President Obama, the Ricketts family and Wrigley Field
Is the Ricketts family of Chicago bipolar? The patriarch, billionaire and Chicago Cubs owner Joe Ricketts, blasted onto the national stage yesterday, when the New York Times reported that his super PAC considered running an ad campaign entitled “The Defeat of Barack Hussein Obama: The Ricketts Plan to End His Spending for Good.” His super PAC, the Ending Spending Action Fund, also lobbies against excessive federal spending and special-interest earmarks.
Meanwhile Ricketts’s son Tom, the general chairman of the Cubs, has been lobbying Rahm Emanuel, the mayor of Chicago and President Obama’s former chief of staff, for $150 million in tax revenues to renovate Wrigley Field, the home of his family’s Major League Baseball team. The irony of Joe Ricketts blasting the president for special-interest spending while his son grovels for taxpayer support to renovate his baseball stadium is enormous. The Ricketts family needs to meet around their kitchen table and get this matter worked out, because it makes both the father and son look clueless.
Greg Hinz of Crain’s Chicago Business has the local scoop:
Did the Ricketts family just knee-cap its own plan to rebuild Wrigley Field with a healthy dose of Chicago taxpayer cash?
My phone has been ringing with just that question this morning in the wake of a stunning New York Times story about how a new super PAC headed by Joe Ricketts, patriarch of the Chicago Cubs’ owning family, is pondering a big, especially nasty ad campaign against President Barack Obama this fall.
[...]
The Chicago angle on this is that Mayor Rahm Emanuel, Mr. Obama’s former chief of staff, has been trying to put together a deal for the city to put $100 million or more in tax incentives into a Wrigley [stadium] rebuild.
The Wall Street Journal discussed the proposed renovation of Wrigley Field, for which Tom Ricketts wants taxpayer money:
Proposals include more premium seating near the field; a Jumbotron; a new building along Clark Street that could contain a restaurant, parking, and hall of fame; and game-day street fests open only to ticket-holders.
The father’s advocacy group, Ending Spending, describes itself like this:
Foreigners want America’s public assets
It seems like foreign governments and corporations are craving U.S. public assets like toll roads, electrical grids and railways. In the case of our largest creditor, the Chinese government, they don’t want any more U.S. Treasuries, but they do want to own the hard assets that comprise our nation’s infrastructure.
Reuters Beijing bureau reported:
China may channel part of its huge pool of foreign exchange reserves into investment in U.S. infrastructure, including rail and transportation networks, Commerce Minister Chen Deming said on Friday.
“China is unwilling to take on too much U.S. government debt. We are willing to turn that money into investment,” he told U.S. Ambassador to China Gary Locke and U.S. businessmen.
Chen did not elaborate on how China might channel some of the country’s war chest of $3.2 trillion foreign currency reserves to invest in U.S. infrastructure, such as rail and transportation systems.
It almost sound like a good idea that China would invest in rail expansion. But where can they do that? 50 years of auto dependency and suburban sprawl has done a job on most remaining ROWs in this country.
The Chinese would have a difficult time trying to reconstruct many former rows and they would need municipal condemnation powers to accomplish the thousands of takings that task would require. They would not be popular.
If any doubt this information, take a search online using “abandoned railroad ROWs as your key words, just to start. Abutting property owners are also encroaching on ROWs that haven’t been converted to recreational purposes yet. The days of major expansion of rail ROWs is probably over. They grew best when they preceded development in the open planes and far western states. The best they could hope to do is improve some still living – but highly subsidized major corridors.
The Chinese may not actually know what they a would be getting into because land use law is not the same as they are accustomed to. They would have legal problems they cannot imagine.
An army of corporate lobbyists in the halls of Congress
Now that the Senate failed to pass President Obama’s jobs legislation last night, various pieces of his plan and other pet projects are likely to be introduced separately. It’s unclear whether an extension of the payroll tax reduction or additional unemployment benefits — two key planks of the President’s plan — will get floor time. But corporate interests are getting plenty of attention from members of the Senate. In particular, an army of corporate lobbyists has been vigorously promoting a tax holiday for U.S. multinationals.
Politico says the senior New York US Senator, Democrat Chuck Schumer:
has been quietly courting some Senate Republicans and Democrats to see whether there is any appetite for merging a GOP-backed idea — a tax holiday for corporations to bring home their overseas profits — with a Democratic-supported plan of creating a national infrastructure bank.
There is no evidence that giving multinational corporations a big tax break on profits earned overseas will create jobs or stimulate the economy. But some, like former director of the Congressional Budget Office Douglas Holtz-Eakin, believe that a tax holiday will actually create economic growth. Holtz-Eakin writes in Bloomberg:
Repatriation can be thought of as a private-sector approach to stimulus.
Both the left and the right have poured cold water on this idea. The Heritage Foundation, the conservative think tank, says the proposed holiday would not spur additional U.S. capital investment or jobs because corporations have plenty of profits onshore and there is easy access to financing. J.D. Foster and Curtis Dubay of the Heritage Foundation write (emphasis mine):
Absolutley NOT…this bill is not good enough. Giving the 1% any type of a tax holiday is a reward for destroying our jobs.
If the 1% wants to bring their blood money back into this country after exploiting workers overseas, why reduce their tax from 35% down to only 8%….how about down to 15 to 20%??????? Instead of getting a trillion dollars in taxes out of them at 8%, why not 2 trillion at 15%?
Injustice fuels the mob
CNN’s Erin Burnett recently made a visit to lower Manhatten to assess the Occupy Wall Street protest. Based on accounts of her visit Ms. Burnett seemed a little dismayed that those protesting didn’t understand the financial crisis very well. Rawstory.com reported:
The protester was asked if he knew that taxpayers had “actually made money” on the Wall Street bailout, to which he responded he was “unaware.”
“Yes, the bank bailout made money for the taxpayers, right now to the tune of $10 billion,” Burnett said. “Those are seriously the numbers. This is the big issue? So, we solved it.”
While the protesters could not adequately answer Burnett’s questions, here’s a few things they do know: their friends and family are struggling to find jobs; that one in six Americans are now officially living in poverty; that gas and food prices have gone up; that 1.5 million homes stand empty after being foreclosed upon and that politicians in Washington argue over irrelevant issues.
Like Burnett Reuters’ David Cay Johnston went to lower Manhattan to talk to protestors and came away with a very different view:
Some are articulate, others inchoate. But there is absolute agreement that the super rich, especially the financiers, are sophisticated thieves who steal not with guns, but something called derivatives.
Two secondary themes also emerge in talking to some of the hundreds of people occupying Zuccotti Park. One is that the super rich own the politicians. The other is that the news media, almost across the board, view events through the eyes of the rich.
[...]
Brendan Burke, a truck driver and punk rock musician who studied philosophy in college, said since the protests began almost three weeks ago, “I have heard a thousand different things people are concerned about — inadequate teacher pay, no jobs, the rich not paying their fair share of taxes and all of it was about how we working people are not getting a fair shake.”
Burke said he expected the protests to gather strength because “this oppressiveness has been going on for years; its quiet, the way the bankers constructed this mess — and nothing is being done to them.”
Erin Burnett’s comment about the bailouts was actually wrong. Check out the Treasury’s own website for the numbers, we are still on the hook for at least $100 billion. Burnett is a former Citi and Goldman Sachs exec, so she worked for bailed-out firms.
Still, that’s not the point. People aren’t protesting the bailout. They are protesting an economic system so corrupt that inept banks are rewarded while the rest of us pay the bill.
Christie’s big packaging
Our nation is overdue for an overweight leader. President William Howard Taft, seen at left, was a heavy man who had accomplished a lot when he completed his term in 1913. His successes laid the groundwork for exceptional economic growth for the century. Wikipedia says:
His domestic agenda emphasized trust-busting, civil service reform, strengthening the Interstate Commerce Commission, improving the performance of the postal service, and passage of the Sixteenth Amendment.
The 16th amendment allowed the federal government to assess an income tax without apportioning it among the states or basing it on Census results. The big man had impressive results in his term of office.
Now another big man — the Republican governor of New Jersey, Chris Christie — is flirting with a presidential run. Christie, who is being egged on by wealthy donors, seems eager to enter the primary fray after serving less than two years as governor. In contrast, Taft had a very distinguished career prior to the presidency that included positions as U.S. Solicitor General, a judge on the Sixth Circuit U.S. Court of Appeals, Governor-General of the Philippines and Secretary of War under Theodore Roosevelt.
Chris Christie has a very slim record. He also appears to inflate his accomplishments often. It’s been widely reported that he regularly exceeded travel guidelines while serving as U.S. Attorney. The AP reported in 2009 on his habit of staying at hotels that were much more expensive than what Justice Department policy allowed:
The Republican candidate for New Jersey governor, who has campaigned on a platform of ethical integrity and cutting government waste, regularly spent beyond federal guidelines on business travel while U.S. attorney, records show.
The newly released travel records show that Chris Christie occasionally billed taxpayers more than $400 a night for stays in luxury hotels and exceeded the government’s hotel allowance on 14 of 16 business trips he took in 2008.
“I’m sure he knew better, and he chose to ignore the rules,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. “There is never a situation where the only available hotel in Washington is the Four Seasons. If you stay there, you’ve chosen luxury and you’ve chosen to ignore the rules.”
There is a certain mean hubris in repeated disregard of the rules while prosecuting others for violations of the law. It’s really important that leaders follow the rules in a democratic society as an example for the people to follow the rules too.
Chris Christie’s Presidential Baggage
http://2012.talkingpointsmemo.com/2011/1 0/chris-christies-presidential-baggage.p hp?ref=fpa
As Chris Christie considers presidential run, past contests provide clues into governor’s thinking
http://www.nj.com/news/index.ssf/2011/10 /as_chris_christie_considers_pr.html
Chris Christie Caves, Jersey Will Repay Federal Tunnel Funds
The calmest seas you will ever see
Low issuance, low defaults and low rates
For issuers, conditions are just about perfect in muniland now. Many have defered or withdrawn planned bond offerings, leading to greatly reduced supply for the year. Bloomberg estimates that 3rd quarter total issuance will be about $67 billion. This follows the $117 billion in muni securities issued in the first half of the year (data from SIFMA, Excel file link).
Defaults have also been puttering along at very, very low rates. This is due to some creative workout solutions, like Jefferson County’s negotiations with creditors, and many instances of postponement of problems, like Collingswood, NJ. I’ve seen estimates for total defaults for the year ranging from $1.8 billion (this number included unrated bonds) to $1.1 billion. Bloomberg says:
Municipal defaults have dropped this year to about $1.1 billion, a quarter of last year’s total, according to Bank of America Merrill Lynch. Local general- obligation bonds have accounted for only 1 percent of the 2011 failures [balance is revenue or conduit bonds].
The biggest benefit for state and local governments issuing debt is low rates. Low interest rates allow an issuer to bring bonds to market and pay a lower rate for the term of the bond — up to thirty years. Conversely this is bad for municipal bond investors who would like to receive higher rates for loaning money to state and local governments. One reason for low rates is that municipal interest rates tend to track U.S. Treasury rates, and those have tumbled with the European debt crisis. Secondly, there has been so little supply of new issuance that strong demand has driven rates down. Strong demand happens, in part, because yields on municipal bonds are still higher than yields on bank certificate of deposits or cash. Bloomberg one more time:
Yields on top-rated 10-year municipals were 2.02 percent yesterday after falling to 2 percent on Sept. 23, the lowest level since 2009, when Bloomberg records for the debt begins.
The weakest states are stronger than U.S. banks
The weakest states are stronger than US banks
I noticed something very interesting in some research that Markit, a data provider that tracks the credit-default swap market, released yesterday: the worst U.S. municipal credits (California, Illinois and New Jersey) are considered much stronger than all the major U.S. banks save JP Morgan. New York state is considered stronger than Mr. Dimon’s bank!
Why this is especially important in muniland is that these U.S. banks write a lot of credit-default swaps insuring the debt of these large states, which seems upside-down given that credit markets view the banks as weaker than the states they insure. This raises questions about the validity of the whole muni CDS market. I’ll dig around on this issue a little more.
Heavy political support for ending municipal-bond tax exemption
Bloomberg writes about several strong political forces in favor of ending the tax exclusion from municipal bond interest payments. I still haven’t seen a definitive cost analysis of the change though. Maybe the President’s proposal to reduce the tax exclusion on muni bonds for those earning over $200,000 is a signal to Republicans that the administration is willing to negotiate the issue. From Bloomberg:
The idea of phasing out the exemption has been raised in the past year as part of a broader discussion of ways to reduce the federal deficit. A proposal in the House of Representatives by Budget Committee Chairman Paul Ryan, a Wisconsin Republican, sought an end to the break.
A report from Obama’s 2010 fiscal commission led by Alan Simpson and Erskin Bowles, which the president embraced in December, also proposed ending the exemption, Bank of New York Mellon Corp. said in a report.
The break is the 11th biggest for taxpayers after such deductible expenses as employer-provided health coverage and home-mortgage interest, according to White House data.
Yet limiting the exemption for higher-income taxpayers may produce relatively little benefit, Harvey said in a statement released with the report. In 2008, for instance, “more than half of the 5.5 million tax returns reporting receipt of tax- exempt interest were filed by taxpayers with adjusted gross income below $100,000.”
“Maybe the President’s proposal to reduce the tax exclusion on muni bonds for those earning over $200,000 is a signal to Republicans that the administration is willing to negotiate the issue.”
Isn’t that part of the “unless you do something, this will happen because you insisted on it” part of the (real) American Jobs Act? That’s not “open to negotiation,” that’s “this will get them to do something.”
Solyndra’s funny money flow
Solyndra is the bankrupt solar company that received the first Department of Energy loan under the 2009 American Recovery and Reinvestment Act. It also is notorious in that its largest financial backer, George Kaiser, was a substantial supporter of President Barack Obama in 2008 and regularly visited the White House following the election.
Many media outlets have been covering the contacts between George Kaiser, Solyndra officials, administration officials and members of Congress. A rich paper trail will no doubt yield the facts of SolyndraGate. But my interest has always been in following the money trail and trying to understand how the United States, contrary to law, became subordinate to George Kaiser’s Argonaut in bankruptcy court. I previously quoted the applicible law:
US law 10 C.F.R. §609.10(d)(13), the government should have become first in line for repayment (page 2):
Any Guaranteed Obligation may not be subordinate to any other debt and must have a first lien position on all assets of the project and all additional collateral pledged as security for any project debt.
Reuters reported today that the Deputy Secretary of the Department of Energy believed that the subordination of U.S. financial interests to private investors was within the law. From Reuters:
“The statute is quite clear when you are issuing a loan: you have to have priority and we did. The statute is also equally clear that the Secretary of Energy has a responsibility to maximize taxpayer interest,” he added.
When faced with the opportunity to restructure the deal the first time around [February, 2011], Poneman said the department had to make “hard choices” about whether taxpayers would get more return from attempting to keep the company afloat or whether it would be better to let the company go into liquidation.
The decision was made at that time to revise the deal, which Poneman said was “entirely legal.”
The DOE may feel confident that they had legal justification in February 2011, but a private round of $175 million was raised eight months before the February DOE subordination which did not have precedence over the DOE loan. It’s also hard to understand when looking at the funding chart below that DOE officials thought this company could survive in the face of falling solar prices and impossibly high burn rate. The start-up raised and blasted through $1,400,000,000 in about five years. It feels like the DOE made a desperate political decision to keep the company afloat in February, 2011 when they allowed Argonaut step in front of US interests.
U.S. Seeks Trustee to Oversee Solyndra
http://online.wsj.com/article/SB10001424 052970204226204576603250885667120.html
Who are the “job creators?”
As the congressional supercommittee begins its budget-cutting efforts, state and local governments are worried about looming cuts to their federal grants. From Bloomberg:
In statehouses across the U.S., a budget-cutting congressional supercommittee and the sputtering economy threaten a fledgling recovery from the worst fiscal crisis in more than 70 years.
To create a more balanced approach that includes revenue increases as well as spending cuts, President Obama has proposed to raise taxes on the highest earners by reducing their tax exclusions and deductions (of which the municipal bond tax exclusion is a relatively small part).
Much of the criticism about his proposal to raise taxes on the wealthiest Americans describes the proposal as a drag on those who own small businesses and create most of the nation’s employment. Republicans often describe these small businesses as “jobs creators” when they argue against tax increases. As House Budget Committee Chairman Paul Ryan (R-WI) said on Fox News Channel:
And don’t forget the fact that most small businesses file taxes as individuals. So, when you are raising these top tax rates, you’re raising taxes on these job creators where more than half of Americans get their jobs from in this country.
To see whether this rhetoric is accurate, I thought it would be helpful to look at the IRS data for small business owners who file S-corporation and small proprietorship tax returns. I got the idea after seeing this income table from Scott Shane:
Finally, a well reasoned, fair and balanced post. Facts are to right-wingers and tea-pot heads like Kryptonite is to Superman!
Municipals are a small part of the American Jobs Act
President Obama held a ceremony on Monday in the Rose Garden, complete with a backdrop of teachers and law enforcement officers, to promote his American Jobs Act. The President has insisted that his proposal would be fully paid for by tax increases on the wealthy. What was less reported was that the $447 billion of proposed tax increases, Section 401 in the legislation (page 134), would not occur until 2013 and would stretch over 10 years. So under the President’s proposal there would need to be tax increases of approximately $47 billion a year from 2013 through 2023.
It’s been reported that Republicans are cool to the President’s proposal and it’s likely that they will object to paying for new stimulus programs with revenue generated in the next decade. In addition, the President’s proposal for $447 billion in tax increases will have to be added to the $1.5 trillion of savings that the Congressional super-committee will be looking for. So if the President’s proposal is embraced, the super-committee will need to find $2 trillion of savings from the federal budget over the next 10 years.
The bulk of the proposed tax increases in the President’s plan will come from adjustments in the deductions allowed for municipal interest and itemized deductions for individuals earning over $200,000 per year. This would account for about $400 billion of tax increases over ten years.
An additional $47 billion of taxes would come from levies on corporate jets, oil and gas companies, and hedge fund and private equity carried interest.
As the media began to report on these proposals, investors in municipal bonds took notice, worried that if adopted these reforms would be a first step to end the tax exemption for interest income on municipal bonds. What is not clear when you look at the specific language of the legislation and the statistics from the Internal Revenue Service is that this proposal would have a very big effect on muniland.
The way Section 401 reads, there would be a limit on the amount of combined municipal interest deductions and itemized deductions that taxpayers can exempt. So the individual taxpayer (or their accountant) has flexibility in how they manipulate their taxes. The amount of itemized deductions, claimed by wealthy taxpayers for home mortgage deductions and other deductions, is about eight times greater than the exclusions for municipal interest (see the chart above). So the changes would affect the desirability of tax-exempt interest from municipal bonds, but it’s not clear it would be that substantial.
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Resident Muniland expert
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