MuniLand

Local officials need governance resources

Every one of the 19,492 municipal and 16,519 township governments in America is unique. But, when it comes to the fiscal affairs of these entities, there are a lot of similarities. Almost all local governments provide fire and police protection, libraries and parks, tax collection and public works like street maintenance and garbage collection. Generally the 50,432 school districts in the U.S. act as independent political entities with their own budgets, tax collection and bond issues.

Most of these municipal governments and school districts are governed by everyday citizens who are elected to positions of public authority. They rely on paid administrators to efficiently provide public services and educate children, but they must still make important decisions about taxation, approve personnel contracts and agree to bond issuance and refinancings. For officials who may be working part-time on the job with scant experience, these can be daunting responsibilities.

In the personal finance space there are loads of websites like Mint.com and HelloWallet.com that help individuals monitor, plan and project their expenses. I wondered if there were comparable ones in muniland to help small governments and school districts get a sense of how their spending patterns compare to other comparable municipal entities.

After searching around I found several great sites for municipal officials, bond market participants and interested citizens to get a better understanding of the fiscal picture of municipal entities.

The Pioneer Institute of Massachusetts has an excellent tool called Muni Guide Utilty that allows officials in one Massachusetts town or city to compare their economic and fiscal data with other cities of comparable size. This tool allows the user to drill down to specific budget line items to see how they compare to others. It also offers a more general reference guide to budget issues called “Guide to Sound Fiscal Management for Municipalities”.

The birds’-eye view of muniland

My Thomson Reuters colleague at Municipal Market Data, Daniel Berger, published an excellent report on the debt of the 40 poorest U.S. cities. His work is exclusively for MMD subscribers, but I excerpted the high-level part where he summarizes the general view the credit rating agencies have about municipalities. Here is what Dan had to say:

Moody’s

According to a recent report from Moody’s, the outlook for various… local governments remains negative. It cited a weak national economy and possible global risks to stock markets that could hurt state revenue. Another problem is the austerity measures of the federal government, which diminish any chance of more stimulus aid. This week Moody’s released the results of a default study of municipal bond issuers using default data from 1970 through 2011. They believe that revenue bonds will account for most of the troubled issuers and they foresee a “very small but growing number” of local government issuers defaulting on their debt.

Fitch

Fitch has no single outlook for the local governments. However, localities face two big concerns. First, Fitch expects an inflation-adjusted 13% decline in property values. Taken together with the fact that assessments are catching up with previous declines, Fitch expects further declines in property tax revenues for local governments. These declines may pressure some local bonds.

States receive crumbs from mortgage settlement

The $25 billion mortgage-fraud settlement that was announced yesterday came after 18 months of coordinated action by the Department of Justice, the Department of Housing and Urban Development and 49 state attorneys-general. The settlement is carved up so that homeowners and governments at the state and federal levels each receive some compensation. Given the scale of national losses, it’s a tiny penalty for banks that engaged in egregious servicing and foreclosure practices, and it will do little to repair the widespread economic damage.

More important for states, the amount they are set to receive far from covers the shortfalls they will suffer from lower property tax collections, which are pegged to property values.

A little background: Municipalities and school districts collect substantial revenues from property taxes, and they benefited from inflated housing values during the boom. With higher property tax collections, they ramped up municipal services. Starting in the first quarter of 2010, property taxes began to flatten, but property appraisals did not, as they lag behind property values by several years. We are just now starting to experience what could be a big decline in property tax collections.

What do muniland insiders think?

When the mainstream press pays attention to muniland, often it’s the most colorful and misinformed voices — think Meredith Whitney – that dominate coverage. So it was great to get some interesting data today on how municipal insiders view the market from the muni team at RBC Capital Markets. They did a survey of 116 municipal market professionals at the recent Bond Buyer’s California Public Finance Conference. Respondents included officials from federal, local and state governments; bankers; and other municipal finance professionals in attendance.

The key findings, shown in the chart above, are that industry participants worry most about the low level of bond issuance, headline risk and federal budget issues. Headline risk and federal budget problems are out of the control of everyone in the municipal space. But low issuance is a puzzler. Certainly these professionals have had their trade reduced as fewer bond issues come to market and as municipalities face harsher credit constraints than they are used to.

Another terrifying data point reported by RBC is the length of time respondents thought that it would take for state and local government revenues to return to pre-crisis levels.

All high government approval ratings are local

This great graphic from Visually maps the public’s great discontent with the federal government using data from the Pew Research Center. It’s hard to imagine the numbers being any worse than this: 11 percent of the public is satisfied with the officials in Washington, DC.

Given Pew’s research, it’s somewhat counterintuitive that a recent poll from Gallup shows Americans pretty content with their state and local governments. From Politico:

Trust and confidence in local government has hovered around 70 percent for the past decade, and the recent gridlock at the federal level has done little to sully local impressions of government. In fact, 68 percent of respondents to a new Gallup poll on Monday said they had a “fair” or “great” deal of trust and confidence in their local governments.

The foolishness of Ann and Amanda

Television is my least favorite medium because pundits usually strike outlandish poses that are wholly disconnected from the facts. Case in point is the short video above from MSNBC with Chris Hayes of The Nation, author Amanda Foreman, pundit Ann Coulter and political commentator and comedian Bill Maher. What are these people talking about?

Amanda Foreman: “Government doesn’t create jobs. Ideas create jobs. Innovation creates jobs.”

Fact check: State and local governments employ approximately 19.6 million people.

Rebuild America

The United States Conference of Mayors released a survey Tuesday focused on metropolitan transportation investments. Generally the take-away is that the mayors want less money spent on highways and more spent on cities’ transport needs.

From the survey:

• Ninety-eight percent of mayors point to investment in affordable, reliable transportation as an important part of their cities’ economic recovery and growth.

• Three in five mayors said they would not support an increase in the federal gas tax if federal transportation funding were allocated among programs in the same proportions that it is today.

Muniland’s black swans

Are we looking in the wrong places?

John Carney of CNBC argues for the possibility of a black swan event for muniland.

He’s right about unknown risks but I think he is looking in the wrong place.

He doesn’t mention municipal derivatives in his analysis. I mean interest rate swaps not municipal credit default swaps.

Sharing services, and struggles

Rhinebeck war memorialSome of the challenges facing muniland often are legacy problems, where a certain way of doing things has existed for a long time.

I can speak directly to that.  Rhinebeck, NY, the place where I live,  has both a village and town government.

The village has about 3,000 people and the town has about 8,000.

Imagine a tiny place with two highway crews  and other duplicate town services.

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