MuniLand

As summer unofficially opens, here’s a poem to biking from People for Bikes.

Good Links

CJR.org: Sorkin’s Glass-Steagall straw man

Bloomberg: Underwriters paying to pass bond issues face scrutiny

Bond Buyer: About $84 billion of coupon and maturing bonds coming in June and July

Reuters: Reuters newsroom joins my critical view of Puerto Rico debt

Reuters: Property taxes give New York’s Westchester County an edge over peers

Patriot News: Editorial on the latest in Harrisburg’s political soap opera

Bloomberg: Hedge fund got most South Carolina fees while lagging on returns

@Twitter Talk

We need to have an honest discussion about how to pay for pension benefits. The numbers don’t add up. There will need to be haircuts on this

For openness in finances, debt management and budget process, Massachusetts is the gold standard among states. The legislature and executive branch have collaboratively embraced a five-year budgeting process and committed to sharing the results with taxpayers and the public. Because of the state’s efforts to reach out to the investing community, I predict that its transparency will lead to lower borrowing costs and more stable funding sources in the future. The state is rated AA+ by credit rating agencies for creditworthiness, but I’ll assign it the highest rating, AAA, for transparency.

Several weeks ago, the state treasurer, Steven Grossman, launched a new Twitter account (@BuyMassBonds) that keeps the public informed about new financial filings and bond offerings. It’s a model of excellence for muniland in terms of keeping municipal bond investors informed through social media. Here is a recent tweet about an upcoming bond issue, the Massachusetts Water Pollution Abatement Trust State Revolving Fund Bonds:

Love clean H2O? Mass Water Trust is selling $230mill in bonds that fund it on Tues/Wed! Learn more at buymassbonds.com #muniland

Todd Park, the U.S.’s chief technology officer, calls for all “bad-ass” coders to serve a short stint in the federal government doing computer programming. Here is more from Techcrunch.

Happy Memorial Day!

Good Links

Reuters: State budgets spring new, smaller holes

Bond Buyer: When is a GO bond not a GO bond?

Marketplace Radio: How will California find a fair mix of spending cuts and tax increases? Radio interview with Governor Jerry Brown

WaPo: Vallejo, California, once bankrupt, is now a model for cities in an age of austerity

Chris Christie, the Republican governor of New Jersey, is a master at distorting facts and attacking his political opponents. Politicians do this everyday, of course, but Christie is especially confrontational, and his go-for-the-throat approach must leave Democrats in the state legislature feeling bullied and weary.

For all of Christie’s aggression, little real governing happens in his state. New Jersey still has a structurally unbalanced budget. The state still relies on short-term deficit financing and other tricks to get the budget balanced at the end of the fiscal year. Since Christie took office in November 2009, the state’s debt load reversed its downward march and returned to the high levels last seen in 2005 under former Governor Jon Corzine. Christie’s rant in the video above about Democrats’ profligacy betrays his own actions.

Since February, when Christie proposed his budget for fiscal year 2013 (beginning July 1, 2012), he has been very optimistic about the state’s revenues and has been fixated on cutting the state income tax. Moody’s and others warned at the time that the tax cut was imprudent because New Jersey’s budget was based on fanciful assumptions. Here’s what I wrote in February:

New York seems to have developed the best form of public-private partnerships in the nation. The city revitalized itself, after its rapid decline in the 1970s, by allowing private, non-profit interests to take a larger role in public affairs. For example, the city hosts 67 business improvement districts (BIDs) and two major park privatizations, and these show that cities can receive support from the private sector without having to hand over, in exchange, major profit-seeking opportunities and assets to private interests.

Most of the current national discussion about public-private partnerships (P3s) is about selling public assets or leasing them long term to private investors. A recent example is the long-term lease of two major Puerto Rico toll roads to a consortium led by Goldman Sachs whose investors will likely reap revenues of $3.6 billion over 40 years for a $1 billion investment. In the project, the Commonwealth of Puerto Rico granted a monopoly right to private investors to control the asset and charge users for access.

In contrast, the New York City P3s to date have been true partnerships between the public and private sectors with no profit motive. The largest P3 is the Central Park Conservancy:

Have a look inside “North America’s greenest hotel” to see how it’s been done using existing technologies. Meanwhile, Bloomberg reports that Portland is No. 1 for bike commuting in the U.S., according to the 2010 Census.

Good Links

Governing: Being governor is great

Commonwealth of Massachusetts: May 2012 credit update and investor disclosure conference call

Muni Nation: Yield on the run

Bond Buyer: Indiana eyes a privatization spree

NYDN: Rudy Giuliani rides in to rescue financing for Yankee Stadium parking company

The Tax Foundation is reporting that the House of Representatives may take up H.R. 1864, the Mobile Workforce State Income Tax Simplification Act of 2011. The CBO describes the legislation as prohibiting states from taxing the income of employees who work in the state for fewer than 31 days. The prohibition would not apply to the income of professional athletes, entertainers or public figures.

Good Links

Senate Banking Committee: Internal staff memo on yesterday’s hearing on derivatives regulation

Reuters: U.S. cities wrestle with universities for cash

NCSL: State unemployment rates drop in April 2012

NABL: “Simply and plainly tell the whole credit story related to [newly issued] bonds”

Would resuscitating a Depression-era banking law strengthen the financial system that we have today? There are many, including me, who believe a reinstatement of Glass-Steagall would help separate the risks of high-velocity, high-volume securities speculation from the pedestrian activity of holding retail deposits. Often forgotten in the discussion of Glass-Steagall is the law’s primary accomplishment: the creation of deposit insurance through the FDIC, which promptly ended the recurring curse of mass withdrawal of retail deposits during financial crises. My grandparents lost all their savings in the banking crisis of 1933. In the wake of Glass-Steagall, the idea that their bank deposits were insured must have seemed like a miracle to them. This act established confidence in the banking system among everyday savers.

Yesterday, DealBook’s Andrew Ross Sorkin took up the issue of Glass-Steagall in a piece focusing on Massachusetts Senate candidate Elizabeth Warren. Sorkin argues that the dismantling of Glass-Steagall was not the cause of the financial crisis. Furthermore, he says that Warren’s proposal to reinstate Glass-Steagall is misguided and would not have prevented the global meltdown of 2008.

I don’t want to speak for Warren, a Harvard Law School professor, but I think what she is pointing to is the need for an updated version of the law, a Glass-Steagall 2.0. Sorkin’s description of why Glass-Steagall would have done little to avert the financial crisis of 2008 parrots the argument made by Wall Street’s elite. See this Bloomberg piece from December 2009, for instance:

Like U.S. Treasury debt, muniland securities have been hot, hot, hot. Investors have been piling into municipal bonds for about 16 consecutive months. At first, demand was driven by investors who were attracted to the high yields in the wake of Meredith Whitney’s predictions of default, which scared retail investors out of the market between November 2010 and February 2011. Demand then accelerated as the Federal Reserve kept interest rates at artificially low levels, driving investors out of Treasuries and into riskier assets. Steady municipal bond mutual-fund flows, coupled with the reinvestment of muniland proceeds into new bond issues, has also helped keep demand elevated.

On the supply side, municipal bond issuance in 2011 slowed to $295 billion, down 32 percent from 2010 and the lowest level since 2001. This lack of supply, along with massive demand, has covered over a lot of issuer weaknesses that would normally drive yields higher. Bloomberg reports:

“There’s a shortage of bonds out there,” said Paul Mansour, managing director at Hartford, Connecticut-based Conning, which oversees about $10 billion of municipal bonds. At the same time, “there’s a rush for yield, and it’s masking the differences” in issuers’ credit quality, he said.

There is a new movement afoot on the fringes of urban society called “depaving,” or removing asphalt from small urban areas to make green, community spaces.

Good Links

Senator Jim DeMint: Saying no to state bailouts

Bloomberg: Pennsylvania’s tax windfall from gaming leads the U.S.

LAT: Los Angeles among most financially distressed areas in U.S.

Reuters: U.S. municipal bond sales to total $9 billion next week

Bloomberg: Jefferson County can’t pay GO bonds without new tax, lawyer says

WPRI.com: Rhode Island video-game company makes loan payment to state

@Twitter Talk

Shelia Bair would push CDS off the face of the planet tgr.ph/KC2sTm (shocking, I know)

— Chris Whittall (@Chris_Whittall) May 21, 2012

street research this weekend almost universally expects a pullback in muni yields to help place a surge in supply – ratios to the rescue?