MuniLand

Connecticut issues layoff notices

The governors are getting it done. And it’s painful.

From the Wall Street Journal:

After months of closed-door talks with state employee unions, Connecticut Gov. Dannel Malloy announced that no deal could be reached to garner $1 billion annual concessions needed to close a $3.5 billion budget gap.

“The state employee representatives have thus far not offered enough,” Malloy said in a statement Tuesday morning.

To balance the two-year $40.1 billion budget and comply with contractual layoff notice requirements, Malloy said layoff notices would go out Tuesday to “the first 4,742 state employees,” resulting in an estimated savings of $455 million. The remaining $545 million in savings would be achieved by cuts to government programs, which could result in additional layoffs.

Ohio could sell prisons, maybe turnpike

Ohio is moving towards selling off public assets to reap a one time benefit to plug its budget deficit.

I’m not convinced that asset sales, at firesale prices, are really beneficial for the public in the long run. I’d be very interested in any research that addresses the issue.

Everybody beats up on Meredith Whitney for her muniland panic call.

Yesterday she doubled down on her prediction of “hundreds of billions of dollars’ worth” of municipal-bond defaults.

Whitney was speaking on a panel, Reading the Tea Leaves: What Lies Ahead for Financial Markets?, at the Milken Global Conference.

I want to give Whitney some credit.

Whitney has a very good macro view of the U.S. economy. At the Milken conference she said that housing has contracted for four consecutive years. States have spent at a 30% higher CAGR rate than consumers.

Happy days may be over in our 51st state. Joan Gralla of Reuters reports:

Puerto Rico’s credit rating might be cut due to its “deeply underfunded” pension system, Moody’s Investors Service said on Tuesday, in a reminder of one of the biggest threats to state and local finances.

Puerto Rico now is rated A3 by Moody’s; about $28 billion of debt issued by the Commonwealth was affected by the warning from the credit agency.

Puerto Rico’s financial problems are not only deep but long-standing. Moody’s cited years of over-estimating revenues, underestimating expenses and relying on deficit borrowing.

Among other things today is National Arbor Day.

It’s time to be thankful for our wonderful trees. Some municipalities make the preservation and addition of trees a centerpiece of town planning.

Consider planting a tree this weekend or donating to local group who is beautifying your community.

Stranded assets

There are 67 miles of toll roads in Orange County, California that drivers don’t seem to want to drive on much.

Is the “Golden State” golden?

Some banks and hedge funds don’t think California is so golden after all. And they have bought credit default swaps insuring (or betting) against it’s default.

We know about these muni derivatives because of some excellent reporting from Katy Burne at Dow Jones.

She reports:

The banks disclosed the trades to California Treasurer Bill Lockyer last month in response to his request that all 86 of the state’s bond underwriters detail the volume of credit default swaps they traded on the state’s roughly $80 billion of general obligation bonds in the three months ending Jan. 31.