The “Investing” column of June 14, “Municipal bond defaults might be next crisis,” raises some valid
points, but portrays municipal bonds in such a manner that is too general. Further, investors in Indiana bonds should take
comfort in the absence of credit-crisis situations.
I am squarely with Skarbeck in his concerns about the growth of pension obligations, but I would add other post-employment benefit obligations, such as retiree insurance and health care. The realities of these commitments need to be in our headlines, and they need to be a focus of taxpayers and public leaders across the country. The growing price tag of the commitments to retirees is a looming cloud for a number of states and local governments, while many governors, treasurers, fiscal administrators and legislative bodies are out in front of this and have been for some time.
Several examples of challenged credits—such as Harrisburg, Pa., and Jefferson County, Ala.—are cited [as having] municipal bond defaults. These issuers, and others scattered across the country, each have their own, unique set of circumstances. In certain cases, the credit concerns have gone unaddressed, lingering and building for nearly a decade. In a number of situations, little digging is required to uncover a sequence of managerial and/or legislative missteps. Strong fiscal management and sound decision-making help avoid the path that leads to crisis situations, such as the consideration of bankruptcy-filing or receivership.
In Indiana, we are fortunate to have no such troubled credits, nor are there any that seem to be heading in that direction. In fact, our state’s general creditworthiness is holding up well, and there is acknowledgment of how the state is responding to economically sensitive revenue volatility.
At the local level—cities, towns, special districts and counties—there is belt-tightening, to be sure. We’re also hearing about school corporations’ budget trimming and, in some cases, program cuts. We need to keep in mind that Indiana local entities are still working through the implementation of property tax reforms. Even with the existing set of fiscal issues, the creditworthiness of state and local Indiana bond issues tends to be relatively strong.
Skarbeck wisely advises municipal bond investors to be vigilant in their credit analysis and understanding of what they are holding or considering for investment. Each municipal bond credit is its own story. In Indiana, our stories are good—even encouraging—relative to how some credits are performing in other parts of the country.
Kevin D. Taylor
Executive vice president, public finance
City Securities Corp.