MuniLand

An appeal to President Obama as he goes to Scranton

President Obama and his entourage are pulling into Scranton, PA for a speech on Friday. In many ways Scranton is the east coast equivalent of Detroit; a former industrial powerhouse reduced to the economic wilderness. The city’s unemployment rate was 9 percent in April 2013. Scranton almost ran out of cash last summer and the mayor reduced everyone to minimum wage to meet payroll.

The city of 76,000 has defaulted on contracts that can lead to loan defaults and is deficit borrowing at extremely high rates. It’s been in the state fiscal distress program for over two decades. The city has finally taken steps to right its fiscal ship. But it had to fight public unions tooth and nail to alter their path (page 14):

The full implementation of the 2002 Recovery Plan was never fully realized due to the opposition from the public safety unions of the City. The public safety unions sought Act 111 binding arbitration proceedings to challenge the 2002 Recovery Plan. After years of legal proceedings relating to the arbitration awards, the Pennsylvania Supreme Court ruled in late 2011 in favor of the public safety unions, overturning prior appellate court decisions.

The unions litigated wage cuts and now the city owes $16 million of back wages. So taxes really have to go up (14):

The approved Act 47 Recovery Plan calls for an aggressive approach to current revenues. The adopted plan calls for 70.32 percent property tax increase from 2013 through 2015. The City of Scranton is proposing that the Pennsylvania State Legislature approve a dedicated 1 percent increase to the current sales tax for imposition within Lackawanna County.

Obama should supercharge manufacturing in broken cities

President Obama’s speech on the economy on Wednesday will be closely watched. My own view is that the president has been consumed with military and surveillance efforts and has lost sight of his role as the nation’s economic leader. His efforts to recharge the economy thus far seem like a re-branding effort. But we need bigger ideas. I hope he has some, a clear schedule and lots of initiative. Charging up the world’s largest economy is no easy task. Reuters Mark Felsenthal and Roberta Rampton tell the story:

Obama has focused much of his energy in the first six months of his second term on an array of domestic and foreign issues. But on Monday, he told a gathering at a downtown Washington hotel that economic issues would now take priority over others, specifically mentioning gun violence and his plan to address climate change.

I’m already sensing a drift in mission. Reducing gun violence and addressing climate change are vital for our nation, but they are rarely thought of as economic issues. And then there is the reality of Congress’ schedule. Congress breaks in August, leaving four weeks of legislative activity before the government funding deadline, according to Reuters.

Congratulations President Obama: Now here is your muniland checklist

President Obama deserves a few mornings to sleep in, and then it is time to get back to work. Upcoming federal tax and deficit reform have been grabbing headlines, but there are other D.C. policy reforms that could have a major effect on states and cities. These need to be on the president and Congress’ 2013 checklist.

Block-grant Medicaid to the states:

Medicaid is slated to increase by approximately 17 million Americans under the Affordable Care Act for adults whose income falls below 133% of the poverty line. But who pays for this expansion? The federal government:

The Medicaid expansion is a great deal for the states. The federal government will pay 100 percent of the costs of covering people who will be “newly eligible” for Medicaid for years 2014 through 2016. These are persons who would not be eligible under their states’ current programs. After 2016, states will start paying some of these costs, but the federal government will always cover at least 90 percent.

The case for a new Works Progress Administration

In a press conference last Friday, President Obama said that reasonable progress had been made in restoring the private-sector jobs that were lost since the financial crisis but that progress in restoring lost jobs in state and local government had been slower. As this observation is conventional wisdom at this point, it’s surprising that it got any media attention. The more interesting question to ask is why the hiring at the state and local levels has not bounced back as quickly as private-sector hiring.

A post on the New York Times‘s Economix blog by Ben Polak, chairman of Yale’s economics department, and Peter K. Schott, a Yale economist, attempts to answer that question. Polak and Schott begin by laying out the data:

[W]hile the latest recession was particularly deep, the recovery in private-sector employment, once it finally started, has not been particularly slow by recent historical standards….

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?

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.

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:

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.”

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.

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). Through Q3 Billions 2010 $ 298 2011 $ 184

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].

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