May 27, 2014
I hope everyone had a great unofficial kickoff to the Summer! This week I am going to start with a brief follow-on from last week’s commentary point around municipal issuance, move on to take a hard look at education spending (or lack thereof) and then speak to New Jersey’s revenue shortfall. On the education spending point, once you see the data you too may ask “how serious is the Federal government about education?”
Municipal Issuance Follow-Up
Last week, I offered my perspective on municipal issuance in the coming years – that we may be experiencing a “new normal” and that the underlying fundamentals do not support increased issuance and more likely decreased issuance. Last Thursday, Tom Kozlik and Alan Schankel of Janney Capital Markets issued their Municipal Bond Market Monthly, The Rime of Municipal Bond Issuance. Seems I’m not alone. A few bullets from the report’s summary and a link to the full report. http://www.janney.com/institutions–corporations/fixed-income-capital-markets/research–strategy/municipal-bond-market-monthly . Definitely worth reading.
• The Rime of Municipal Bond Issuance will drop 2014 total municipal bond sales to between $250 and $275 billion- we cite six reasons why.
• Factors include: higher interest rates; use of direct bank loans; austerity measures; less flexibility in spending; political and voter attitudes; and the lack of broad public policy supporting infrastructure spending.
• The same factors will cause issuance to fall further in the next one to three years.
Each year, around this time, the US Census Bureau provides us with some very interesting and important data around education spending in the US. I am going to provide some data points and insight around education revenue sources – some of which may surprise you (or not) and some of which may alarm you. For those of you focused on politics, the results and underlying data may provide some interesting fodder.
This first table identifies the source of education funds and the change in revenue by source for 2012 v. 2011. The last column gives you a sense of the percent of revenue coming from the respective sources and which are going down and up. Despite all the rhetoric from Washington about the importance of education, take a look at the decline in Federal revenue. Who is left holding the bag – State and local governments.
The data we track in DIVER Analytics and via our DIVER Data Services platforms can offer you incredible insights into State by State and county by county revenue source breakdown. Here is a sampling (by county) that may pique your curiosity or, better yet, make you wonder how we (the US) will better educate our youth. The first table provides a look at overall revenue winners and losers whereas the second table identifies winners and losers by source of School District Revenue. As you look at the second table, be mindful of State and local politics and taxation decisions. The devil is certainly in the details and I’ve only begun to scratch the surface. Analytics and Data Services clients have much of what they need or can contact us to help get on with their analysis.
As you contemplate the above, important data points to consider are around Housing Prices and Assessed Values. Consider Median Home Value as reported by the US Census Bureau – of the 825 counties for which they report, 326 or 39.5% have seen an increase from 2011 to 2012. Another source of housing price data is the FHFA Housing Price Index.
Looking at Assessed Values for the period 2012 and 2011, we know that 2,107 counties have seen the Assessed Values rise. That, you may say, is good at least when it comes to making up for lost Federal dollars for schools. However, the average increase in Assessed Values for the period 2011 to 2012 across the US is 3.14% (refer back to the first table for what’s been lost on average). For Analytics subscribers, use the Filter Module to identify areas and issues of concern (combining some of the education and housing analysis above). Data Services clients can access this data via their current feed, have it added to their feed or have us perform the analysis as part of your service.
New Jersey’s ‘Surprise’
By now, municipal market participants are well aware of the NJ revenue shortfall (and NJ is not alone) and I suspect, with Governor Christie’s recent announcement to change course on his plan to make a $1.58 billion contribution to the pension system (now saying the State will make a payment of about $681 million), he will not make many friends in labor or amongst investors. In baseball parlance, an $875 million revenue shortfall constitutes a serious “swing and a miss.” As reported, the shortfall is primarily due to a drop in State income tax changes following changes to federal tax law (how can you miss that one?). Perhaps this shortfall shouldn’t have been such a surprise if one looked to some of the drivers of the economy in the State.
I start with the New Jersey Trend Geo Score. The Geo Score is a measure of the relative economic well-being of each State (it is also available for all counties and about 350 cities). The Trend measures the relative change over the prior 12 months. The blue line represents the mid-point of the Geo Score – 5 of 10. You will note that New Jersey’s trend has not been above the mid-point since, at least, April 2012 (in other words, NJ has been trending worse than most of the other States since then).
In case you think I am picking on New Jersey or Governor Christie, I’m not. New Jersey is not alone. Twelve other States have the same Geo Score Trend characteristic.
While the focus on the NJ shortfall is on the actions the Governor is planning to take around pension plans, I would suggest a critical factor to contemplate is simply the economic well-being of New Jersey and other States. If the economy is performing well, revenue shortfalls would not be the issue. More to come on Pensions and the economic well-being of other locations. For Analytics’ subscribers, try using the Filter or Data Access modules or side by side mapping. For Data Services clients, you have the detailed pension data. If you don’t have the Geo Score data, let us know or we can simply run the analysis for you.
On the Road: With the short week, travels are limited. Gregg will be in NYC Thursday and Boston June 3 and 4. Mike, Pete and Mark will be in and around Connecticut.
Have a great week.
Gregg L. Bienstock Esq. CEO & Co-Founder, Lumesis, Inc.
Data Released Last Week: Education:
- Enrollment, Revenues, Spending & Debt, County, FY 2012 Population #, Change %, City/Town, 2013
- Weekly Initial and Continued Jobless Claims, State, 05/10/2014
- Philly Fed Coincident Index Change (1 Month), State, Apr 2014
- Philly Fed Coincident Index, State, Apr 2014