I’m often critical of municipal bond issues that either appear to be configured to avoid the necessary approval processes or appear to benefit private interests over public interests. The opacity of muniland creates plenty of dark places for odd dealings to occur. But earlier this week I read about the small Massachusetts town of Leverett, which had just conducted the most open and transparent bond approval process that I’ve seen. What was being decided was a $3.6 million project to build a broadband network connecting the 632 households in the community. The whole process is about as commendable as you could hope for.
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.
Bloomberg ran an excellent story recently about JP Morgan making a very low bid to win the underwriting role for Massachusetts’ latest general obligation bond offering. The bid reduced the interest rate the state will pay for the borrowed funds and vaulted JP Morgan to the top of the league table to finish the year. Slashing fees to move up league tables happens all the time in financial markets, but it’s unusual to hear the particulars:
Muniland investors have been anticipating strong demand for new bonds being brought to market. Issuance has dropped dramatically, and generally this would create strong demand for new bonds. Massachusetts brought a bond deal yesterday that had a higher yield and lower amount than was anticipated. This is surprising since Massachusetts is a state with many high-income earners. Dow Jones reported:
When I hear “municipal bonds” I usually think of the “public wealth” being used to assist the less fortunate or being used to build common assets that are available to all the public. But in Massachusetts it’s the very wealthiest that have benefited from public financing.