The Coming Municipal Government Collapse -Florida ranks No. 1 -- in municipal bond defaults

[Sapiens]

http://blogs.tampabay.com/venture/20...ond-issue.html

Florida ranks No. 1 -- in municipal bond defaults

The good news is Florida is No. 1 -- by far -- in a new economic development ranking. The bad news is being No. 1 means Florida has defaulted on more municipal bonds -- by far -- than any other state in the past decade.

According to the Distressed Debt Securities newsletter of Miami Lakes, Fla., of the 126 municipal bonds that are in default in 2009, 70 were sold in Florida. Ohio, which has defaulted on eight muni bonds, ranks second in the nation followed by Illinois with five.

Hello, Florida financial watchdogs. Is anybody home, conscious and doing their jobs any more?

A Bloomberg News story by veteran reporter Joe Mysak says Florida's appalling default rate can be blamed in general on the collapse of the real estate market. But specifically, Florida's problem lies with co-called Community Development Districts, which sell bonds to pay for infrastructure to support -- what else? -- new real estate developments.

Local districts that defaulted on bonds include Riverwood Estates near Zephyrhills and Heritage Isles in New Tampa.

Florida has 600 such districts, and 105 have gone into default on a total of $3.2 billion in bonds.Bloomberg asked how the so-called dirt district defaults in Florida compared with similar meltdowns in Colorado in the 1980s, Texas in the late 1980s and early 1990s and California in the 1990s. Responded Richard Lehmann, publisher of the distressed debt newsletter: "It’s worse than all three combined."

This is the same Richard Lehmann who waved the warning flag last October in a Forbes story called "The Coming Bond Default Wave."

Read the full Bloomberg News story here.

-- Robert Trigaux, Times Business Columnist

We are getting there, municipals have to collapse before things get better!

[Sapiens]

Just How Strong Are Muni Bonds?

Just How Strong Are Muni Bonds?

Municipal bonds are usually thought to be a risk-free investment. Turns out that's not always the case.
By Josh Goodman | August 1, 2009

Vallejo, California's bankruptcy last year represented the largest municipal default in 14 years. For 16 months, Jefferson County, Alabama has been unable to pay debts on billions of dollars in sewer bonds. Almost everywhere, tax revenues have plummeted, throwing the finances of local governments into disarray. So, are municipal defaults becoming more common?

As it turns out, that question is part of the backdrop to a dispute between the Securities and Exchange Commission and local governments over regulation of the municipal bond market. And the answer all depends on your definition of "municipal."

Defaults on municipal debt increased dramatically from $329 million in 2007 to nearly $7.8 billion in 2008, according to Richard Lehmann, publisher of a newsletter that tracks defaults. Municipal defaults are once again in the billions of dollars this year. However, if you haven't heard about the wave of cities and counties that are defaulting on their financial obligations, there's a good reason why: The wave doesn't exist, at least not yet.

In the bond market, "municipal" doesn't mean the same thing it does everywhere else. All manner of tax-exempt bonds are counted as municipal, whether they're issued by local governments or colleges or hospitals or nursing homes. Sometimes, local governments will even help private companies issue what are known as "conduit bonds" — tax-exempt municipal bonds, but ones without any obligation for the government to guarantee the debt. For example, when General Motors went bankrupt, Lehmann says, a few municipal bonds went into default.

While more bonds in the municipal market have gone into default lately, most of the defaults haven't been on bonds issued by the cities and counties that most people think of as municipalities. Instead, non-profits and private companies — which typically lack the financial reserves or revenue-raising power of local governments — have been hardest hit.

Some special-purpose government entities are suffering too. In Florida, dozens of community development districts have entered defaults that total billions of dollars. These districts have some taxing authority, but they're very different from what most people think of as governments. They're essentially developer-created vehicles for paying off the costs of roads and utilities. As home sales have decreased and home prices have dropped, many of Florida's community development districts have been unable to pay their debts.

All of that might seem to suggest that the rise in municipal defaults isn't really the concern of large general-purpose governments, except the unfortunate few such as Vallejo and Jefferson County. But local governments can't ignore this development for at least one big reason: Federal regulators won't let them.

In June, Mary Schapiro, who chairs the Securities and Exchange Commission, mentioned statistics similar to Richard Lehmann's. Schapiro's point was that, despite their reputation for safety, municipal bond defaults do take place. Her bigger point was that, because of that risk, municipal bond issuers should face tougher financial disclosure standards, similar to the ones that corporate issuers face. Last month, the SEC preliminarily voted for tougher disclosure rules, over the strenuous objections of some government officials.

Frank Hoadley, chair of the Government Finance Officers Association's debt committee and a Wisconsin state government official, bristles at the notion that the bonds of state and local governments are at a substantial risk of default. He thinks that Schapiro and others have misused statistics in their push for new disclosure requirements — requirements that he says would impose major burdens on governments. "Next to United States Treasury bonds," Hoadley says, "governmental municipal bonds have to be considered the safest in the world."

Few would question whether bonds issued by cities and counties have been reliable investments for years. The question now, however, is to what extent these governments are immune to the same troubles that have forced major corporations, non-profits and special-purpose governments into bankruptcy. Many experts on the municipal bond market are deeply concerned that more Vallejos are on the way. "We haven't seen a real increase in general government defaults," notes Matt Fabian, managing director of Municipal Market Advisors. He adds: "You have to assume that some of that is coming."

[doom&gloom]

Re: Just How Strong Are Muni Bonds?

i used to buy muni's. the ONLY ones i would buy were power and water
types -- no airports or sewers or the like. no one can get by without
power or water.

[Jay]

Re: The Coming Municipal Government Collapse -Florida ranks No. 1 -- in municipal bond defaults

Thanks. I actually was thinking about getting into muni's against my better judgement. The tax free yields are huge. This has brought me back to reality.

[Thailandnotes]

Re: The Coming Municipal Government Collapse -Florida ranks No. 1 -- in municipal bond defaults

Thanks. I actually was thinking about getting into muni's against my better judgement. The tax free yields are huge. This has brought me back to reality.

Pick and choose.
Check out Salem, VA.

[doom&gloom]

Re: The Coming Municipal Government Collapse -Florida ranks No. 1 -- in municipal bond defaults

Thanks. I actually was thinking about getting into muni's against my better judgement. The tax free yields are huge. This has brought me back to reality.

Power and water, power and water. There are also select muni's that
have dedicated income streams pledged behind them from oil fields and such (really!).

IF YOU NEED A BOND GUY who knows what those are drop
me a PM. he is a friend of many years and will get you into "safe" munis
that have solid income stream backing.

[rlskaggs2003]

Re: The Coming Municipal Government Collapse -Florida ranks No. 1 -- in municipal bond defaults

CDD's were huge homebuilder scams. It's a form of developer financing where a homebuilder/land developer creates the CDD, issues a bond for infrastructure improvements (at an amount far greater than actual infrastructure development cost), pockets the proceeds and sticks the bond payment onto an unsuspecting home purchasers tax bill. They work great for the developer when he sells off his finished lots quickly. The debt booger is wiped onto the purchaser early on. The pain for the developer hits when his anticipated sell down rate plummets and he's stuck making debt service on a bunch of unsold lots. I was involved in a couple of these while working for a Florida land developer/major homebuilder a few years ago during the insane years. My company made debt service on one particular CDD by drawing down a non-recourse project revolver loan. Ponzi at it's finest. I've often wondered what became of that CDD....