Something I do is most likely unique amongst all who visit this web site. My name is on municipal bonds. I'm not talking about ownership--that's too easy. My name is on our paper bonds from the 1990's as an issuer of municipal debt. We have several "series" (years) of bonds, the last of which is 2005, the peak of the real estate boom in the US.
Much like a mortgage, my municipality is paying down its debt. This May, we will retire about 7% of our total outstanding debt. This payment is part of the amortization that should culminate in 2017 with the retirement of the last bonds. This year, we don't need to go to market with bond issues. Whatever financing we need to do, we can do with current revenue and/or reserves. We're operating within our means.
Our municipal district does not deal in exotic debt securities such as the latest slow motion train wreck, namely, auction-rate debt. We don't have any interest rate swaps. Although these have not explicitly been issues confronting us, my fellow board members and our financial advisor should know beforehand where I stand just by my personality. We sold boring, plain-vanilla bonds with coupons. Fixed principal, fixed interest rate. Seems like some other municipalities out there didn't learn from the Orange County, California fiasco in the mid-90s. Those who are too lazy to learn from history are condemned to repeat it.
Some of our issues are insured, but some older ones are not. I’ve been reading about municipal bond insurance companies facing bankruptcy because of their own forays into risky business. Whether they stay in business or not doesn’t concern me. I just pray that taxpayer money is not used to bail them out of their own bad decisions.
Naysayers might complain that my district is lucky in its timing. We needed financing when it was abundantly available (1995-2005), and we don't need it now when it's not. I counter with the fact that we knew, based on the disastrous experience of Texas in the 1980's, that bond issues might not always be favorably received. Something could go wrong at any time. Rules were put in place to help us safeguard taxpayer money for many years.
We did many unpopular things, like preserving a good balance sheet before cutting tax rates. Our tax rate is about half of what it was in 1992 ($1.25 to $0.61 per $100 assessed value), and our district is close to being built out. Still, I remain vigilant on keeping up our reserves. Better to budget conservatively and slowly cut the tax rate over time, than to look real good one year, only to quit the board before the feces hits the fan.
I can't speak for the finances of our district before 1994, when I became a board member. Our district was created in the early 80's. The mid-80's saw many Texas municipalities go broke with the oil bust. Perhaps that experience helped no-nonsense financial officers like me. Our district assumes no increase in property values. I don't take credit for such wisdom; whether it was previous board policy, or newly accepted Texas custom or law, is irrelevant. Somebody like me, in the mid-80s to the mid-90s, made this policy happen. I didn’t have to fight for this aspect of fiduciary responsibility. A predecessor(s) of mine did that for me, and I picked up where they left off.
By the way, I have a bet with a cross-town colleague of mine. In September of 2007, I he bet me that the median house price in League City, Texas, would drop 25% in one year. No way. There hasn't been a speculative housing boom in Houston in 25 years. What doesn't go up, can't come down. I look forward to eating his lunch.
I fight current battles, not those already won. My municipal (as opposed to city) battles involve refusing to refinance our debt into the distant future, and to fend off developers who want their cake and eat it too. Hopefully, my district will cease to exist nine years from now, when the last of our bonds is paid off. Maintenance functions should then be handed over to the city. Our municipal (but not city or county) property taxes should become zero. There are so-called conservatives out there who talk big. Many, however, don't walk the walk when there is a sweetheart deal with their name on it. I don't need this directorship to inflate my ego. Hypocrisy is not worth any amount of money or special favors. I don’t need to go with the flow, or be popular one year, only to risk looking stupid the next. I believe that the financial officers of Jefferson County, Alabama and many other governments are not like me.
Even if it means occasionally stomping on special interest groups, I like doing the right thing in service to my constituents. I am here speaking as an elected public official, not for the whole board. The point of this small story about an under-the-radar municipality with a $1.1 million annual budget is not about how great or smart we are. The point involves implementing financial discipline; avoiding overhyped “new” deals; carefully handling other people's money; and operating within a budget, not regardless of it. The debt we owe is declining at a rapid pace. Nevertheless, I am worried. Those who have fiduciary responsibility should always be worried. I worry that a devastating hurricane could destroy people's homes as well as their lives, causing a dip in the tax base. I worry about one-off events that I have never thought of. But for right now, we don’t need any needlessly complicated contracts. Also, we don't need no stinking bond insurance.
Copyright © 2008 Chuck DiFalco
