Crying Wolf on Muni Defaults: 60 Minutes and Wall Street Analyst Miss the Real Story
WASHINGTON, Dec. 22, 2010 /PRNewswire-USNewswire/ -- Christopher Hoene, Director of Research and Innovation at the National League of Cities (NLC) refutes a 60 Minutes' report that portrays the municipal sector as increasingly insolvent going into 2011.
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Hoene made his comments on NLC's blog CitiesSpeak (www.citiesspeak.org).
Highlights of his response include:
"'Tis the season of white elephant gifts, a popular holiday game where participants exchange gifts whose value exceeds their usefulness. Unfortunately it is also the season of Wall Street analysts crying wolf about the municipal bond market – warning of white elephant projects and near-bankruptcy state and local governments.
"Wall Street analyst Meredith Whitney leads the way, saying most recently on CBS' 60 Minutes that, 'There's not a doubt in my mind that you will see a spate of municipal bond defaults...You could see 50 sizeable defaults. 50 to 100 sizeable defaults. More.' So, which is it Ms. Whitney? 50? 100? More? One wonders if the interview had gone longer just how many municipal defaults she might have predicted.
"The overwhelming majority of local and state governments are balancing their budgets and meeting their debt obligations. The careless statements of Ms. Whitney and the sky-is-falling media coverage are painting an inaccurate and misleading picture of the municipal sector.
"The municipal bond market remains strong for a variety of reasons: Local and State debt levels are low; borrowing is longer-term and predictable; local and state governments have balanced budget requirements; rules require preemptive steps to prevent defaults.
"Sky-is-falling reports about the municipal bond market are a distraction from a much more common and economically significant story about cuts in other arenas – cuts in services that impact the quality of life in communities; job losses in the public sector; cuts in pension and health care benefits for employees and retirees as local and state governments seek to rein in liabilities.
"Declining revenues have many local governments canceling or delaying infrastructure projects. Local and state governments comprise three quarters of U.S. infrastructure spending and debt financing has been the primary mechanism for funding the nation's system of public works.
"At a time when the country needs these jobs-producing projects more than ever, why are we wasting time focusing on the potential for a few, idiosyncratic municipal defaults?"
To read the blog in its entirety, please go to www.citiesspeak.org.
The National League of Cities is the nation's oldest and largest organization devoted to strengthening and promoting cities as centers of opportunity, leadership and governance. NLC is a resource and advocate for 19,000 cities, towns and villages, representing more than 218 million Americans.
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SOURCE National League of Cities
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