Muni sweeps: Municipal unrest

Mayors take out the pitchforks

William Alden of Huffington Post writes about a “testy” encounter between mayors and federal officials. The federal dollars for municipalities from the American Recovery Act have basically ended and revenues for state and local governments remain weak. We should expect to see more of this.

The federal officials on stage were speaking in broad, theoretical terms. But the mayors wouldn’t stand for that. They knew what needed to get done, they said. What they wanted from Washington was the dollars to do it.

“We should not be expecting or depending on top-down permission from the White House or Washington to have us advocate for this stuff,” said R. T. Rybak, mayor of Minneapolis, who stood up and addressed the other mayors. Earlier, [Philadelphia] Mayor [William] Nutter had complained about the seeming hypocrisy of federal lawmakers who go to ribbon-cuttings and ground-breakings, even if they never supported the legislation for those projects. Rybak heartily commiserated.

“I’ve seen those guys at the ribbon cuttings. And it pisses me off,” he said. “But I go out and organize at election time and tell people exactly who delivered and who did not.”

Douglas, of the White House Domestic Policy Council, said federal officials are doing what they can to help. But political gridlock can muck up the process.

Muni sweeps: Garden State warning

Fitch Ratings goes “negative” on New Jersey

New Jersey is a wealthy state with lots of industry, excellent higher education institutions and is a “bedroom community” for New York City. But still it faces substantial fiscal problems.

Dow Jones reports that Fitch Ratings has cracked the whip and put the state on “negative” watch. This is the same move that Standard & Poors made on the debt of the United States. Think of it as a shot across the bow. Generally within six months a rating agency will downgrade the issuer or remove the “negative” designation.

From Dow Jones:

Fitch Ratings lowered its outlook on New Jersey’s bonds to negative, citing concern regarding the state’s mounting budgetary pressure amid a significant and growing unfunded pension liabilities, particularly in the context of an already high debt burden.

Muni sweeps: Fiscal kabuki

Fiscal kabuki is frightening. From the Washington Post’s Ezra Klein:

“If the president doesn’t get serious about the need to address our fiscal nightmare, yeah, there’s a chance it could not happen,” John Boehner told Politico.

“It,” in this case, isn’t a golf game, or a bipartisan potluck. It’s a vote on the debt ceiling before the Treasury runs out of room to cover our debts.

Properly understood, what Boehner actually said is “if the president doesn’t get serious about the need to do what the Republican Party wants on fiscal policy” — note that allowing the Bush tax cuts to elapse would cut the deficit substantially, but wouldn’t calm Boehner — “yeah, there’s a chance I am prepared to trigger a fiscal nightmare.”

Muni sweeps: Riding the Federal cash flow

It’s an important week  for the fixed income markets: Ben Bernanke, the chairman of the Federal Reserve, will hold his first press conference on Wednesday.

Bernanke joins his European Central Bank counterpart Jean Claude Trichet in the practice of fielding questions after the central bank announces its policy stance.

Pundits and bloggers are weighing in with questions and Reuters reporter Kristina Cooke (twitter handle @kristinacooke) is encouraging her followers to tweet her questions for the chairman.

Pension solutions


There are two sides to the municipal pension equation.

One side is the outflow or the payments made to retirees from the pension fund.

This outstanding map from the Pew Center on the States illustrates how each state is adjusting the payments or outflows from their funds. (If you click through to Pew’s site you can see how states have addressed this from 2001-2010.)

The other side of the equation is the revenue or inflow side of the equation. This side is comprised of worker and employer contributions and the gains made from the investments held in the pension fund.

Lisa Lambert and Edith Honan of Reuters wrote an excellent article today about the most important issue on the inflow side. This is the question of what rate to estimate investment returns to the pension funds.

Muni sweeps: Show me the money!

I forget that the last recession was in the mid 2000′s.

We had a short, intense credit boomlet in between that and the crash of 2008.

The hangover from the housing and financial bubble has been tremendous.

Deficits, caused by the financial crisis,  are still a serious problem in muniland.

Remember that states must balance their budgets annually.

Here is a spreadsheet with the shortfall numbers for fiscal year 2012 from the Center on Budget and Policy Priorities.

The total shortfall for all states in 2012 is ~ $112 billion or approximately 17.6% of projected budgets.

Issa’s municipal pension hearing


Congressman Darrell Issa’s Committee on Oversight and Reform meet today on state and municipal debt.

The hearing was really a dressed up fight over municipal pensions and collective bargaining rights.

The concern is that bond investors, worried about unknown pension liabilities, will increasingly require more yield for the risk of owning municipals. And some think a  solution is to remove the current form of guaranteed pensions.

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