Florida Bond Finance Director To U.S. House Financial Services Panel: Florida’s Current Outstanding Debt is $25 Billion
May 22, 2009
Florida State Board of Administration Director of Bond Finance J. Ben Watkins testified yesterday, May 21, 2009, at a U.S. House Financial Services Committee hearing that, inclusive of the Florida Hurricane Catastrophe Fund, the State currently has approximately $25 billion in outstanding debt and typically issues around $2.5 billion in bonds a year with 15 to 20 transactions.
Mr. Watkins’ testimony was part of a two-panel hearing entitled “Legislative Proposals to Improve the Efficiency and Oversight of Municipal Finance.” To view his testimony, click here.
The panels included the following speakers (click on a name to view the respective written testimony):
Panel 1
- Ms. Martha Mahan Haines, Chief, Office of Municipal Securities, U.S. Securities and Exchange Commission
- Mr. Bill Apgar, Senior Advisor to the Secretary, Department of Housing and Urban Development
- Mr. David W Wilcox, Deputy Director, Division of Research & Statistics, Board of Governors of the Federal Reserve System
- The Honorable Thomas C. Leppert, Mayor of Dallas, Texas on behalf of the U.S. Conference of Mayors
- Mr. Ben Watkins, Director of State of Florida Division of Bond Finance, State Board of Administration, Florida
Panel 2
- Mr. Michael J. Marz, Vice Chairman, First Southwest Company on behalf of the Regional Bond Dealers Association
- Ms. Laura Levenstein, Senior Managing Director, Moody’s Investors Service
- Mr. Keith Curry, PFM Group, Managing Director
- Mr. Alan B. Ispass, PE, BCEE, Vice President and Global Director of Utility Management Solutions, CH2M Hill
- Mr. Sean W. McCarthy, President and Chief Operating Officer, Financial Security Assurance, Inc.
- Mr. Bernard Beal, Chief Executive Officer, MR Beal & Company on behalf of The Securities Industry and Financial Markets Association
- Ms. Mary Jo Ochson, CFA, Senior Vice President, Chief Investment Officer for the Tax-Exempt Money Market and Municipal Bond Investment Groups and Senior Portfolio Manager, The Federated Funds
- Mr. Mike Allen, Chief Financial Officer, Winona Health on behalf of Healthcare Financial Management Association
- Mr. Sean Egan, Managing Director, Egan-Jones Ratings Co.
Media coverage of the May 21 hearing included the following stories:
- Fed Tells Congress It’s Reluctant to Guarantee Munis (text below)
May 21 (Bloomberg) — The Federal Reserve, echoing comments from U.S. Treasury Secretary Timothy Geithner, told a congressional committee it is reluctant to extend guarantees to California and other municipal market borrowers struggling to sell bonds.
The Fed is “quite concerned” about guaranteeing municipal bonds, David Wilcox, deputy director of the Fed’s research and statistics division, told the House Financial Services Committee today. Among its reservations, the Fed could end up holding long-term municipal securities that it guaranteed, incurring losses if it had to sell the debt as it attempts to shrink its balance sheet, he said.
“The Federal Reserve has important misgivings about assuming such a role in light of the potential for decisions about the provision of credit to states and municipalities to assume a political dimension,” Wilcox said. He urged Congress to “narrowly” tailor any program if it does proceed, ensuring a quick exit for the government.
The House committee, chaired by Massachusetts Democrat Barney Frank, held hearings on four municipal finance bills, including one authorizing the Fed to guarantee repayment of variable-rate bonds and short-term notes. Another measure would direct the Treasury Department to reinsure $50 billion of municipal bonds through 2015. Insurers, including MBIA Inc. and Ambac Financial Group Inc., lost top ratings, limiting the value of that coverage.
TARP Limits
Geithner similarly told a House Appropriations subcommittee today that the U.S.’s $700 billion Troubled Asset Relief Program, or TARP, can’t be used to aid cities and states facing budget crises. The law “does not appear to us to provide a viable way of responding to that challenge,” in part because the money is reserved for financial companies, he said.
The Treasury chief said he will work with Congress to help states such as California that have been battered by the credit crunch and are struggling to arrange backing for municipal bonds and short-term debt.
State and federal lawmakers have pressed the Fed and Treasury to extend support to municipal securities since the TARP was introduced last year. Municipal bond sales tumbled after the bankruptcy of Lehman Brothers Holdings Inc. in September, according to data compiled by Bloomberg.
Washington Says ‘No’
California Governor Arnold Schwarzenegger said today he was scrapping a plan to borrow $6 billion in two-year notes to help pay the state’s bills after he failed to secure help from Washington. The state, which is rated A by Standard & Poor’s, faces a $24 billion gap after voters rejected a series of budget-balancing ballot measures this week.
California and other municipal borrowers have sought federal backing as a substitute for banks that have cut back guaranteeing short-term notes and variable-rate demand bonds, which often mature in 30 years. The guarantees are needed to assure investors they can sell the securities when the notes mature or rates on the variable-rate bonds periodically reset.
“Market access is still an issue for small and infrequent issuers,” Ben Watkins, Florida’s director of bond finance, told the House Financial Services Committee today.
Fed Chairman Ben S. Bernanke said in a March 31 letter to Frank and other members of the House that a $1 trillion program under the TARP for reviving the asset-backed securities market wasn’t appropriate for variable-rate demand notes.
Four Bills
Frank has been pressing for changes in the municipal market. One of the four bills discussed at today’s hearing would revive his legislation from last year prohibiting credit rating companies from evaluating municipal debt using standards that differ from those used for corporate bonds.
Moody’s Investors Service plans to “move forward swiftly” with changes to its rating scale, so municipal bonds are no longer ranked lower than corporate debt with a similar likelihood of default, Laura Levenstein, a senior managing director at the New York-based company, told the committee in her prepared testimony.
The committee also considered legislation requiring state and local government financial advisers to register with the U.S. Securities and Exchange Commission. The measure would aim to curb so-called pay for play, in which advisers sell services to public agencies by currying favor among public officials.
Spencer Bachus, a Republican from Alabama and the ranking minority member of Frank’s committee, said today he would support the legislation.
Not ‘Huge’ Undertaking
Martha Haines, the head of municipal finance at the Securities and Exchange Commission, said, “It should not be a huge undertaking” to register the advisers. Keith Curry, a managing director at Public Financial Management, the industry’s largest adviser, said his company “does not quarrel” with the proposal; it objects to efforts by the dealer-run Municipal Securities Rulemaking Board to enforce any new regulations.
William Apgar, a senior adviser in the U.S. Housing and Urban Development Department, said his agency along with the Treasury and the White House is “finalizing” a program to help state housing finance agencies sell tax-exempt securities.
Congress approved $11 billion in new tax-exempt bonding authority for state housing finance agencies last year to spur home lending, which the agencies haven’t been able to sell because they can’t access the municipal market, Apgar said. He declined to say when the program would be unveiled.
To contact the reporter on this story: Michael McDonald in Boston at Mmcdonald10@bloomberg.net;
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