The pros of muniland

Muniland is the subject of a lot of professional research, and I thought readers would enjoy seeing some of it. I’m going to highlight some of the best bits.

From Chris Mauro, Director of Municipal Research at RBC Capital Markets:

The Potential Impact of Federal Deficit Reduction on the States

    Deficit reduction continues to be a major focus of both the Administration and Congress. Recent rating agency warnings about the stability of the existing US AAA rating have added a sense of urgency to the discussions and it seems likely that any deficit plan will result in cuts to federal discretionary spending.
    We estimate that discretionary federal aid to the states accounts for, on average, about 11% of total state expenditures. While we don’t anticipate an abrupt reduction in this funding, even a gradual reduction will pressure state budgets, potentially negating some of the modest growth in tax revenues that states are currently realizing.

Like It’s 1999

    State general government employment is down to early 1999 levels and the cuts show no signs of moderating.
    Given the aggressive cost cutting at the state and local level, we take issue with the casual comments about federal “bailouts” of these entities. No government officials that we know of have asked for such a thing, so where is this notion coming from?

From Chris Shayne of Bonddesk:

Demand for individual municipal bonds among retail investors began to stabilize in May. Trade volumes have been falling consistently since peaking in January, but volumes in May were very similar to the levels in April (though still slightly lower). More importantly, the May figures were comparable to typical volumes before the recent crisis (triggered by Meredith Whitney’s now infamous comments on “60 Minutes”), suggesting the market is returning to “normal.”

Retail investors of individual muni bonds were overwhelmingly net buyers of muni bonds in May even though trading volumes was relatively light. The May buy/sell ratio was 2.4 (compared to April’s 2.5), meaning that investors purchased 2.4 bonds for every 1 bond they sold.

Muni sweeps: Muniland reins in the borrowing

Excellent chart from Barry Ritholtz’s The Big Picture. He uses data from the Federal Reserve’s Flow of Funds Accounts to map credit flows. State and local governments have become negative borrowers in the first quarter as the amount of bonds that have matured and the amount of principal that has been repaid exceeded new bond issuance. States and municipalities are making the hard fiscal choices and restraining borrowing and expenditures. It’s painful, but it must be done.

Delaware opens the procurement kimono


Delaware has launched a new website to make it easier for entrepreneurs, small businesses, and other employers to do business with the State of Delaware. The new website will serve as a resource for companies interested in bidding for State contracts. The Governor hopes that the site will make the bidding process easier and more transparent for business owners so they can create jobs in the state easily…

…The public will also be able to see state spending trends and details of contract usage. The public can also access business development tools, customer satisfaction surveys and “I Found it Cheaper,” which allows individuals to submit suggestions on how the State can procure goods for less money.

Something smells funny around Yankee Stadium

Bloomberg covered an interesting story today about the bonds which financed the parking garages at Yankee Stadium in New York. The $237 million of securities are “revenue” bonds issued by the Empire State Development Corporation. They have no guarantee and no rating, and it looks likely that the bonds will default.

The main reason that the bonds face default is that attendance at Yankee games is off about 10% from last year. I don’t follow baseball so I’m not sure why that is happening (if you have ideas please leave in the comments below). But the revenue for these parking garages has declined much more steeply than baseball attendance. Bloomberg says this about the garage revenue:

Revenue from the garages and parking lots managed by the nonprofit is almost 40 percent below projections as the facilities face competition from public transportation and other parking at a mall near the stadium.

Muni sweeps: Taxes are the fuel for public sphere

Taxes are the fuel for the government. Without taxation the state withers. Our governments have taken on so many responsibilities but have become starved for fuel. There is much debate on how much we as a country should spend on entitlements and defense, but often these arguments are made on the premise that the United States has higher taxes than other nations.

The Center for American Progress developed the following charts to help visualize the state of American taxation. If you check out “Ten Charts that Prove the United States Is a Low-Tax Country” you will see that our nation, on a relative basis, does not have especially high taxes. It also helps explain why our nation is running massive deficits and is close to defaulting on its debt. We have choked off the fuel to support the public realm.  These charts almost make the case for the need to increase taxes on the wealthiest Americans in the short term to help reduce the deficit and bring the nation to a sounder fiscal footing:

Party is approach

An excellent piece by John Gramlich in Stateline about how party affiliation is driving state agendas. Here are the money quotes:

A bond salesman’s code

The 34th Street branch of the New York Public Library holds the business collection of this great public institution. I’ve spent some time there reading through old books on the bond business. These books must be called up from the stacks deep in the bowels of the building. One of my all-time favorites is the sincere “Bond Salesman’s Code” from a 1924 book entitled Bond Salesmanship:

    To work hard every waking hour — principally from the chin up. To consider no deal a good deal unless both parties benefit. To be honest with myself, my house and the public — not as a matter of policy but as a matter of principle. To be prepared to make some mistakes, but always errors of the head, never of the heart — and never the same mistake twice. To acknowledge no aristocracy save that of intelligence. To realize after all, the best definition of the word ‘gentleman’ is -– a gentle man. To be earnest but not insistent, enthusiastic but not inaccurate, interested in others but not inquisitive, self-confident but not self-conscious, dignified but not oppressive — in short to cultivate the knowledge of the true values in human relationships as in all other things. To believe loyally and implicitly in my house, its securities, its ideas, and its ideals and to strive at all times to be truly its representative.

It sounds like a moral code rather than a primer for selling bonds. Oh, how far we have come…


Muni sweeps: Muniland hits the airwaves

Change can be glacial, but it happens

Bloomberg digs a little deeper into the story of pension-fund woes and finds California municipalities are already adopting changes, with more to come:

In a survey by the League of California Cities, two-thirds of the 296 localities that responded said they’re negotiating changes in their plans. Thirty-eight percent had increased pension payments from current employees, and 20 percent had created a new tier of benefits for future hires.

Some believe the changes at the local level, particularly lower benefits for future workers, don’t go far enough.

Flight three of muniland’s harpy

I had really hoped that Meredith Whitney had gone back to analyzing banks and trying to interpret how the new Basel 3 liquidity ratio would be phased in. Unfortunately, she is back touring the mainstream financial media with another shrill message for muniland.

Muniland’s loudest harpy threw out some real doozies yesterday on CNBC and in a Fortune interview. The most outlandish claims Ms. Whitney made related to the proportion of state’s budgets that were going to service their debts. The substance of her statements were expertly demolished by Nicholas Johnson of the Center on Budget and Policy Priorities:

Whitney wildly exaggerates what states are spending on interest, claiming for instance that “debt service absorbs half of Nevada’s budget.”

Muni sweeps: Hot times in Sacramento

California needs to extend tax increases to balance budget

These are hot times in Sacramento.  California’s constitution requires the legislature to send a budget to the governor by June 15.  Time is running out to patch up an agreement, and there is a new incentive for lawmakers to get it done. From Bloomberg:

There are differences this year. In November, voters lowered the threshold to pass a budget to a simple majority from two-thirds. The same measure also stripped lawmakers of salary and per-diem pay for every day they’re late with the spending plan.

Brown has been meeting behind closed doors since March with Republican lawmakers to craft a compromise. The governor’s tax extension, a so-called bridge tax, is the major sticking point, said his spokesman, Gil Duran.

Muni sweeps: Lockyer rides again

CA Treasurer launches another derivatives investigation

We often see Wall Street selling sophisticated products to state and local governments which are not appropriate for them — think interest rate swaps and Jefferson County. So it’s always refreshing to find a government official who actually tries to keep Wall Street in line.

Sharp-eyed California State Treasurer Bill Lockyer has been monitoring the spread (price) levels for the state’s credit-default swaps. He noticed a very significant one-day drop in CMA Datavision (one of two muni CDS price aggregators) and wants to understand what caused this. Katy Burne at Dow Jones has done an excellent job reporting the story:

California’s state treasurer is looking into what he believes were erroneous prices reported last month for credit-default swaps tied to the state’s debt.


The thing I hear most often about muniland is how murky the market is. It is rather astounding that the municipal market is so little understood given its size and its effects on state and local governments and tax rates. To help shake the market up and create more transparency, I thought it would be helpful to start gathering muniland data sets for people to start playing with. Have at it, friends. Please send over any interesting findings.

Data pools Statistics at the State and Local Levels

Office of Management and Budget: Historical Tables

Bureau of Economic Analysis: Gross Domestic Product (GDP) by State and Metropolitan Area

US Census: Quarterly Summary of State & Local Tax Revenue

US Census: Government Employment & Payroll

Bureau of Labor Statistics: Local Area Unemployment Statistics Map

Bureau of Economic Analysis: Federal Recovery Programs and BEA Statistics

The National Association of State Budget Officers: Spring 2011 Fiscal Survey of States

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