Desert Hot Springs Reprises Tottering-on-Brink Act: Muni Week

A few years ago, it appeared, America’s cities were in free fall and everyone freaked out.

Then, everyone stopped. Defaults have proven rare, investors are elevating the price of the riskiest debt and cities are on the mend.

In Desert Hot Springs, they freak out still.

The 28,000-person resort was a trendsetter: In 2001, it was the first California city to file for bankruptcy protection.

Officials are trying to avoid a repeat performance. By March, as the city faced a $3 million budget shortfall, the council asked voters to approve a tax increase on vacant lots. On June 3, voters shot it down.

Tomorrow, the city council will consider cutting about $1.5 million from its budget. Among the options: Disbanding the police force, leaving public safety to the county sheriff.

If cost-cutting fails, anyone owed money by the town, known for bubbling mineral springs, may take a bath.

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Fulton County, Georgia, which includes the capital city of Atlanta, may begin its own tax revolt, just not the kind beloved by the small-government crowd.

The Republican-led state last year barred the most populous county from raising property taxes until next year.

County officials say lawmakers overstepped their bounds. On June 18, they are meeting to consider raising the real-estate levy for the first time since 1991. The city’s budget writers assumed the tax increase will pass. Supporters say it’s needed to keep vital services; foes say it lets the county live beyond its means.

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In Austin, home town of Whole Foods Market Inc., they call it Dillo Dirt. In Baltimore, it’s Orgro. What is it? You really want to know? Anything that gets flushed down the toilet, that’s what. It’s converted into compost for use in the garden.

Municipal-bond investors will soon have a chance to get in on this exciting new product that’s as old as life itself.

As Brian Chappatta and Toluse Olorunnipa report today, Florida’s Orange County Industrial Development Authority plans to offer $62 million of unrated debt next week for a facility that works such alchemy. The malodorous initiative, they say, may still come up roses for high-yield investors, who have been inundated with cash for weeks.

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The Volcker Rule, released by U.S. regulators in December to clamp down on banks using their own capital to bet on securities, said they were no longer allowed to run tender-option bond programs.

Banks looked for a way to keep the funds in business as a draw for investors looking to make leveraged bets on muni bonds. They appear to have succeeded. Last week, Bank of America Corp.’s Merrill Lynch sold the first tender-option bond that does so, according to Moody’s Investors Service. It’s a good thing, says the ratings company. Keeping the $75 billion niche alive will stoke appetite for long-term bonds.

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Last week, 10-year municipal-bond yields were little changed, rising 0.07 percentage point to 2.4 percent.

The Federal Open Market Committee meets June 18 to consider its benchmark interest rates. The median forecast has overnight lending rates, now targeted at zero to 0.25 percent, unchanged at a quarter percent through January.

Among the biggest borrowers this week: The Texas Transportation Commission, which is selling $900 million of bonds to take advantage of low rates to refinance debt.

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New York was a leader in the war on drugs, with minimum sentencing guidelines adopted in 1973 under Republican Governor Nelson Rockefeller that became a model nationally and helped fuel a prison boom. The legislature is considering making a bit of a peace, with marijuana at least.

Twenty-two states and the District of Columbia, where city leaders agreed to make lighting up a minor offense, have allowed marijuana sales for medical reasons since California became the first in 1996. New York isn’t one of them.

Governor Andrew Cuomo is negotiating with lawmakers over legislation that would establish a tightly regulated medical marijuana program in the third most-populous state.

To contact the reporter on this story: William Selway in Washington at wselway@bloomberg.net

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

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