Ipreo in the News
19 October 10
Bonds Face New Negativity in a Ballot-Box Backlash: Joe Mysak
Oct. 20 (Bloomberg) -- This may be the worst year for bonds on ballots in two decades.
Americans going to the polls on Nov. 2 will be asked to vote on congressional representatives, senators, governors, treasurers, state lawmakers, tax initiatives and $16.8 billion in municipal bonds.
The voters aren't happy. The recession was too long and the recovery too slow. The answer, at least according to the e-mails I got on a column about New Jersey Governor Chris Christie's decision to cancel a new railroad tunnel under the Hudson River, is: no, no, no and no.
The people who write e-mails, most of them, liked Christie's response to a proposed tunnel whose cost is creeping higher and higher. New Jerseyans would have to foot the bill. Even non-New Jerseyans say no more taxes. No new borrowing. No tunnel. No more government. Oh, and another thing? It's all the public labor unions' fault.
The new negativity may extend to those bonds on the ballots, and that would be a big turnaround. The 2000s were a record decade for bond approvals, with voters passing almost $275 billion of the bonds at November elections. In percentage terms, the 2000s lagged only the 1980s, with voters saying yes about 81 percent of the time versus 83 percent for the 1980s.
The worst decade for bond approvals was the 1970s, when voters passed about 49 percent of those they were asked to consider.
Ghost Towns
Would anyone be surprised if new borrowing got a drubbing? The 2000s was the decade of home ownership, of the boom in the suburbs beyond the suburbs, celebrated by New York Times columnist David Brooks in his book "On Paradise Drive" in 2004. All those new communities needed roads and schools and sewers and ballparks, and the people who lived there approved bonds by the boatload.
Now a lot of those people have lost their properties to foreclosure, many are unemployed, and even more have seen their 401(k) retirement savings devastated. They're not feeling so expansive. No more borrowing!
The approval ratio on bonds has been declining for years now, perhaps a little slower than most people thought it would. In 2006, voters approved 88.6 percent of the record $78.6 billion in new borrowing they were asked about. That fell to 83.7 percent in 2007, to 82.1 percent in 2008, and to 77.5 percent in 2009, according to New York-based Ipreo Holdings LLC. The lowest approval ratio in the past two decades was 40.6 percent in 1990.
Moral Obligations
In the big picture, such expressions of fiscal rectitude have little impact on the amount states and municipalities borrow, which has topped $400 billion in three of the past five years. Public officials long ago found ways to circumvent the finicky whims of the voters, with things such as authority- issued revenue bonds and moral-obligation bonds.
But it's the thought that counts, and those thoughts are dark these days, judging from the sometimes anonymous, often profane e-mailers. The public is finally paying attention to public finance. If I were a mayor, I wouldn't champion the construction of a sports stadium or convention center right now.
People are especially paying attention to public employees' retirement plans, which some experts predict will bankrupt the nation. Thanks to the revelation of the $800,000 city manager in Bell, California, the public is also very concerned with, and surprised by, the salaries made by everyone from government administrators to firefighters.
Government Backlash
The backlash against state- and local-government workers probably began at some point last year, when people realized that, for all the wailing politicians were doing about firing employees, they weren't following through. For their part, many of the unions representing these workers proved tone-deaf, resistant to concession.
That means the battle is joined. Shrinking government may be impossible at the federal level. At the state and local level, there's going to be a brawl.
In the meantime, voters will have their say on $16.8 billion in bonds. My bet the answer will be no, no, no and no.
(Joe Mysak is a Bloomberg News columnist. The opinions expressed are his own.)
--Editors: David Henry, James Greiff.
