MuniLand

The Federal Reserve has quietly admitted they had undercounted about $840 billion of municipal bonds. Bloomberg reports on this new pile of assets:

The U.S. municipal-bond market is 28 percent larger than reported in June, according to a quarterly Federal Reserve release, which used new data showing individuals own more state and local-government debt.

[...]

“The estimate of household holdings of municipal securities and loans is revised up by about $840 billion, on average, from 2004 forward,” according to the Fed’s Flow of Funds Accounts report for the third quarter.

The Federal Reserve may not have intended to bury the news, but I couldn’t find an official press release acknowledging the adjustment to their data. The massive adjustment only appeared as text in the quarterly flow of funds release.

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Thomson Reuters Municipal Market Data muniland expert Daniel Berger reminded me of a report that I had forgotten about that shows the correlations between the low credit ratings of Ohio’s cities and the cities’ very low levels of college graduates. Dan posits that Ohio, as part of America’s Rust Belt, didn’t require high levels of education for staff at its manufacturing plants and, accordingly, didn’t develop large college-educated workforces. As manufacturing moved out of the region, it left behind cities where the workforce was not attractive to high-tech industries and other sectors that required more educated workers. The cities declined and their credit ratings suffered. Such is the devastating effect of globalization.

I thought it might be interesting to chart some of the data in Daniel’s report (page 6) for America’s largest cities. Interestingly the data suggests that, contrary to Daniel’s findings for Ohio cities, that the more educated a city is, the lower its credit rating (see chart above). Or put another way, the dumb cities are getting higher grades. Quelle surprise!

After posing this question on Twitter two responses stuck out:

@groditi Morally Bankrupt  @cate_long maybe debt size? Do cities tend to borrow more as education levels rise?