankruptcy talks

Self-Evident: Some perspective on the recent California bankruptcies

Go Lackawanna: New union contracts introduced in Scranton

@Twitter Talk

Not so shocking: 1) Your city forms militarized police unit, calls it “Strike Force.” 2) Your city pays out damages.startribune.com/local/minneapo…

— radleybalko (@radleybalko) July 24, 2012

My story today on the annual private-activity bond survey. PAB issuance saw a 13% decline in 2011 #munilandbondbuyer.com/issues/121_141…

Watch States Plagued by Fiscal Problems, Pension Payments on PBS. See more from PBS NewsHour.

Here’s a deep dive on the fiscal problems of the states and the Volcker-Ravitch report on the state budget crisis from PBS.

Good Links

Stateline: Report: Without major overhauls, state budget crises will linger

Pew Center on the States: Data visualization on the widening gap of pension funding

Bloomberg View’s Josh Barro wrote an interesting piece Thursday urging Scranton, Pennsylvania to declare Chapter 9 bankruptcy. Scranton has achieved national attention after the mayor reduced all city workers’ pay to minimum wage last week because the city could no longer afford paying their full salaries, a powerful image of how little cash Scranton has left.

The problem with Barro’s proposal is that Scranton cannot file for Chapter 9 without the consent of Pennsylvania’s state government. Chapter 9 bankruptcy is a part of the federal bankruptcy code, and it gives individual states the authority to decide whether their cities can go bankrupt:

States play a key role as gatekeepers or guardians in that, by virtue of [bankruptcy code] amendments codified in 1994, they have to specifically authorize their municipalities to file for Chapter 9. Silence on the matter is taken as a prohibition on filing.

The bottom line on #SanBernardino cash flow projections for July-Sept. is all red ink. #SBbankruptcy twitter.com/InlandBizz/sta… — Andrew Edwards (@InlandBizz) July 19, 2012

San Bernardino, California voted to declare fiscal emergency and move to file Chapter 9 bankruptcy on Wednesday.

Good Links

Reuters: Kansas Republicans war over “Ryan plan”-style tax cuts

Reuters: Washington state first to launch Facebook voter registration

Detroit News: Bing imposes cuts to Detroit union pay and benefits after Council rejection

Moody’s this week published a Special Comment (subscription required) that crystallizes a lot of the discussion regarding bankruptcies and defaults that has been going around muniland lately:

Recent decisions to seek bankruptcy protection by two large California cities – Stockton and San Bernardino – provide some indication that willingness to pay debt obligations may be eroding in the US municipal market. Although many municipalities have faced severe fiscal pressures since the start of financial crisis, only a handful of municipalities have chosen not to pay their debt.

Most of these municipalities have defaulted due to exposure to failing enterprises, such as a convention center, sports arena, or other project that was backed by a government until the project and related debt were left to falter. In contrast, Stockton and San Bernardino’s pursuit of bankruptcy are different and potentially more significant given that these defaults emanate not from enterprise risk but instead from stress on core government operations, notably high pension and other compensation costs and debt service.

Although Republicans have been insisting on cuts to federal spending, they are fighting to keep the defense budget off limits. They agreed to make cuts to military spending as part of last year’s sequester agreement, but there is a full-court press in progress to derail the cuts as the date on which they are set to take effect nears. This well organized campaign involves members of Congress, governors, mayors and military contractors. Here is what is involved, according to the House Armed Services Committee:

If sequestration takes effect in January, the defense budget would be cut an additional $55 billion per year from the levels established in Budget Control Act. That would mean an additional $492 billion in cuts on top of the $487 billion already being implemented [over ten years]. In total, over $1 trillion would be cut over the next ten years with disastrous consequences for soldiers, veterans, national security, and the economy.

This amounts to a reduction of around 14 percent to the defense budget. Even with the cuts, the U.S. will remain the biggest military spender in the world by far. In its pitch to put off the cuts, the House Armed Services Committee invoked the threat of job losses:

Much as the Simpson-Bowles report aspired to be the foremost guide to reducing the federal deficit, the Volcker-Ravitch report on the state budget crisis that was released yesterday hopes to serve a similar purpose for state government spending. Paul Volcker, the former Fed chairman, and Richard Ravitch, who helped New York City work itself out of bankruptcy, led the State Budget Crisis Task Force, the group that produced this report. The task force also included two former U.S. Treasury Secretaries as members. The bottom line of the report is that there is less money to go around and that states should become better managers of the shrinking economic pie:

The United States Constitution leaves to states the responsibility for most domestic governmental functions: states and their localities largely finance and build public infrastructure, educate our children, maintain public safety, and implement the social safety net. State and local governments spend $2.5 trillion annually and employ over 19 million workers – 15 percent of the national total and 6 times as many workers as the federal government…

…States are grappling with unprecedented fiscal crises. Even before the 2008 financial collapse, many states faced long-term structural problems. Many economists believe that in the aftermath of the crisis, the economy will grow sluggishly for years as it works off the excesses of the credit and real estate bubbles and endures slow employment growth. Tax revenues are recovering slowly and remain well below their pre-crisis trends.