MN Senate Passes Municipal & Higher Ed Welfare Bill
The Minnesota Senate overwhelmingly passed a $1.1 billion state borrowing bill today, setting the stage for fast-track negotiations between the Senate, the House, and Gov. Tim Pawlenty.
So much for being in a transportation crisis. Most of the money went to municipal and higher ed welfare.
Once again, the tax and spend liberals prove that they think that somehow if the Government just gets a little bigger, and spends a lot more, it can save the world. Of course they refuse to admit why we are in or headed towards a recession. That is high energy prices and the looming debt of all the tax revenue required to pay for the government spending, binding payments, and deficits.
Next stop for the contractors and bureaucrats looking for free money for their pet projects? The MN House will take up the bill Wednesday or Thursday to add their own pet projects.
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Triple A rated Minnesota Municipal bonds are yielding about 4% which means this pork laden bonding bill will cost 44 million per year from the state in interest expense only. When they mature we then also have to pay the 1.1 billion of principle back to the bond purchasers. If, because they went over the 3% revenue threshold, we lose our triple A rating, current holders of Minnesota Muni’s will dump their current holdings faster then shareholders dumped Enron stock. Causing the need to issue this offering at a higher interest rate to find enough buyers willing to risk their principle.
Bonds trade just like stocks. The Bond Houses determine what yield will attract enough buyers to purchase the issue, lets say 4%, then they sell these at a $1000 per bond. Once the whole issue is sold and closed they start trading in the free market, rising and falling just like stocks depending on many different variables. The fact that the DFL has exceeded the 3% rule puts all current holders on Minnesota Muni’s at risk.
I have been out of the bond business for years but I would bet todays action in the Senate caused currently issued MN. Muni bonds to sell off today, making their yield rise. It will also cause this new issuance to be issued at a higher interest rate costing the state potentially millions more to service the debt each year.
If, as some have suggested we lose our AAA rating, say down to just A or even triple B, this could cost our state billions over the next 20 years. This is extremely irresponsible behavior on behalf of the DFL.
Dave Strom and or Phil Krinkie need to talk to the large bond houses and get expert opinions on the record. At a time of slowing economic activity and falling tax revenue a bonding bill this large could be considered fiscal suicide for our state.
Something else you need to be aware of. MBI and Ambac are bond insurers. Their stock’s have both been savaged of late on Wall Street, dropping from the low hundreds per share to single digits. This has caused much angst for anyone holding any type of insured Muni bonds. Their has been talk for weeks that both of these companies may go bankrupt. If that were to happen the Muni bond market would be flooded with selling. MBI and Ambac has insured many municiple bonds allowing for issures to offer their bonds at lower interests rates. No bond purchaser is going to buy this years bond issuance at 4% if they can get 5% or 6% in the open market. 1% or 2% may seem like chump change but in this example it’s a 25% to 50% larger interest expense.
For the DFL to push through a bonding bill of this size, at this time in history, is breathtakingly inexcusable and fiscally moronic. It could easily results in billions of wasted interest expense over the coming years for our state. Do think the DFL knows that and will then demand an income tax increase so we can preserve our AAA rating? Personally, I don’t think they are that smart but I do believe they are that conning.