0Congress Compromises On Stimulus Bill
The following table provides a brief outline of the major spending provisions of the bill that may affect infrastructure finance and the municipal bond market. There are many other provisions of the bill, including increased contributions to social security, extended unemployment benefits, and numerous tax credits, that, while not directly related to infrastructure finance, may stimulate the economy sufficiently to free up the credit markets and reinvigorate the housing and municipal bond markets.
SPENDING HIGHLIGHTS OF STIMULUS BILL | |
Area |
Provision |
Infrastructure Assistance |
|
Energy and Communication |
|
Environmental and Science |
|
Education |
|
Health Care |
|
Housing |
|
Homeland Security and Law Enforcement |
|
0California AG Condemns Cash-Out Refundings
California school districts finance much of their school construction with general obligation bonds, the issuance of which requires the approval of 55% of district voters. In recent years, economic conditions have allowed many districts to repay their outstanding general obligation bonds with refunding bonds that produce additional proceeds for the district. These so called “cash-out refundings” have attracted critics who contend that the school districts are circumventing the will of the taxpayers by generating more bond proceeds than were originally approved by voters. California Attorney General Jerry Brown recently issued an opinion supporting the critics and condemning the use of cash-out refundings. In his opinion, the Attorney General notes that bonds used in cash-out refundings create “new indebtedness for purposes of the constitutional debt limit, and therefore require new voter approvals before they may be issued.” Although the opinion is not legally binding, most industry participants expect that school districts will avoid future cash-out refundings in deference to the Attorney General’s position.
0Municipal Bonds Versus Public/Private Partnerships
The California State Treasurer Bill Lockyer recently published an editorial in the Sacramento Bee touting the tried-and-true municipal bond system as the key to reinvigorating California’s economy and preferable to the increasingly popular public/private partnership model. Lockyer argues that using tax-exempt municipal bonds to finance infrastructure saves California taxpayers millions of dollars each year – savings that would be forfeited if private enterprise is permitted to share the load or the wealth. According to the Treasurer, “[The private sector] will provide capital only if it receives a profitable return, generally 15% to 25%. The state typically pays 5% or less on municipal bonds, so you have to wonder how the public benefits from private equity infrastructure.”
0Bond Market Indicators
The following tables highlight certain economic indicators that may provide insight into the municipal bond market
As of 01/15/2009 |
As of 02/15/2009 | |
Yield on 10-Year Treasury Notes: |
2.18% |
2.80% |
Yield on 30-Year Treasury Bonds: |
2.86% |
3.52% |
Yield on 10-Year Municipal Bonds: |
3.54% |
3.18% |
Yield on 30-Year Municipal Bonds: |
4.80% |
4.80% |
Gross Domestic Product (4Q versus 3Q, 2008): |
–3.8% |
Consumer Price Index (12/08 versus 11/08): |
–0.7% |
Existing Home Sales (12/08 versus 11/08): |
6.5% |
New Home Sales (12/08 versus 11/08): |
–14.7% |
Housing Starts (12/08 versus 11/08): |
–15.5% |
Sources:
Gross Domestic Product: U.S. Bureau of Economic Analysis (www.economicindicators.gov)
Consumer Price Index: U.S. Bureau of Labor Statistics (www.bls.gov)
Existing Home Sales, New Homes Sales, and Housing Starts:National Association of Realtors (www.realtor.org)
Bond and Note Yields: Bloomberg (www.bloomberg.com)
Contacts
- /en/people/s/sibble-edward-matson
Edward Matson Sibble
Of Counsel