Voters Pass at Least $15.5 Billion of Local-Debt: Muni Credit

U.S. voters from California to Florida passed at least $15.5 billion of bond issues with interest rates on municipal debt close to the lowest since the 1960s.

Local governments sought approval for about $37 billion of borrowings yesterday, 45 percent less than in 2008. It’s the sharpest drop in six decades for a presidential election year.

“There is a reluctance to commit to new ongoing spending given the uncertainty of revenue,” said Tracy Gordon, a state and local-finance economist with The Brookings Institution, a nonprofit public-policy group in Washington. “Similarly, there is a hesitancy on the part of voters to incur debt when they are still recovering from the recession.”

At least 18 of the 20 largest issues up for consideration received authorization, data compiled by Bloomberg show. Two were too close to call. The average pass rate in presidential election years since 1948 is 76.3 percent, according to New York-based Ipreo, a financial-market information provider.

The vote tally, dominated by debt for schools in San Diego, Houston and Miami and highway construction in Arkansas, represents a decline from the $67 billion put to voters in 2008, according to Ipreo.

Budget Gaps

Even as municipal yields are close to the lowest since 1967, cities and states are hesitant to take on debt as they rebound from the 18-month recession that ended in 2009. Municipal borrowing fell in 2011 for the first time since 1996, according to Federal Reserve data.

States had to close cumulative budget deficits exceeding $500 billion in the past four years as the flagging economy sapped revenue, according to the Washington-based Center on Budget & Policy Priorities. While revenue has grown for 10 straight quarters, collections are still below the 2008 peak, according to the Nelson A. Rockefeller Institute of Government in Albany, New York.

In yesterday’s ballots, New Jersey sought funding for higher education, while Dallas had the largest borrowing for consideration for a city, including funding for sewer improvements.

‘Issuer Austerity’

Voters and elected officials remain reluctant to increase borrowing even as revenue and local-employment improve, said Matt Fabian, managing director of Concord, Massachusetts-based Municipal Market Advisors. Muni issuers face another year of rating cuts outpacing increases, he said.

“Issuer austerity is alive and well,” said Fabian. “Public officials are not getting rewarded by voters for bringing large capital projects.”

The nationwide vote tally is the least since at least 1948 for a presidential ballot year. California removed a water bond this year as Democratic Governor Jerry Brown lobbied for new taxes to avoid budget cuts.

Municipalities have reduced borrowing for new projects. Of the $307 billion in issuance through Oct. 25, about 63 percent has been to retire higher-cost debt, the highest percentage since 1993, according to Bank of America Merrill Lynch data.

As far as net new municipal sales, “we continue to shrink,” said John Loffredo, co-head of MacKay Municipal Managers in Princeton, New Jersey, which oversees $6.8 billion.

“That trend is going to continue as voters across the country continue to feel the need to keep debt at a low level,” said Loffredo, speaking about the low amount of bond referendums.

Following are the largest bond issues before voters, according to Ipreo, and reports from local press or unofficial tallies from election districts:

San Diego Unified School District       $2.8 billion   Pass
Houston Independent School District     $1.9 billion   Pass
Arkansas                                $1.3 billion   Pass
Miami-Dade County School Board          $1.2 billion   Pass
Chaffey Joint Union High School District
(California)                             $848 million  Pass
The Metropolitan District (Connecticut)  $800 million  Pass
Alabama                                  $750 million  Pass
New Jersey                               $750 million  Pass
Coast Community College District
(California)                             $698 million  Pass
Dallas                                   $642 million  Pass

To contact the reporters on this story: Darrell Preston in Dallas at dpreston@bloomberg.net; Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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