Bond Votes Fall Most Since ‘48 as Localities Scrimp: Muni Credit

California Governor Jerry Brown
California removed a water bond from the 2012 ballot as Democratic Governor Jerry Brown seeks new taxes to avoid budget cuts. Photographer: Ken James/Bloomberg

U.S. local governments are asking voters from San Diego to Alabama to approve $35 billion of bond issues, a 47 percent drop from the last presidential election year. It’s the steepest decline since at least 1948.

The votes tomorrow are dominated by debt for schools in San Diego, Houston and Miami and a $750 million New Jersey issue for higher education, according to data from Ipreo, a New York-based provider of financial-market information.

States and municipalities are reluctant to add obligations as they recover from the longest recession since the 1930s. Local-government borrowings dropped in 2011 for the first time since 1996, according to Federal Reserve data.

“There is still a hesitancy to take on more debt,” said Howard Cure, director of municipal research in New York at Evercore Wealth Management LLC, which oversees $3.7 billion. “Many states are still struggling with balancing their budgets.”

States closed cumulative budget deficits exceeding $500 billion in the past four years as they struggled to rebound from the 18-month recession that ended in 2009, according to the Center on Budget & Policy Priorities. While revenue has grown for 10 straight quarters, collections are below the 2008 peak, according to the Nelson A. Rockefeller Institute of Government in Albany, New York.

California Voting

The vote tally marks a decline from $67 billion four years ago. California removed a water bond from the 2012 ballot as Democratic Governor Jerry Brown seeks new taxes to avoid budget cuts.

Municipalities have reduced borrowing for capital 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.

Municipal interest rates are close to the lowest since the 1960s, fueling the refunding. In trading last week, yields on benchmark 10-year munis fell 0.02 percentage point to 1.68 percent, after three weeks of increases, data compiled by Bloomberg show.

Government Need

“State and local officials have become more cautious about proposing new debt because there is an overall question of how much government people are wanting,” said Chris Mier, chief muni strategist at Loop Capital Markets in Chicago.

A year ago, U.S. voters considered $16.5 billion of bond issues and approved 87 percent, the largest percentage in five years, according to Ipreo data.

The last time California voters were asked to approve bond issuance in a statewide election was in 2009, when they rejected a proposal to borrow $5 billion backed by lottery proceeds. That ballot came amid consecutive annual budget deficits that exceeded a combined $100 billion, which curbed enthusiasm for debt.

California lawmakers in July voted to pull an $11 billion water-bond from the ballot because of concern that it might jeopardize Brown’s tax-increase proposal. The bond money would finance an overhaul of the state’s public-water works. Brown is asking voters to temporarily raise state sales and income taxes on the wealthy to eliminate a $15.7 billion budget deficit.

Bygone Days

State Treasurer Bill Lockyer plans to offer about $5.3 billion of bonds this fiscal year, which began July 1, about a quarter of California’s sales in 2009.

“Those $20 billion years of California bond issuance are behind us,” said Alan Schankel, managing director of fixed-income research at Janney Montgomery Scott LLC in Philadelphia. “State legislatures and governors have gotten more conservative, so it would follow that there would be less bond requests.”

In New Jersey, where voters are dealing with the aftermath of Hurricane Sandy, Republican Governor Chris Christie and lawmakers are pushing for the state’s first general-obligation bond issue for higher-education in almost 25 years.

In a poll this month, most voters said they supported the $750 million bond question. Still, after the hurricane slammed into the state on Oct. 29, some may hesitate to back the plan at a time when other capital projects may take on more urgency, Cure said.

Following are the five largest bond issues before voters, according to Ipreo:

San Diego Unified School District            $2.8 billion
Houston Independent School District          $1.9 billion
Miami-Dade County School Board               $1.2 billion
Chaffey Joint Union High School District
(California)                                 $848 million
The Metropolitan District (Connecticut)      $800 million

Following are pending municipal-bond sales:

METROPOLITAN TRANSPORTATION AUTHORITY, operator of New York City’s mass-transit system, plans to sell $484 million in revenue bonds as soon as Nov. 8, data compiled by Bloomberg show. (Added Nov. 5)

HAWAII is set to issue $800 million in general-obligation debt as soon as Nov. 12. (Added Nov. 5)