California, New York City Issue Less as States Lift Borrowing: Muni Credit
California and New York, the most- populous U.S. state and city, lowered their municipal bond offerings in 2010 even as fixed-rate borrowing by municipalities surged to the highest on record.
State and local governments offered a record of at least $400 billion of the bonds in 2010, according to data compiled by Bloomberg dating to 2004. Overall issuance, which includes variable-rate debt, climbed to $453.7 billion, up from $443.6 billion in 2009, Bloomberg data show.
The expiring Build America Bonds subsidy and the limited suspension of the alternative minimum tax helped boost this year’s volume, said Howard Cure, director of municipal research for Evercore Wealth Management LLC in New York, which has about $2 billion of assets under management. The end of those initiatives may limit issuance in 2011, he said.
“There was a rush to avoid the risk of not having the programs available,” Cure said. “This year was a bit of an aberration and has eaten into the issuance for next year.”
California sold $10.5 billion in bonds this year, about 60 percent less than in 2009, Bloomberg data show, as its budget was delayed for more than three months. New York City dropped its borrowing 18 percent to $5 billion in 2010 from $6.1 billion last year.
The Build America program, which includes a 35 percent federal subsidy on interest costs, expires today. Issuers across the U.S. moved up planned sales to this month to beat the deadline, making the last three months of 2010 the biggest quarter for Build Americas since their April 2009 inception, Bloomberg data show.
Build America Program
The securities were created under President Barack Obama’s stimulus legislation as a means of driving down borrowing costs for localities and funneling money to job-creating construction projects. More than $187 billion of them have been sold.
Of that total, about $123 billion have come this year, funding clean-water projects in Ohio, highways in Kansas, dormitories at Rutgers University in New Jersey and a new bridge spanning the San Francisco Bay.
California sold about $5.5 billion in Build Americas, the most of any issuer, Bloomberg data show. Illinois is second, with $3.2 billion, followed by New York City’s $3.1 billion.
Chicago, 14th overall, was the second-largest city issuer, with about $1.6 billion of the federally subsidized debt sold.
California brought about $4.5 billion in taxable and tax- exempt debt to market in November after the state’s budget was a record 100 days late because lawmakers disagreed on how to close a $19 billion gap. The spending plan for the year that ends in June is out of balance by $6 billion, according to the state’s Legislative Analyst’s Office.
New York City’s projected budget deficit for fiscal 2012 may widen by $2 billion, to $4.5 billion, because cuts in state aid may be greater than forecast, Budget Director Mark Page said Dec. 6. The reduction in the city’s general-obligation borrowing doesn’t mean the city was using less debt to finance operations, Cure said.
“There were plenty of city enterprises that sold a lot of debt,” he said. “General obligations were down, but others were very active.”
New York City’s Transitional Finance Authority, Metropolitan Transportation Authority and Municipal Water Finance Authority are ranked fifth, seventh and eighth in issuance nationally, Bloomberg data show.
Municipal issuance in 2011 may drop to about $340 billion, Citigroup Inc. analysts said in a Dec. 13 research note. JPMorgan Chase & Co. analysts wrote on Nov. 24 that sales would drop to $345 billion without Build America Bonds.
A change in the political tenor with 30 new governors taking office may lead to more fiscally conservative policies and fewer debt sales, Cure said.
“There are a lot of places very cognizant of their budget woes,” Cure said. “It’s a perception issue. There’s a general philosophy they shouldn’t be borrowing as much.”
Following is a description of a pending sale of U.S. municipal debt:
METROPOLITAN WATER RECLAMATION DISTRICT OF GREATER CHICAGO, a wastewater utility that serves more than 5 million people, plans to sell as much as $500 million in taxable and tax-exempt debt next year. The offering will need to be re-authorized in January, so a new pricing date hasn’t been set, according to acting Treasurer Mary Ann Boyle. The bulk of the issue will be tax-free bonds, she said. The securities are top-ranked by all three major credit-rating companies. (Updated Dec. 28)
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