NEW YORK / SAN FRANCISCO (Reuters) – The building of 1923 high school in the school district Corbett Oregon is so old that the horses and trailers were used to dig the basement. is flooded every winter, the building has no irrigation system, and there are asbestos and lead paint in some places.
However, this May, voters cast down, for the fourth time, a plan to sell bonds to pay for a new building, passing an opportunity to finance the new school at a cost that can not be so low again.
Corbett is not alone. The amount of debt sold so far this year on the market of $ 3.7 billion to US municipal and state debt is lower than in 2015 despite borrowing rates low.
The yield on municipal bonds higher audience to 30 years reached a bottom of 1.93 percent on July 6 That is well below the 3.27 percent a year earlier and even below the comparable Treasury yield thanks to a tax exemption granted to US investors in interest on most muni bonds.
There are several reasons why municipalities are slow in exploiting what could be a rare window of opportunity created by historically low rates and intense global investors hunting for higher returns.
On the one hand, municipal borrowers have to clear obstacles including those in the polls, making it difficult for them to quickly respond to changing market conditions.
Some communities are also still sore from the budget cuts of the era of recession and remain reluctant to take on new costs of debt service, however low they are. Some are enclosed in depressed economies, large pension liabilities – new projects that displace – or both.
“Apart from the very large states and cities usually are the leaders … (others) are not yet sure they have the support of the voting population or economic resources to expand their spending,” said manager the Vaneck Global James Colby portfolio, buying municipal debt exchange traded funds muni company.
For example, voters in Travis County, Texas, rejected nearly a bonus of $ 287 million to finance the replacement of an old courthouse, overcrowding in Austin, partly due to concerns that the chosen location it might be too expensive.
New Jersey stopped many roads and bridges projects funded by the state this month after legislators not to extend the program that funds because of an ongoing battle over how to raise gasoline taxes to pay for new transportation expenses.
the dysfunctional political and fiscal stress also derailed last year’s budget in Illinois, which was a year late, and in Pennsylvania, where a budget impasse nine months left public schools struggling to stay open.
As a result, municipalities and states issued $ 227 million of debt between 1 January and 19 July by 1.6 percent compared to the same period of 2015, according to Thomson Reuters. The lion’s share of the free tax debt has been issued to refinance bonds at lower rates older, rather than finance new projects. (Graphic: http://tmsnrt.rs/29MmnHb)
However, in addition to large emitters, in economically strong states like California and New York, it is borrowers with more problems than the United States have increased new borrowing.
Some are selling bonds now because buyers that they previously rejected accumulate in seeking additional performance. Other communities have to borrow to cover operating costs or terminate essential projects.
With negative yields in Germany and Japan and a global search I fixed income assets due to market volatility, some foreign investors are also buying municipal bonds in the US, despite not receiving tax benefits.
“We are the best city name right now in a very low yield environment,” Blair Ridley, portfolio manager of municipal bonds at Deutsche Asset Management, said during a recent seminar.
the municipal bond funds recorded consecutive net inflows over the past 42 weeks, according to data from Lipper, with entries this year so far reached $ 36 billion, compared with $ 13.8 billion for the full year 2015.
However, they still face potential issuers resistance voters.
“It is a consequence of the credit crisis, an aversion to debt, and trying to right size balance sheet,” said Peter Hayes, director of municipal bonds at BlackRock.
Corbett, since the proposed bond of $ 11.9 million was rejected, officials of the school district of 1,100 students 20 miles east of Portland are considering a more expensive private loan that does not need voter approval.
“I keep telling people the interest rates are so low,” said Superintendent Randy Trani. “But it’s not happening.”
Some voters do not want to demolish a historic building. Many are also those over 50 and are reluctant to higher costs, Trani said.
“They have no connection to school at all. It’s hard to get them to vote to pay more taxes.”