Muni Think

As California’s chief financial officers, we are writing to inform you that Orange County Treasurer-Tax Collector Chriss Street [in the Sept. 16 article “Analysts, Bankers and Buyers Remain Upbeat on Muni Credit”] appears to have a ­fundamental misunderstanding about the structure of priority payments under California law.

Caitlin Devitt and Yvette Shields’s Sept. 15 piece “Final Prairie State Deal Looms” tells only half the story behind the potential fiasco to the bond market and to ratepayers in the Midwest.

When President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, he empowered — for the first time — an agency specifically responsible for looking out for the interests of state and local governments regarding their capital markets activity.

Tax-exempt municipal bonds have had a stellar record of safety against payment defaults, second only to U.S. Treasury bonds.

The dramatic changes in the municipal securities market leading toward a “new normal” are daunting. When significant changes are enumerated, even when one is aware of them, they are still surprising. Because the market environment is evolving rapidly, and market re-adjustments will continue well into the future, the “new normal” does not yet exist.

The Bond Buyer on Aug. 16 published a commentary of mine called “Pension 'Reform’ Plus Smart Lawyers May Help Save States” (the headline was chosen by The Bond Buyer). The main point of the commentary was that states, having attempted to balance their budgets over two to three rough fiscal years, had run out of the easier fixes, and would now turn more aggressively towards pensions as a potential source of budgetary savings.

At the conclusion of his Aug. 16 commentary in The Bond Buyer, Christopher Mier asks us to believe that with the aid of “creative lawyering,” rewriting pension contracts will solve the fiscal problems of Illinois and other states.

Whether or not you are in the camp of those who expect to see increased numbers of municipalities filing for Chapter 9 bankruptcy protection, it is important for every muni bond investor, and those who advise them, to have a basic understanding of the benefits available to a municipality seeking relief under Chapter 9 and the role of creditors in such a case.

States continue to grapple with ongoing budget imbalances.

In passing the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress has taken the first step in reforming the financial system.