The 30,000-foot view of muniland
The Bond Dealers of America, an organization representing national middle-market bond dealers, held its national conference in Chicago last week. I did not attend, unfortunately, but the agenda was a good mix of regulatory and legislative perspectives from the buy-side (mutual funds, insurance firms, asset managers) and electronic trading platform executives.
What interested me most was a presentation by Amy Laskey, managing director of the Public Finance Group at Fitch Ratings, who provided a 30,000 foot view of the current state of muniland. These are the best sections that present a mixed-to-positive picture:
Review of Recent Rating Actions
• Average local government general obligation rating remains ‘AA’ but trending towards ‘AA-’
• 12% downgrade rate YTD
• Upgrades scarce
• Multiple downgrades
• Increasing divide between strong and weak credits
• Expect more isolated cases of default, bankruptcy
Revenue vs. Spending Trends
• Moving in opposite directions
• Flat to declining recent revenue performance
• Property tax
• Sales tax
• State aid
• Natural spending growth
• COLAs [cost of living adjustments], step increase
• Inflationary growth
• Pension, health care increase
Sound Reserve Levels
• Reserves remain strong for most local governments despite some declines during the downturn
• Once the prolonged nature of the downturn became clear most managers turned to recurring budget solutions
• Unrestricted reserves at the end of fiscal 2011 average well over 20% of spending for governments rated in the ‘AA’ category