Must infrastructure spending shrink along with muniland?

Paul Krugman at the New York Times has a good graph that shows a substantial withdrawal of government demand from the economy. He attributed this to the decline of federal government stimulus to state and local governments as the American Recovery and Reinvestment Act winds down. There is also another factor that is reducing government demand: state and local governments are issuing less debt, which in turn creates fewer building projects and construction jobs.

Municipal bond issuance is about $108 billion less this year than the same period in 2010. Several stories today highlight how states and cities continue to face fiscal challenges that cause them to lower the amount of municipal bonds that they issue for infrastructure projects.

Does reduced state and local infrastructure spending suggest a rationale for increased national infrastructure spending as hinted at by President Obama? Will his proposal be big enough to make up the shortfall of municipal spending on infrastructure? From Bloomberg:

Municipal bond sales this week and last are set to be the lowest for the period around Labor Day in seven years as issuers curb borrowing for infrastructure work.

Shrinking revenue prompted 69 percent of U.S. cities to delay or cancel infrastructure spending in 2010, according to a National League of Cities survey of local finance officers.

Money doesn’t make graduates

Chart data

It is hard to make comparisons between different states’ data on public schooling because each one is faced with unique conditions. That said, the data above is pretty striking. The graph shows the public school dropout rate — the percentage of students dropping out annually — and the amount of public money spent per student per year, in thousands of dollars. You can see that there is not a lot of correlation spending and the dropout rate. Spending more doesn’t educate more students.

Of course this data only speaks to the dropout rate rather than educational achievement. So we can’t see the upside to higher spending. It’s always helpful to have bigger budgets but public schools, like all parts of muniland, will need to dig deeper and achieve more with less money. I’m confident that we can improve our educational system in the face of budget tightening.

I’m interested in all comments and references on the topic please leave them below.

Muni sweeps: Derivatives transparency for dummies


The colorful chart above is from Lisa Pollock of Markit and shows the states which have the most traded credit-default swaps and their spreads to the benchmark. Bloomberg has more on that theme.

Derivatives transparency for dummies

Much of the damage that occurred in the financial crisis of 2007-09 came through the use of derivatives. Wall Street sold these products to sophisticated and unsophisticated investors across the globe. I wrote about the efforts of the Pennsylvania Auditor General Jack Wagner to develop a database of swaps for local governments. This effort should be lauded and hopefully copied by other states. But the value of the information in the database is not as great as having near real-time trade information to compare the pricing of a new derivative.

The Dodd-Frank Act has authorized a lot of transparency for the derivatives market. It’s very complex and arcane, so don’t worry if you haven’t figured it out yet. The law firm Reed Smith has created a “derivatives transparency for dummies” chart and I thought it would help us understand the changes.

Muni sweeps: Education reform for Illinois

Happy Friday all!

Illinois passes landmark education reform

The Chicago Sun-Times reports that the Illinois state legislature has passed a substantial education reform bill. The legislation severely restrains the power of the teachers’ unions:

The measure continues to allow unions to strike in Chicago and the suburbs, but it imposes a requirement that school boards and unions take longer to negotiate and publicly disclose their bargaining positions before a strike can be launched.

In Chicago, no strikes could occur until as long as 120 days after the dispute goes to a special panel — and then, only if the Chicago Teachers Union has given a 10-day notice of a strike and has 75 percent of its bargaining unit members in agreement. Currently, a strike only requires a simple majority of everyone who votes.

Don’t educate, don’t grow

New analysis from Daniel Berger of Thomson Reuters Municipal Market Data suggests that greater levels of advanced education equals higher growth and muni bond ratings.

Put more simply, smart communities do better.

From Municipal Market Data:

Most of America’s older and generally industrial Midwest and Eastern cities have rapidly changed during the past forty years.

For example, cities such as Minneapolis and Boston have become very attractive regions for innovative high‐tech and biomedical companies due, in large part, to the high numbers of college graduates (over 40% of residents aged 25 years and older have college degrees).

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