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  #641  
Old 09-13-2019, 01:56 PM
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https://www.wsj.com/articles/when-wa...ce-11568302887

Quote:
When Wall Street Flips Municipal Bonds, Towns and Schools Pay the Price
A Journal analysis of trading data suggests new bonds often are underpriced, which means taxpayers will pay more in interest

Spoiler:
When the West Contra Costa Unified School District in California needed money to repair and upgrade deteriorating classrooms, it hired Piper Jaffray Cos. to sell $191 million of municipal bonds.

As far as school officials knew, the March 2016 sale went off flawlessly, enabling the district to refinance older debt and tackle tasks such as removing asbestos and upgrading science labs.

However, within a day of the initial sale, the original buyers sold, or "flipped," $35 million of the district's bonds for a profit of $306,000, a Wall Street Journal analysis of trading in the bonds found.

Within 10 trading days, the post-offering trading had generated $1.24 million of market-adjusted profits. Piper Jaffray participated in some of that trading, buying back bonds and reselling them.

Newly issued municipal bonds, which are marketed as long-term investments, aren't supposed to trade like that. The post-offering buying and selling suggests West Contra Costa's bonds -- sold in what is called a negotiated offering -- were initially underpriced. That means the district will pay more in interest over the life of the bonds than it would if the bonds had been priced closer to what subsequent investors paid.

"That's money being left on the table that costs taxpayers and rate payers and governments," said Patrick Clancy, who recently retired after 30 years as a financial adviser to local governments issuing bonds. "That's not the way it's supposed to go."

A Journal analysis of municipal-bond data found such post-offering trading to be routine. About $60 billion, or roughly 5%, of newly issued bonds in negotiated offerings between 2013 and 2017 were sold to customers who turned around and sold them to dealers within a single day of the initial offering, usually for a profit, the Journal found.

Prices on those flipped bonds were then marked up further as they were sold to longer-term investors, bringing the total market-adjusted profits to more than $900 million. The Journal's investigation found that those profiting from the flipping often include the banks hired to price and sell the bonds.

Piper Jaffray, which was paid about $500,000 to act as the lead underwriter, said in a written statement that the California school-district bonds were priced "fairly and successfully." It said: "Our secondary market trading was a small fraction of the total trading volume."

The district's financial adviser, Blake Boehm of municipal advisory firm KNN Public Finance, briefed the school board not long after the bond sale, deeming it "very successful." After the Journal shared its findings about post-offering trading with the West Contra Costa district, then-Associate Superintendent John al-Amin said that those findings "are deeply concerning and would undermine the faith bond issuers have in the municipal market."

Although underwriters often make money by reselling flipped bonds, that doesn't appear to be their primary motive.

Underwriters are obligated to purchase any bonds they can't place with customers, which ties up cash and exposes them to risk. So they have an incentive to price the bonds to move -- and, if necessary, to sell them to customers who have no intention of holding them for long. When those customers want to sell, the underwriter often will step in to buy.

Under federal rules, underwriters have a duty to set prices that are "fair and reasonable" taking into consideration all relevant factors, including their "best judgment" of the fair market value. In recent years, the Securities and Exchange Commission has begun enforcement efforts aimed at protecting issuers during the pricing and sale of bonds.

In June, the SEC announced a settlement with an underwriter for selling bonds for the public library in Harvey, Ill., "at a price which was below market price for comparable bonds." The SEC said the underwriter, IFS Securities, failed to make a sufficient effort to market and place the debt. The settlement marked the first time the SEC has determined that underwriter pricing behavior violated the fair dealing standard, even though there was no fraud or misrepresentation. IFS, which didn't admit or deny the findings, didn't respond to requests for comment.

The identity of buyers and sellers of municipal bonds isn't public information. The Journal identified some using regulatory reports insurers file with the National Association of Insurance Commissioners, or NAIC.

During the period of the Journal's analysis, insurers bought and quickly sold $3.7 billion of newly issued municipal bonds, the filings show. Of that total, $2.6 billion, or 70%, was sold back to the underwriter that had just priced and sold the bonds. The underwriter paid the insurer more than the initial price 88% of the time.

When cities and school districts decide to sell municipal bonds, they engage securities firms to underwrite them. Generally, the public entities have two options. They can put the bonds up for competitive bids and award them to the securities firms that price them with the lowest interest cost. Or they can choose an underwriter in what is known as a negotiated offering. Negotiated offerings account for about 75% of the money raised in bond offerings.

Suppose a town needs to raise $20 million to build a new town hall. The securities firm it selects as lead underwriter examines the town's finances, as well as interest rates for U.S. Treasurys and other municipal bonds. Then it gauges investor appetite for the town's bonds at different interest rates and maturity dates.

The underwriter, after consulting with the issuer, slices the total amount to be raised into a series of bonds with different interest rates and maturity dates, then buys the bonds at a discount to their offering prices -- typically less than half a percentage point. The difference between the discounted price and what the underwriter sells them for is the underwriter's pay.

The underwriting process sets up an obvious conflict. The municipal issuer wants to pay the lowest possible interest rate. The underwriter wants to ensure the bonds will be attractive enough to easily resell to investors and bond dealers. The Municipal Securities Rulemaking Board, or MSRB, which writes rules for underwriters, requires them to disclose that they have "financial and other interests that differ from those of the issuer."

Many issuers engage advisers to help navigate the process and monitor the underwriters.

Prairie-Hills Elementary School District 144, which serves pre-kindergartners through eighth-graders in Chicago's economically struggling south suburbs, didn't hire an adviser when it issued bonds in 2016. It needed money to add vestibules to school entrances so its staff could see and talk with visitors before buzzing them in, the superintendent said. An elementary-school roof needed to be replaced. School board members were eager to add air conditioning to classrooms.

The district hired Oppenheimer & Co., which priced and sold about $20 million of municipal bonds on March 22, 2016. By the end of the first trading day, one-quarter of the bonds had been flipped, some of them back to Oppenheimer itself, according to the Journal's analysis.

Oppenheimer, a unit of Oppenheimer Holdings Inc., bought back about $1.6 million in bonds it had sold to insurer Contintental Casualty Co. just hours earlier, then resold them for a profit of $10,969, NAIC and MSRB trading records show. Continental made $10,530.

Trading in the first 10 days after the offering netted Oppenheimer and traders at other firms nearly $700,000, or about $540,000 when adjusted to account for movements in the broader market.

Continental Casualty flipped bonds with underwriters 845 times between 2013 and 2017, the most of any insurer appearing in the Journal's analysis. A spokesman declined to discuss those trades, saying by email: "We are not going to share any insights into this practice at this time."

The trading profits suggest the bonds were underpriced, meaning taxpayers will wind up spending additional money for interest payments.

Oppenheimer said in written statements it had followed its standard protocol and is "confident that the pricing of the bonds was fair, reasonable and equitable to the district."

It said 2016 was a difficult financial year for Illinois and Cook County, and there was "significant uncertainty as to whether state aid would be available to fund the district's budget."

The district's bonds, however, were somewhat insulated from those concerns because they were insured, earning them a rating of AA by Standard & Poor's, now S&P Global. Oppenheimer said that while it "sought buy-and-hold market participants, traditional buyers except for one, did not participate."

District Superintendent Kimako Patterson said the Journal's analysis "is of intense interest and concern. Districts pretty much depend on companies like Oppenheimer to be honest and do what's in our best interest."

The MSRB, a self-regulatory organization overseen by the SEC, established the rule saying that underwriters have a duty to set "fair and reasonable" prices, but its rules also say the underwriter isn't required to "exert its best efforts to obtain the 'most favorable' pricing" unless it tells the issuer it will do that.

In an interview, MSRB senior adviser and former general counsel Michael Post said: "We have longstanding rules that require underwriters to treat issuers fairly and to purchase the bonds in an underwriting at a fair price." He declined to comment on specific trades in the Journal's analysis.

In 2017, the Washington Economic Development Finance Authority sold $134 million of tax-exempt bonds on behalf of a private company building a facility that would convert farm waste to paper pulp. The company, Columbia Pulp I LLC, paid Goldman Sachs & Co. $3.8 million, or about 2.9% of the money raised, to underwrite the bonds.

The unit of Goldman Sachs Group Inc. set prices so the bonds would generate annual interest of 7.75% for buyers -- a high yield indicative of the speculative nature of the company's new technology. Goldman sold the bonds in 25 trades, all at 11 a.m. on July 25, 2017.

A little more than an hour later, some of the original buyers sold $10.75 million of the bonds to dealers at 5.3% more than they had just paid, generating profits of $571,000.

Later that day, according to NAIC filings, Goldman bought back $6.6 million of bonds it had sold to insurers for $376,000 more than the buyers had paid. Trading records show Goldman then resold those bonds for a $42,000 profit.

Within 10 trading days of the initial sale, $32 million of the bonds were flipped by initial buyers, the Journal analysis showed. Goldman and the dealers and customers who bought and resold them made market-adjusted profits totaling $2.2 million.

Columbia Pulp declined to comment. In a written statement, the Economic Development Finance Authority said it "does not assume responsibility for or monitor secondary market trading in its bond issues."

After the West Contra Costa bond offering in 2016, the underwriter, Piper Jaffray, said in a report to the school district that 23 financial firms and 16 smaller investors had bought $180 million of the $191 million in bonds. The report identified those firms as "going-away" buyers.

The district's financial adviser, Mr. Boehm, later told the school board: "The term 'going away' means that . . . these are true buyers. These are not dealers looking to just buy the bonds for purposes of putting [them] in the trading inventory."

A Piper Jaffray spokeswoman said the firm didn't intend to give school officials the impression that the $180 million worth of bonds wouldn't be resold.


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  #642  
Old 09-13-2019, 03:48 PM
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https://fixedincome.fidelity.com/ftg...33800000_110.1

Quote:
Oklahoma pension fund cyber attack shows rising risk for munis

Spoiler:
Oklahoma has joined the ranks of state and local governments struck by hackers, fueling concerns about the escalating risk of such attacks on municipalities.

The Federal Bureau of Investigation is probing the cyber theft of $4.2 million from the Oklahoma Law Enforcement Retirement System, the pension fund for highway troopers, state agents, park rangers and other officers. The fund has recovered some of the money and told retirees benefits would remain intact. But the hack illustrates the state’s vulnerability to bigger attacks that could carry far larger financial risks.

“Your ability to pay debt is based on trust, if the trust isn’t there, it’s going to be hard for everyone,” said Geoffrey Buswick, an analyst for S&P Global Ratings, who has written about the risk these attacks pose for public entities. “If you have your head in the sand when it comes to cybersecurity, we’re going to look at that for our rating.”

The Oklahoma hack is the latest in a series of cyber breaches that show how exposed municipalities across the country are to online crime, a risk factor that rating companies are paying closer attention to as these incidents become more common. So far in 2019, municipalities have reported 73 ransomware attacks, up from 54 in 2018, according to data collected by a researcher at Recorded Future, a cybersecurity company.

Public pensions are already under stress from an uncertain investing environment and, in many cases, the growth of unfunded liabilities. State and local government retirement plans have between $1.6 trillion and $4 trillion less than what they need to cover all benefits that have been promised, depending on the interest rate used to value liabilities.

Money is constantly moving in local governments’ servers to pay vendors, contractors or employees among other recurring transactions, making them a lucrative target for hackers.

In May, Baltimore residents faced disrupted services after hackers penetrated the city’s systems in the second such cyberattack in less than two years. Moody’s Investors Service called the incident “credit negative,” citing “significant out-of-pocket expenses” expected after such a breach. Even so, Moody’s didn’t expect the city’s financial position to be materially affected.

Greenville, North Carolina suffered a cyber attack in April, and hackers hit Atlanta in March 2018, costing the city an estimated $17 million to fix, which was about 2.6% of its budget, according to Boston-based Breckinridge Capital Advisors.

The Oklahoma pension fund, which has almost 1,500 retirees, was attacked after an employee’s email account was hacked, according to the Oklahoman newspaper. Duane Michael, the fund’s executive director, told the newspaper that the money was illegally diverted.

Michael told the Oklahoman that his employees are getting training to prevent another breach. Jake Lowrey, a spokesman for the Oklahoma state agency that manages the hacked email account, declined to comment.

While the hackers took a small fraction of the Oklahoma pension’s $1 billion in total assets, the theft still leaves a negative impression, according to S&P’s Buswick. There’s no clear-cut solution to avoid hacks, he said. Instead, it’s a matter of governments identifying their weak spots, planning a reaction and determining a process for recovery.

S&P hasn’t downgraded an entity based solely on cybersecurity concerns yet, Buswick said. But in April, the agency lowered its outlook to negative on Princeton Community Hospital in West Virginia after the impact of a 2017 cyberattack was reflected in its unrestricted reserves.

Moody’s rates Oklahoma Aa2, or the third-highest level of investment grade, and S&P has an equivalent AA on the state. The $4.2 million loss from last month’s hack isn’t likely to drive a credit decision for such a large borrower, Buswick said.

Still bondholders are paying attention. While the cyber risks are hard to assess in a “meaningful” manner, they’re part of investment analysis, said Matthew Stephan, the senior analyst for municipal market research at Columbia Management LLC. Protocols for these scenarios aren’t always outlined for investors or written about in analysts’ reports, he said.

“We kind of treat it like a low probability event ‑‑ like a 500-year weather event,” he said, noting that the incidents don’t typically affect the long-term price of bonds.

Other firms, like Breckinridge, include cybersecurity as part of its environmental, social and governance analysis.

“The market has become aware, investors have become aware, the media has become aware of cybersecurity issues,” said Andrew Teras, a senior analyst for Breckinridge. “It’s just one element of many that we’re looking at but that’s true of anything. We think it’s very material -- we consider it, and we know is a risk.”


https://fixedincome.fidelity.com/ftg...906a0000_110.1
Quote:
Muni market awaits 2 Treasury regulations

Spoiler:
Treasury is finalizing the reissuance rule it released at the end of 2018 and is preparing to release proposed guidance to facilitate the transition away from Libor.

U.S. Treasury Associate Tax Legislative Counsel John Cross told attorneys attending a National Association of Bond Lawyers conference in Chicago on Thursday that other the other regulatory actions involving the municipal bond market constitute small administrative guidance.

Among the administrative guidance in the works are answers to continuing questions about student loan bonds and using economic defeasance to "turn off" Build America Bonds.

Treasury also is considering offering guidance on the definition of an instrumentality in terms of public universities that are exempt from a new federal excise on large university endowments.

That project could impact the municipal bond market in the same way as the effort to redefine political subdivisions did prior to Treasury’s withdrawal of that proposed regulation.

Internal Revenue Service enforcement officials told NABL workshop attendees in another workshop session the service is hiring five new revenue agents, up from the current 20, and two additional tax law specialists.

The new positions, which are posted on the USJOBS website, will reverse what has been a long term decline in staffing in the tax-exempt bonds section of the IRS through attrition, mostly because of retirements.

IRS officials also are reconsidering the 2017 reorganization that combined the tax-exempt bond office with the office of Indian tribal governments to form a new ITG/TEB office within the Tax Exempt & Government Entities Division (TEGE) managed by Christie Jacobs.


Allyson Belsome, senior manager of ITG/TEB Technical, said her unit which does the selection of audits would be unaffected by a reorganization, but the field audit group may be split into separate TEB and ITG teams.

The guidance on the elimination of the London Interbank Offered Rate (Libor) was sent by Treasury to the White House Office of Management and Budget on Aug. 28.

“We have gone through most of the gauntlets for public release," Cross said. Review by OMB’s Office of Information and Regulatory Affairs is the final step in the process.

The Federal Reserve considers the release of the guidance sometime this fall to be “critical” to making the transition because it impacts $2 trillion in swaps in the marketplace, Cross said.

The Alternative Reference Rates Committee sent a letter to the Treasury in April summarizing on what issues the guidance should consider, including new rates other than the Secured Overnight Financing Rate (SOFR).

“People are looking for other alternatives,” Cross said, indicating that there will be an effort to provide flexibility.

NABL members have expressed concern that if floating rate bonds based on Libor switch to another benchmark rate, the switch may be considered a material change to the bonds that causes them to be considered newly reissued.

A re-issuance would make the bonds subject to the latest tax laws and rules and could even make them taxable.

The proposed Treasury guidance is expected to address that potential problem.

The Securities Industry and Financial Markets Association listed $76.9 billion in publicly issued municipal bonds from 872 issuances that used floating rate debt as of Dec. 18, 2018. That’s only 2% of the $3.8 trillion municipal bond market and includes debt that uses the SIFMA index but doesn’t include swaps.

Libor-based municipal debt was an even smaller amount at $47.6 billion or about 1.3% of the overall muni market.

As for the proposed reissuance rule, NABL, the Bond Dealers of America, the Government Finance Officers Association and the Securities Industry and Financial Markets Association submitted comments earlier this year requesting a continuation of the practice that allows remarketing reissuances at a premium.


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  #643  
Old 09-13-2019, 03:48 PM
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https://fixedincome.fidelity.com/ftg...fc070000_110.1
Quote:
What negative interest rates would mean for the muni market

Spoiler:
With a tweet, President Trump has reopened the debate about negative interest rates.

In Japan and Europe negative rates are a fact. And just last week former Federal Reserve Board Chair Alan Greenspan said in a televised interview that he believes negative interest rates will hit the U.S. before long.

Federal Reserve Bank of Dallas President Robert Kaplan has said he’s skeptical whether negative interest rates are “viable.” Former U.S. Treasury Secretary Larry Summers also opposes the idea. Federal Reserve Bank of Minneapolis President Neel Kashkari in 2016 said it’s "unlikely" the Fed would implement negative rates. Fed Gov. Lael Brainerd also dismissed the possibility in a televised interview earlier this year.

On the other hand, Federal Reserve Bank of St. Louis President James Bullard has said negative rates could be considered at some point.

Probably the most telling sign that Fed policy makers are not yet considering negative rates is that they still refer to zero lower bound, suggesting zero is the bottom. And there is a question about whether such a move would be legal.

“Negative interest rates aren’t a scenario to wish for,” said Greg McBride, chief financial analyst at Bankrate.com. “They’re still in the experimental stage and it’s not proven if they even work. The countries that have negative policy interest rates aren’t exactly teeming hubs of economic activity – they’re reeling, which is how they got to negative rates in the first place.”

The markets would face issues in such conditions. “There are legitimate concerns about whether markets would function properly in an environment of negative rates, particularly short-term money markets,” he said. “It flips the banking business model upside down. What happens to the flow of capital and availability of credit in those scenarios aren’t known – and let’s hope we don’t have to find out.”

Even if the Fed goes to negative interest rates, “it's not necessarily true that municipal bond yields would also go negative,” according to Peter Ireland, a professor of economics at Boston College and a member of the Shadow Open Market Committee. “But it is likely that negative policy rates would cause yields on municipal bonds to decline, and this might help a bit, in offsetting fiscal pressures at the state and local level. That would clearly be a beneficial side effect, to offset some of the problems.”

Speaking to the more general question of whether negative interest rates should be considered by the Fed, Ireland said, “as part of a contingency plan, negative rates shouldn't be ruled out.” But, he added, negative rates “have adverse effects on savers and could lead to distortions in financial markets.”

Former Fed Chair Janet Yellen downplayed the possibility of negative interest rates, and suggested “other tools like forward guidance and asset purchases should be considered first.”

The effect on bond insurers “is less clear,” Ireland said. “That is because the way that a bond would pay negative interest is not by requiring the holder to send in payments instead of receiving interest payments; instead, it would be because the original bond sells for a price that's above face value so that, even given the regular interest payment, the yield accounting for the loss the bond holder will suffer by paying more than face value, is negative.”

“What would really hurt bond insurers is a replay of what happened in 2008, where large numbers of borrowers all go bankrupt or threaten to default at the same time,” he said.

While not dismissing the use of negative rates at some point, Payden & Rygel Chief Economist Jeffrey Cleveland said, “I think some investors have gone too far in expecting the U.S. to follow the rest of the world to negative rates in the near term.”

Treasury-bill yields were negative “at various points in 2011, 2014 and 2015 – albeit briefly in each instance,” he said.

Although the risk of recession has increased, the firm doesn’t expect one in the next 12 months. “Global economic activity appears to be bottoming, and the U.S. consumer remains resilient.” And central banks’ policy easing this year should work its way through the economy by yearend and into next year. “Once again, the bond market might have swung too far in the pessimistic direction,” Cleveland said.

Should the Fed pursue negative rates, he said, “there would be some important structural conditions for the Fed to wrestle with.” For example, “the U.S. financial system depends on money market funds to intermediate credit. Negative rates would impair the money fund industry and hurt credit intermediation, reducing or disrupting economic growth. In short, NIRP medicine would be worse than the disease.”

It's a mixed picture, according to Marc Joffe a senior policy analyst at Reason Foundation. While negative rates would encourage municipalities to refund and/or issue new bonds, governments might be less willing to issue debt during a recession.

In a tweet, Diane Swonk, chief economist at Grant Thornton, said, “Market participants would likely view such a drop in rates as a signal that the economy is much weaker than it appears, which runs the risk of triggering a panic and self-fulfilling recession.”

Others shared this view. If the Fed were to cut rates to zero, “this would steepen the curve, stoke inflation fears, and give at least a short term boost to the economy,” said Hugh Nickola, principal and head of fixed income at GenTrust. “In this scenario, the Fed would only be able to maintain negative interest rates in the very front end of the yield curve so the effects on the U.S. economy would be quite muted.”

But, if the situation worsened and more accommodation was needed, “then negative rates could indeed become a reality here as the Fed would do whatever it could to stimulate growth. In this case, the ramifications to the financial markets and the financial industry could be more significant.”

Still, he added, “Negative rates have existed in Europe since 2014 and in Japan since 2016 without causing major harm to the financial system.”

In reality, the Fed has worried “pushing rates too low … could cause a flight to cash which would obviously disrupt the financial system if left unchecked.”

“Slower growth would clearly weigh on the financial strength of bond insurers since it would lead to a weakening of muni credits as tax receipts stagnate,” Nickola said. “Negative rates would also drive down the investment income of the insurers, though this would be at least partially offset by declines in borrowing costs.”

Edward Moya, senior market analyst, New York at OANDA, said, “President Trump's frustration is hitting a fresh record high as the ECB is about dive even deeper into negative territory, while the Fed seems poised for a painstakingly slow cutting cycle. The Fed will do what they need to defend their mandate and that will require lower rates, possibly a return of QE, with worst case scenarios seeing helicopter money.”

Volatility will continue in the bond market thus year. Given the low fed funds rate target (2% to 2.25%) and the fact the Fed usually cuts rates about 500 basis points in a downturn, its toolbox looks “rather depleted,” he said. “Many bond investors seem convinced the U.S. will see negative rates just like Europe and Japan, but a lot will have to go wrong with the global economy for that to happen. Before we see negative rates in the U.S., we would likely see the Fed work with other central banks and possibly alongside government in a profound coordinated effort to bring back inflation. If the Fed has multiple critical policy mistakes, the risks grow that they could lose their independence.”

In his opinion, “a global recession and a Fed policy mistake” would be precursors of negative rates. He predicted low rates will remain “for the coming decades,” given “the size of U.S. “How low will rates go will depend on how stubborn the Fed remains in committing to an easing cycle,” Moya said. “If we don't see at least a full percentage point worth of rate cuts over the next six months, the bond market will likely help drive the 10-year yield well below the record low level of 1.318%.”

CPI
The consumer price index rose 0.1% in August after a 0.3% gain in July, while to core rate grew 0.3% both months, the Labor Department said Thursday.

Economists polled by IFR Markets expected a 0.1% rise in the headline number and a 0.2% gain for the core.

Year-over-year, CPI was up 1.7% and the core increased 2.4%, the largest rise since July 2018, compared with projections of 1.8% and 2.2%. The gain in inflation shouldn’t stop the Fed from the expected 25 basis point rate cut next week.

Jobless claims
Initial jobless claims fell to 204,000 in the week ended Sept. 7 from 219,000 the week before, Labor reported. Continued claims slipped to 1.670 million in the week ended Aug. 31 from 1.674 million a week earlier.


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  #644  
Old 09-19-2019, 03:32 PM
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https://fixedincome.fidelity.com/ftg...44c00000_110.1

Quote:
With interest rate cut official, munis look toward more supply

Spoiler:
The market got what it expected and can now shift attention to the week's remaining deals after Fed policy makers cut interest rates by a quarter point.

"Now that we got the Fed out of the way, the focus will pivot back toward supply," said one New York trader. "And the supply will keep coming, next week is shaping up to be a busy week once again."

The Federal Open Market Committee voted to cut the fed funds target range 25 basis points to 1.75% to 2% as “uncertainties” offset the prospects for “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2% objective.”

The panel was split, with Federal Reserve Bank of Kansas City President Esther L. George and Federal Reserve Bank of Boston President Eric S. Rosengren again dissenting in favor of no change in the rate. Federal Reserve Bank of St. Louis President James Bullard, also voted against the move, arguing for a larger 50 basis point cut.

The Fed's dot plot suggests the panel will hold rates through the end of next year, then increase to 2.1% in 2021 and 2.4% in 2022.

Going forward, the Fed may find it “difficult to justify” future rate cuts, “based on the current state of the economy and upticks we are seeing in inflation figures and wage growth,” said Hugh Nickola head of fixed income at GenTrust. “This is particularly true if we see improvement on the trade war front.”

The end result could be more supply of municipal bonds, since tax-exempts have underperformed Treasuries since late July, he said.

“The fear of lower growth due to a trade war is clearly not good for municipalities over the longer term and the drop in rates this year will fuel more supply as we move into the fourth quarter.”

Primary market
Goldman Sachs (GS) received the verbal award on Municipal Electric Authority of Georgia’s (A2/A/BBB+) for the project M bonds and (Baa2/BBB+/BBB+) for the project P bonds combined $714.79 million of Plant Vogtle Units 3&4 Project M bonds and Project P bonds. The 2044 maturity of project M bonds for $44.28 million are insured by Assured Guaranty Municipal Corp. and is rated AA by S&P Global (SPGI) ratings.

RBC Capital Markets received the written award on Sand Diego Community College District’s (Aaa/AAA/ ) $693.44 million of 2019 general obligation refunding taxable bonds.

Loop Capital received the written award on Cleveland’s (A3/A-/A-) $301.665 million of airport system revenue taxable bonds.

Morgan Stanley (MS) received the verbal award on Massachusetts Port Authority’s (A1/ /A+) $143.74 million of special facilities revenue bonds for the Bosfuel Project consisting of taxable and alternative minimum tax bonds.

University of Maryland System (Aa1/AA+/AA+) sold $107.965 million of auxiliary facility and tuition revenue refunding bonds, which were won by Citi with a true interest cost 1.5601%.

Wednesday’s bond sales

Click here for the San Diego CC District pricing

Click here for the Cleveland pricing

Click here for the University of Maryland System competitive pricing

Click here for the U of Maryland final pricing

Click here for the Muni Electrical Authority of Georgia Project P bonds pricing

Click here for the Muni Electrical Authority of Georgia Project M bonds pricing

Click here for the Massachusetts Port Authority pricing

ICI: Muni funds see $1.28B inflow
Long-term municipal bond funds and exchange-traded funds saw a combined inflow of $1.282 billion in the week ended Sept. 11, the Investment Company Institute reported on Wednesday. It was the 37th straight week of inflows into the tax-exempt mutual funds and followed a revised inflow of $1.218 billion in the previous week.


Long-term muni funds alone saw an inflow of $1.220 billion after a revised inflow of $1.340 billion in the previous week; ETF muni funds alone saw an inflow of $62 million after an outflow of $122 million in the prior week.

Taxable bond funds saw combined inflows of $11.731 billion in the latest reporting week after revised inflows of $5.707 billion in the previous week.

ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $19.469 billion after revised inflows of $2.594 billion in the prior week. World funds were the biggest losers of the week, seeing $1.047 billion of outflows.

Heavy supply impacting performance
With negative returns on municipals and Treasuries for September, tax-exempts outperformed their taxable counterparts by about 65 basis points as of Sept. 16, according to Jeffrey Lipton, head of municipal and fixed income strategy at Oppenheimer & Co.

Lipton believes municipal performance would be even better if it were not for the heavier weekly calendars currently in the market.

Municipals remained soft but yields moved modestly higher as Treasury prices firmed following a flight to quality that took hold following the recent drone attack on Saudi Arabian oil facilities, he noted.

“We think that a supply-build is keeping tax-free prices from moving to higher ground,” Lipton wrote. “This week, the market is expected to receive about $10 billion of new issuance.”

Meanwhile, the current relationship between municipal and Treasury yields is impacting dealer pricing.

"As Treasury prices move higher as a flight-to-quality responds to the Saudi oil attack, muni yields continue to move up on recent supply-build," he said in an interview Wednesday morning. He noted that ratios are now "quite cheap," with the 10 and 30-year ratios at 89% and 97% respectively.

"We are close to long ratio levels that would have a more compelling interest for cross-over buyers," Lipton said. "As a result, pricing of dealer inventory has been adjusted to reflect the cheaper levels."

With the FOMC meeting and the geopolitically driven exposure to rate volatility, this week’s weightier calendar will test investor reception and could pressure dealer inventories, Lipton said.

“Although we expect demand to show up, it may be more uneven than what has been the case for much of the year,” Lipton wrote, noting that investors can be more discerning and given the wide swings in rates over a short period of time, certain structures that worked one month ago, may not currently work.

“Lower coupons such as 3s have underperformed with the back up in rates,” he said. “What came at par may now come at a discount.”

Typically, he said supply tends to lighten up ahead of an FOMC meeting out of policy uncertainty. “Both issuers and underwriters appear to be managing expectations with a strong belief that a 25 basis-point cut in the funds rate is a certainty,” Lipton said.

“We would also suggest that issuers see an opportunity to take advantage of favorable borrowing terms,” Lipton wrote. But, he added that a sustained back up in rates could keep many issuers on the sidelines, which may strengthen the technical dynamic and contribute to municipal performance.

At the same time, overall, he said municipal demand has remained strong — despite the back up in yields — as municipal bond mutual fund flows have been positive for 36 consecutive weeks.

“The pace of inflows remains strong, despite evidence of recent slowing,” he wrote. “For some time now, we have been questioning the sustainability of flow activity and since market technicals have shifted and rate volatility is more pronounced, the optics being placed on fund flows should be more focused.”

Lipton said retail investors are driving the flow activity as municipal ownership creates a strong incentive to offset the broader uncertainty and volatility associated with the equity market allocations.

“Tax efficiency and preservation of principal are keeping the retail investor engaged and we expect this dynamic to continue,” Lipton wrote.

A low corporate tax rate stemming from the Tax Cuts and Jobs Act have “diluted” the tax benefit of owning municipal bonds for institutional investors — however Lipton said they remain actively involved nonetheless.

While major summer reinvestment needs have passed, the net negative supply dynamic will continue over the next 30 days — albeit at a reduced pace, Lipton said.

According to Bloomberg, the total amount of bond calls and maturities over the next 30 days approximates $25.43 billion, and the 30-day total fixed rate supply is about $14.49 billion — resulting in a 30-day net supply of negative $10.94 billion.

Overall, Lipton said more challenging technicals are making it difficult to navigate the municipal waters.

“Last week, tax-exempts booked one of the worst weeks in recent memory with yields rising 23-24 basis points across the curve as the Trump administration is now signaling a willingness to consider a limited trade agreement with China that could lead to the unwinding of some of the existing tariffs and put an end to the intensifying retaliatory behavior between the two countries,” with the backdrop of abating domestic recessionary fears, Lipton wrote.

At the same time, the external geopolitical forces could impact investment in municipals securities, he said, but believes demand for municipals will generally remain strong through year end.

While there is ample cash waiting to be deployed, Lipton said outsized issuance could have softening impact on flow activity. “We would expect there to be intermittent outflows if there is a sustained sell-off in fixed income,” he wrote. “We are less concerned however that growing supply would significantly disrupt a positive flow trajectory given our outlook for extended product demand.”

Secondary market
Munis were slightly stronger on the MBIS benchmark scale, with yields falling by less than one basis point in both the 10-year and 30-year maturity. High-grades were weaker, with MBIS’ AAA scale showing yields rising by one basis point in the 10-year maturity and by three basis point in the 30-year maturity.


On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10-year muni GO and 30-year GO dropped by six basis points to 1.51% and 2.11%, respectively.

The 10-year muni-to-Treasury ratio was calculated at 85.0% while the 30-year muni-to-Treasury ratio stood at 94.8%, according to MMD.

Treasuries were mixed as most stock prices were in the red, with the exception of the Dow — which turned green after President Trump tweeted about Powell yet again. The Treasury three-month was yielding 1.962%, the two-year was yielding 1.754%, the five-year was yielding 1.666%, the 10-year was yielding 1.791% and the 30-year was yielding 2.244%.

Previous session's activity
The MSRB reported 35,809 trades Tuesday on volume of $9.58 billion. The 30-day average trade summary showed on a par amount basis of $11.15 million that customers bought $5.94 million, customers sold $3.30 million and interdealer trades totaled $1.91 million.

California, New York and Texas were most traded, with the Golden State taking 15.66% of the market, the Lone Star State taking 13.487% and the Empire State taking 9.351%.

The most actively traded security was the Bay Area Toll Authority 3s of 2054, which traded 27 times on volume of $32.27 million.

Data appearing in this article from Municipal Bond Information Services,including the MBIS municipal bond index,is available onThe Bond Buyer Data Workstation.Click herefor a brief tour of the Workstation.
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Old 09-26-2019, 05:42 PM
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https://www.truthinaccounting.org/ne...he-states-2019
Quote:
Financial State of the States 2019

Spoiler:
Truth in Accounting has released its tenth annual Financial State of the States report, a nationwide analysis of the most recent state government financial information. This comprehensive analysis of the 50 states’ finances includes the most up-to-date state finance and pension data, trends across the states, and key findings.

States have become more transparent over the last few years, thanks to the Generally Accepted Accounting Principles set by the Governmental Accounting Standards Board, which now require governments to disclose pension and other post-employment (OPEB) benefits on their balance sheets. If these benefits have not been fully funded, they are considered liabilities, or debt, because they represent money owed to government employees in their retirement.

This year the study found that 40 states do not have enough money to pay all of their bills and in total the states have racked up $1.5 trillion in unfunded state debt. The study ranks the states according to their Taxpayer Burden or Surplus™, which is each taxpayer's share of state bills after available assets have been tapped.

Here are the rankings (from best to worst):

Click on the state’s name to learn more about the state’s financial condition on State Data Lab

Alaska, $74,200 per taxpayer

North Dakota, $30,700

Wyoming, $20,800

Utah, $5,300

Idaho, $2,900

Tennessee, $2,800

South Dakota, $2,800

Nebraska, $2,000

Oregon, $1,600

Iowa, $700

Minnesota, -$200

Virginia, -$1,200

Oklahoma, -$1,200

North Carolina, -$1,300

Indiana, -$1,700

Florida, -$1,800

Montana, -$2,100

Arkansas, -$2,300

Arizona, -$2,500

Nevada, -$3,100

Wisconsin, -$3,200

Georgia, -$3,500

Missouri, -$4,300

New Hampshire, -$5,000

Ohio, -$6,600

Kansas, -$7,000

Colorado, -$7,200

Washington, -$7,400

Maine, -$7,400

West Virginia, -$8,300

Mississippi, -$10,000

Alabama, -$12,000

Texas, -$12,100

New Mexico, -$13,300

Rhode Island, -$13,900

South Carolina, -$14,500

Maryland, -$15,500

Michigan, -$17,000

Pennsylvania, -$17,100

Louisiana, -$17,700

Vermont, -$19,000

New York, -$20,500

California, -$21,800

Kentucky, -$25,700

Delaware, -$27,100

Hawaii, -$31,200

Massachusetts, -$31,200

Connecticut, -$51,800

Illinois, -$52,600

New Jersey, -$65,100


https://www.truthinaccounting.org/li...oklet-2019.pdf

https://www.forbes.com/sites/mayraro.../#1fd466817bff
Quote:
Forty States In The U.S. Do Not Have Enough Money To Pay Their Bills

Spoiler:
Forty U.S. states do not have enough money to pay all their bills primarily due to significant unfunded pensions or Other-Post-Employment Benefits (OPEB). Truth in Accounting (TIA), a nonpartisan, not-for-profit has been monitoring the financial health of states for a decade in order to educate taxpayers about the financial health of their states today released its tenth annual Financial State of the States. Since I published “Forty U.S. States Cannot Afford To Pay All Their Bills” last year, total U.S. states debt decreased slightly, less than 1%, from $1.5 trillion at the end of the fiscal year 2017, to $1.49 trillion in fiscal year 2018. Truth in Accounting’s 2018 data shows that unfunded retirement liabilities are the main contributing factor to the almost $1.5 trillion in state-level debt. Unfortunately, “one of the ways states make their budgets look balanced is by shortchanging public pension and OPEB [other post-employment benefit] funds. This practice has resulted in a $824 billion shortfall in pension funds and a $664.6 billion shortfall in OPEB funds.”

Despite the fact that the total U.S. economy is still growing, states have not been able to lower their unfunded liabilities. This is not good news given that the rate of growth in the U.S. is starting to slow down, and many U.S. states’ fiscal health continues to be very vulnerable to Trump’s trade wars. According to TIA Founder and CEO Sheila Weinberg, “Many of these state governments have no hope of achieving a budget recovery barring significant program cuts or tax hikes,” Unfortunately, “This crisis has been years in the making and demands political courage on the part of voters and elected officials to return to the path of sustainability.”

The Volcker Alliance, a nonpartisan organization that promotes effective government management, has an annual report, Truth and Integrity in State Budgeting: Preventing the Next Fiscal Crisis, which findings concur with many of Truth in Accounting’s findings. “Many states still struggle to balance budgets in the face of mounting obligations for health care, infrastructure, education, and public employee retirement costs.” The Volcker Alliance recommends that states need to do much better budgeting to prevent a fiscal crisis.


In its latest report, TIA ranks each state based on its Taxpayer Burden or Taxpayer Surplus. TIA defines a Taxpayer Burden as “the amount of money each taxpayer would have to contribute if the state were to pay all of its debt accumulated to date. Conversely, a Taxpayer Surplus is the amount of money left over after all of a state’s bills are paid, divided by the estimated number of taxpayers in the state. We split the states into two groups. States that lack the necessary funds to pay their bills are called Sinkhole States, while those that do have enough money are referred to as Sunshine States.”

Today In: Money
Alaska, North Dakota, Wyoming, Utah, and Idaho are the Top Sunshine States, since they have a surplus per each of their states’ taxpayers.

Top Sunshine States
Top Sunshine States TRUTH IN ACCOUNTING
Unfortunately, there are also sinkhole states where taxpayers are on the hook for the bills that the state cannot pay. New Jersey, by far is in the weakest condition.

Top Sinkhole States
Top Sinkhole States TOP SINKHOLE STATES
TIA’s report explains that “By definition, if a state has a balanced budget requirement, then spending should be equal to revenue brought in during a specific year. Unfortunately, in the world of government accounting, things are often not as they appear. Every state, except for Vermont, has balanced budget requirements, yet even with these rules in place, states have accumulated more than $1.5 trillion in debt.” States are able to rack up debt and balance their budgets simultaneously, because they use a number of accounting tricks such as:

Inflating revenue assumptions
Counting borrowed money as income
Understating the true costs of government
Delaying the payment of current bills until the start of the next fiscal year so they aren’t included in the calculations
50 State Ranking Chart
50 State Ranking Chart TRUTH IN ACCOUNTING
50 State Ranking Chart (cont.)
50 State Ranking Chart (cont.) TRUTH IN ACCOUNTING
TIA also grades states from A – F based on their financial health and how much they leave their residents on the hook for unfunded liabilities. Only Alaska, North Dakota and Wyoming had an A. 44% of the states have a D or an F. Nine states -- New York, California, Kentucky, Delaware, Hawaii, Massachusetts, Connecticut, Illinois, and New Jersey -- all had the failing grade of F.

TIA Grade Distribution
TIA Grade Distribution TRUTH IN ACCOUNTING
The residents who live in states with a D, and especially an F need to be thinking of how we can push our legislators to implement policies to improve the financial health of our states. Unless state legislators can find a way to improve our states' financial health, ll of us will have to pay more taxes, receive less in services, or both. Or legislators will kick the can down the road for the generations who follow us.





I made some graphs based on the data:
http://stump.marypat.org/article/126...-of-the-states



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Old 10-02-2019, 05:36 PM
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WISCONSIN

https://www.wsj.com/articles/popular...ds-11569922203
Quote:
Popular in Wisconsin: Cheese, the Packers and...Risky Bonds
State agency facilitated some municipal-market deals now going sour
Spoiler:
Wisconsin has long been famous for its lakes and cheese. Now it is becoming known for risky debt.

Wisconsin is home to the Public Finance Authority, an agency that has issued billions of dollars in tax-exempt debt across the U.S. for projects ranging from senior-living communities to student housing. Many projects claim no direct economic ties to Wisconsin.

Some of that debt is now starting to sour, one sign of how investors' hunger for yield has ushered increasing levels of risk into a corner of the municipal market.

The agency's bonds have been the subject of 10 of the 105 reports of impairment in the municipal market so far this year, according to research firm Municipal Market Analytics, by far the highest of any issuer.

"The PFA is producing some of the riskiest debt in the municipal market," said MMA partner Matt Fabian. Impairments can range from having to rely on reserves to default.

The Wisconsin-based agency was created nine years ago after lobbying groups for cities and counties said they wanted to improve access to funding and accelerate economic growth. They chose Wisconsin as the PFA's headquarters because of the state's accommodating laws.

The PFA's issuance makes up a tiny slice of the $4 trillion market for municipal bonds, which are typically backed by local governments with the power to collect taxes or fees and are considered low-risk. Yet the total amount of debt the PFA has outstanding has nearly doubled to $10.4 billion as of December from $5.5 billion two years earlier, according to its audited financial statements. The PFA doesn't back any of that debt.

High-yield municipal funds have attracted $14 billion in the year through August, more than in any other year on record, according to Refinitiv data going back to 1992.

There are many agencies similar to the PFA around the country that confer tax-exempt borrowing power usually reserved for cities and towns on private projects seen to serve some public good. These are known as conduit issuers. Typically, though, conduit issuers facilitate projects within their own state or city.

When the state law authorizing the PFA was passed in April 2010, lawmakers gave it the power to issue debt for projects in all 50 states as long as local officials in the project area approved. It has financed projects in 44 states, according to its website.

The PFA, which is managed by a California municipal advisory firm, gets operating revenue from fees it collects to do bond deals and consider bond applications, according to its audited financial statements.

"Purely out-of-state issuance with no connection to the state is quite rare," said Chuck Samuels, counsel for the National Association of Health and Educational Facilities Finance Authorities.

Executives from the Wisconsin agency have said it fills a void for issuers that might not find tax-exempt approval for their projects closer to home.

Yet critics have claimed the Wisconsin organization's willingness to back deals not promoted or championed by state officials elsewhere means investors are vulnerable to risky bonds.

One deal facilitated by the PFA that ran into trouble was a project at the Denver International Airport. Denver Great Hall LLC, an affiliate of the private developers, borrowed $189 million for the project through the PFA in 2017. But work stalled in August, when the airport announced it would terminate its partnership with the developers after a series of problems, delays and disagreements. Denver Great Hall plans to pay off the bonds early at 100 cents on the dollar, well below their price at issuance.

"We are disappointed," Denver International Airport's chief executive, Kim Day, said.

PFA board members listed on the PFA website, mostly current and retired Wisconsin local-government officials, didn't return phone calls seeking comment.

The website also lists a PFA "program manager," Walnut Creek, Calif.-based GPM Municipal Advisors LLC and provides phone numbers for three people listed in Securities and Exchange Commission documents as employees of GPM. None is employed by the state of Wisconsin, according to state records. They didn't respond to emails seeking comment.

There is about $783 billion in nongovernment debt outstanding in the municipal market, according to Federal Reserve data.


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Old 10-20-2019, 07:32 AM
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https://www.wsj.com/articles/muni-bo...rs-11569073815
Quote:
Muni-Bond Investors Embrace Higher-Risk Issuers
High-yield municipal funds rake in $14 billion as investors flock to lower-rated deals
Spoiler:
Investors are flocking to riskier corners of the traditionally safe municipal-bond market in a search for yield.

They are buying hundreds of millions of dollars of debt issues from unrated and below-investment-grade borrowers such as energy projects and upstart charter schools.

It is a shift within a part of the bond market commonly considered almost as safe as Treasurys. Municipal-bond payments are often backed by taxes or revenue from essential services. The bonds are known for low default rates and prized by investors for stable returns and interest payments that are typically tax-free.

Yet the return of superlow rates this year has driven investors to seek out less traditional versions of muni bonds that offer higher returns. On Wednesday, the Federal Reserve cut interest rates by a quarter-percentage point for the second time in recent months, to a range between 1.75% and 2%.

The sale of riskier new bonds, combined with the deterioration of some existing debt, has increased the amount of junk-rated and unrated debt outstanding by 20% since 2012, according to Municipal Market Analytics and the Fed.

It remains a small slice, about 9%, of the $4 trillion muni-bond market, according to MMA and Fed data. But high-yield municipal funds have attracted more money in the year through August than in any other year on record, drawing $14 billion, according to Refinitiv data going back to 1992.

The appetite for muni debt includes less traditional offerings in which governments extend their tax-exempt borrowing power to efforts to build or renovate hospitals, dormitories, energy plants, and even malls and stadiums.

For example, investors recently welcomed the largest unrated charter-school deal ever, according to Equitable Facilities Fund, which tracks the market. Overall issuance in that sector has risen roughly fourfold over the past decade.

Bonds such as these aren't backed by a promise to raise taxes if necessary, as is often the case with cities and states seeking funds. As a result, they typically offer additional yield to compensate for that risk -- income that has proved tantalizing for investors after years of rock-bottom rates.

"We are seeing more speculative projects find their way into municipal-bond financings today than we have over the last handful of years," said Robert Amodeo, head of municipals at Western Asset Management.

Already, though, there are some worrisome signs. Reports of problems filed by borrowers -- ranging from outright defaults to tapping cash reserves to make payments -- so far this year have reached the highest level since 2015, according to MMA. There were 101 such issuers through August, compared with a five-year average of 90, MMA data show.

While overall municipal defaults remain rare,the probability of a speculative-grade muni bond defaulting within 10 years has ticked up. It rose to 12% over the past decade, compared with 4% for the period from 1970 to 2008, according to data from Moody's Corp. on bonds rated by that firm.

Recently issued debt -- both speculative and investment-grade -- also is going sour more quickly. Among bonds that have reported impairments since 2017, some 40% encountered that trouble within three years of being issued, MMA data show. Inthe previous seven years, an average of 24% of impairments affected debt issued that recently.

Some investment-grade-rated bonds are also deteriorating quickly.

Last year, ratings firm S&P Global Inc. downgraded to junk roughly $250 million in bonds issued by nonprofit Provident Oklahoma Education Resources Inc. to build student housing and a parking garage on the University of Oklahoma campus in Norman, Okla. The project hadn't been completed, but it had become clear that not enough students wanted to live there, weighing on the nonprofit's revenue, S&P said.

This August, after the project was completed, the company didn't have enough money on hand to make a bond payment and had to draw on its reserves, according to a disclosure on Electronic Municipal Market Access, a public bond database.

S&P further downgraded the debt eight notches and said revenue and reserves may not cover debt payments next year.

Steve Hicks, president of Provident Oklahoma, has blamed the university. "We have never had a university fail to honor their commitments to support their projects to the degree that OU has on this project," he said, adding that the university didn't renew a lease on commercial space or a license on parking, as Provident had anticipated.

A spokeswoman for the university said it "met all of its legal obligations" and that the university "has a responsibility to act in a fiscally responsible manner and in the best interests of the students and citizens of Oklahoma."

For now, though, investors are focused on yield, not risk.

"We have a food fight going on by investors," said J.R. Rieger, author of the Rieger Report, a bond-market newsletter. "If there was a fiscally weaker municipality that needed to raise funds, this is the time to do it."


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Old 10-20-2019, 08:53 AM
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https://www.floridadaily.com/rick-sc...t-rising-debt/

Quote:
Rick Scott Warns Six Governors About Rising Debt
Spoiler:
Last week, U.S. Sen. Rick Scott, R-Fla., sent letters to the governors of Illinois, Massachusetts, Hawaii, Delaware, Connecticut and New Jersey–all Democrats save Gov. Charlie Baker, R-Mass., outlining his concerns about rising debt in their states and showcasing the actions he took as governor to turn around Florida’s economy.

Below is the letter Scott sent to Gov. Phil Murphy, D-NJ, on the matter. Letters to the other five governors were similar to the one Scott sent Murphy.

Dear Governor Murphy:

I am concerned for the financial wellbeing of your state and the burgeoning share the taxpayers of New Jersey would have to contribute to pay down your debts. As you are no doubt aware, the non-partisan think tank Truth in Accounting recently released its annual “Financial State of the States” report, and New Jersey continues to rank among the most debt-ridden states in the country. In fact, New Jersey’s debt represents a burden of $65,100 for each taxpayer in your state. I am sure you agree that is alarming, and I urge you to take decisive action to ease the burden on your residents and lower your state’s debt before it’s too late.

When I was elected governor of Florida in 2010, our state faced enormous challenges: rising rates of unemployment, growing state debt, thousands of burdensome regulations stifling our small businesses, and taxes increased by more than $2 billion in the previous four years before I took office.

In two terms as governor, we turned Florida from a state in financial freefall to the best state to live, work, and raise a family. We created nearly 1.7 million new jobs during that period, driving down our state unemployment rate from 10.8 percent in 2010, to 3.3 percent in 2018. Most importantly, we paid down more than $10 billion in state debt for the first time in decades, leading all three national credit rating agencies to give Florida the highest credit rating of AAA in 2018, and thereby saving our taxpayers even more money through lower interest rates on our remaining debt.

We achieved success in Florida by recognizing that government cannot tax its way out of debt. It’s no secret or mystery how we turned things around: we eliminated wasteful government spending; we slashed nearly 5,400 burdensome rules and regulations, and lowered professional license fees that imposed unnecessary costs on doing business; and we cut taxes nearly 100 times, saving Florida’s families and businesses more than $10 billion. Notably, we accomplished all of that while making record investments in Florida’s transportation infrastructure, and increasing total funding for K-12 schools and our state colleges and universities.

The answer is clear: when government lives within its means and fosters an environment to allow students, families, and small businesses to thrive, economic prosperity will follow. By my final year in office in 2018, Florida’s gross domestic product had grown by more than $250 billion, and exceeded $1 trillion for the first time; meanwhile, our revenues rose from $69.15 billion in FY2011 to $89.3 billion in FY2018, all while reducing taxes and fees on hardworking Floridians.

Our national debt is also a serious and growing problem, but unlike many of my colleagues in Washington, I have not lost the fiscally responsible principles that helped turn Florida around. I recently voted against the Senate’s massive two-year budget proposal because it fails to rein in Washington’s spending spree, and adds trillions of dollars to our national debt. Additionally, I have partnered with the Heritage Foundation to create my “Washington Waste Wednesdays” series, highlighting the numerous ways that Washington is recklessly spending Americans’ tax dollars. Meanwhile, I have filed several pieces of legislation to stop our runaway federal spending, from eliminating the automatic pay raises for members of Congress, to requiring advance contracts for disaster recovery services in order to avoid abusive billing practices in the aftermath of a natural disaster. As a U.S. senator, I remain laser-focused on identifying and eliminating wasteful federal spending and stand firmly against raising taxes or imposing new fees.

Of course, you are free to continue accumulating state debt, imposing burdensome regulations on your businesses, and taxing New Jersey’s families to pay for your out-of-control spending, and Florida will stand ready to welcome new residents fleeing your state for the brighter economic future of the Sunshine State.


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Old 10-20-2019, 09:06 AM
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CALIFORNIA

not exactly related to muni debt, and yet...

https://www.theguardian.com/us-news/...co-los-angeles

Quote:
California legalized public banks. But can they work?
Public banks could allow government agencies access to low-interest loans for infrastructure or affordable housing
Spoiler:
an Francisco and Los Angeles are moving forward with plans to create their own public banks following the passage of historic legislation that made California the second state in the continental US to legalize the financial institutions.

Experts say their success and that of other California counties and cities with similar plans will depend on the governance structures they put in place and the financing they are able to secure.

California’s Public Banking Act, signed on 2 October, paves the way for cities and counties in the state to create public banks that could take deposits and allow local agencies access to low-interest loans for funding infrastructure and affordable housing. The law requires public banks to be run by independent boards and to be operated by professional bankers in order to insulate against self-dealing.

Supporters of the legislation see the bill as a way to divest from major financial institutions tied to controversial projects like the Dakota Access pipeline. And because public banks wouldn’t be under the same pressure as Wall Street banks to seek ever-higher profit, they argue, they could allow government agencies access to low-interest loans for funding infrastructure or constructing affordable housing.


California just legalized public banking, setting the stage for more affordable housing
Read more
State and local governments across the country currently hold $502bn in bank deposits and $4.3tn in state and local public pensions, according to Next City, with the vast majority of that held in private banks. Under the new law, more of that money would stay local.

Public banks aren’t new to the US. American Samoa created its public bank in 2016 after financial institutions abandoned the island, shutting down access to loans. But the first public bank in the US, the Bank of North Dakota, grew out of a brief socialist movement 100 years ago.

David Flynn, the economics and finance department chair at the University of North Dakota, said the North Dakota bank came from a desire to keep out-of-state financial institutions from inflating interest rates on loans to farmers and to keep control of local interests – a slight twist from the aim to “keep money local”, as stated by those who championed the bill in California.

“I think on some level the Public Banking Act is a logical outgrowth of public opinion of where we’ve seen financial institutions go in the last decade,” Flynn said, referencing public reaction to Wall Street’s role in the 2008 financial crisis.

The Bank of North Dakota is working, fulfilling its charter to expand access to credit and promote agricultural enterprises in a way that’s allowed the state economy to move forward in its own way, he added.

The Bank of North Dakota helped buoy the state’s economy after 2008’s financial collapse, Sushil Jacob, a senior attorney with the Lawyers’ Committee for Civil Rights of the San Francisco Bay Area who helped draft the California bill, told the Guardian earlier this month


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Read more
“The state of North Dakota has six times as many financial institutions per capita as the rest of the country and it’s because they have the Bank of North Dakota. When the Great Recession hit, the Bank of North Dakota stepped in and provided loans and allowed local banks to thrive,” Jacob said.

North Dakota, however, has only one public bank, whereas California will allow up to 10 cities or counties to create them. That has the potential to create conflict between institutions in cities and could put municipalities in competition over who has access to public banks, Flynn said.

He notes that California has done well to bake protections into the law, like the requirement for municipalities to create independent boards to oversee banks and the decision to initially cap the number of public banks at 10. But he said the overall success of public banks in California is hard to predict.

“California put in a good degree of protections. I think the question becomes how much independence will there be in practice, how much oversight there will be in practice, and you really won’t know that until we see the people who are placed on boards and are able to gauge the effort as it’s happening,” Flynn said.

Jacob’s organization is a founding member of the California Public Banking Alliance, a grassroots network of groups in cities that campaigned for the bill including San Francisco, San Diego and Los Angeles, where advocates are pushing to open California’s first public bank.

In LA, public banks attracted early interest from some local lawmakers as a way to allow players in the cannabis industry to access banking services. Even though the state has legalized marijuana for both medical and recreational use, the pot industry has been largely locked out of banks because the plant is illegal on a federal level.

Public banks, at least in California, may not be the answer those in the cannabis industry hope for. Because the state law requires public banks to obtain direct deposit insurance from the Federal Deposit Insurance Corporation, it’s unlikely the pot industry could benefit.

“Until we see a change in federal law, we just don’t see how it’s possible,” Jacob said.

Another potential hurdle for the establishment of public banks is cost. A feasibility study published earlier this year by the San Francisco tax collector’s office estimated costs for three different models of public banks – one that focuses on affordable housing and small business lending, a bank that handles the city’s cash, and one that does both – to add up to $184m and $3.9bn just to get off the ground and take the banks between 10 and 56 years to grow large enough to break even.

Critics of the study, including Jacob, say the estimated startup costs listed in the report were greatly exaggerated because authors didn’t factor in ways that public banks could tap into already existing infrastructure and IT systems.

But costs are part of the reason the editorial board of the Los Angeles Times panned the idea back in May: “Few public agencies have the budget for such huge upfront costs or the ability to wait decades for a bank to become self-sustaining. And public banks that have a mission of serving people who cannot qualify for commercial bank financing face greater risk of defaults, making it harder for them to sustain themselves,” the board wrote.

Meanwhile, San Francisco and Los Angeles are moving ahead. A taskforce will put together a business plan in San Francisco which Jacob hopes could be ready in 10 months. A public bank could take several years to create and open.


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Old 10-20-2019, 09:08 AM
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SHREVEPORT, LOUISIANA

https://thehayride.com/2019/10/louis...llion-in-debt/

Quote:
Louisiana auditor: Shreveport is $1 billion in debt

Spoiler:
Shreveport, a town of less than 200,000 residents, is in debt to the tune of more than $1 billion, according to a report published by the State Legislative Auditor’s Office (LAO).

Its deficit means Shreveport won’t be able to pay its bills next year– and over the long term it can’t fund its obligations, the LAO says.

General obligation bonds, pension and other benefit obligations to former employees, and the renovation of Independence Stadium are among the biggest expenses the LAO says are why the city’s in the red.

Government revenue was $264 million in 2018, with nearly half coming from sales taxes, while the cost of government was $272 million for the year, leaving its “unrestricted net position” with a “deficit of $1.1 billion,” the LAO says.

The LAO listed 27 findings specific to city finance deficiencies, some of which were listed last year and were obviously not fixed.

The report also highlighted four city employees who were charged with felonies for mismanaging city funds and resources.

A Water and Sewerage Department employee was charged with felony theft totaling approximately $2,766 for providing free water to himself and others, and three city employees were charged with felonies for using city resources valued at more than $25,000 to work on their private driveways.

According to the auditor, city administrators didn’t have adequate controls over payroll processing and payroll data, didn’t ensure the accuracy of inventory records, and didn’t have procedures in place to ensure that year-end financial statements were prepared in an accurate and timely manner.

Shreveport was also fined $189,275 in penalties for filing its state payroll taxes late.

Among other issues, the town’s bank balances in three accounts were higher than the insured limits, which put the city at risk of potentially losing more than $9 million, the LAO adds.

In addition to its other failed accounting practices, city police and fire leave balances were not maintained accurately, vendor files lacked supporting documentation, officials didn’t monitor compliance and proper renewal of contracts, and water and sewerage sales taxes were improperly charged, leading to inaccurate financial statements.

City officials claim that the 27 deficiencies the LAO cited are being addressed.


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