Fed Shows Muni Market Shrinking, but States are Adding Debt

Categories: Commentary |

March 30, 2015

This week, we check in on how quickly States and cities are submitting their CAFR’s and examine what the State filings are telling us regarding debt growth.

State’s CAFR Filing Speeds Unchanged; Cities are Filing Faster

Nearly all States have filed their Fiscal Year 2014 CAFR’s.  The DIVER CAFR Filing Index measures the number of days between the end of the fiscal year and the date of filing of the CAFR.  Why is this important?  While the speed of CAFR filing might seem like an obscure statistic, we believe it can be a good indicator of the quality of financial controls, reporting and management.

For the States that have filed so far, the average speed of filing is unchanged from last year.  There are, however, some individual differences State to State.  New Jersey is the one State that has not yet filed this year, but had already filed by this point last year (3/12/14).  Another “holdout”, California, filed last year on April 21 (in prior years California tended to file in the third week of March).

Cities this year are filing about 7% faster than in prior years.  A (dubious) most improved award goes to Stockton, CA, which filed on January 6 this year vs. July 1 last year.   Of the largest cities, Las Vegas (45 days faster) and Houston (21 days faster) showed significant improvement.

State Primary Government Debt Increasing but Pace Continues to Slow

A key data series we track from State CAFR’s is the total amount of Primary Government Debt.  While this measure lumps together multiple security packages and revenue streams, we believe it is a helpful measure of overall State borrowing.

For the States that have reported so far, the amount of Primary Government Debt increased by 1.2% between FY13 and FY14.  This is slightly slower than the 2.4% rate of growth the prior year.  This continues the trend of slowing debt growth since FY10.

This slowing, but still positive, rate of debt growth provides an interesting contrast to data provided by the Federal Reserve in its quarterly Financial Accounts of the United States Statistical Release (Flow of Funds).  The Fed data is the most frequently cited source for the changes in the amount of municipal bond debt outstanding.

While the Fed data seems to show a municipal market that has been shrinking steadily, the data gleaned from the State CAFR’s shows debt levels continuing to grow, but at a slower pace than previous years.

Because of the periodic methodology changes to the Fed’s data reporting and the inclusion of pre-refunded bonds in the Fed’s tally, we feel that the CAFR data is a better indicator of State debt levels.


The largest difference between the Fed data and the State CAFR data occurred in 2010.  The Fed data showed debt growth of 3%, but the CAFR data showed growth of 10%.  The large increase in Primary Government Debt reflects, in part, issuance of Build American Bonds during 2010.

California ($11b), New Jersey ($7b), Illinois ($6b), and Texas ($6b) reported large increases in debt during 2010.

The FY14 data reflects large State-to-State differences in debt growth.

Maine was the leader in percentage terms (26%).  This primarily reflects low debt levels.  Maine’s debt increased from $0.95b to $1.20b.  A big chunk of this was a $221mm bond issue secured by profits from Alcoholic Beverages Enterprise Fund used to fund payments for MaineCare services provided prior to 12/1/12.  If the Governor follows through on plans to use GARVEE’s as a funding source for $2b transportation plan.

Arkansas increased its general obligation debt outstanding by $561mm (69%) to fund transportation improvements.

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The chart below shows that most of the overall increase in State debt levels is attributable to a few States.

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In addition to being historically large issuers, all the States above (except New York) increased their debt at rates faster than the national average and faster than the rate of GDP growth.

While the overall municipal market may be getting less leveraged, the data on Primary Government Debt indicate that the States are getting more leveraged.


Have a great week,  

Michael Craft, CFA


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