Tag Archives: Nevada local government

Nevada’s AB 196: The Wall Street Casino Protection Act

AB 196 Let’s talk Repos – since it’s a topic under discussion in the Nevada Legislature, specifically in AB 196 being heard by the Assembly Committee on Government Affairs today.  AB 196 is relatively straight forward:

There’s this part:

“Sections 1-3 of this bill authorize the investment of the money of this State, the State Permanent School Fund, the State Insurance Fund and the governing bodies of local governments in reverse-repurchase agreements if those agreements meet certain requirements, which are similar to the requirements on repurchase agreements, to avoid a violation of Section 3 of Article 9 of the Nevada Constitution. Sections 1-3 also impose additional requirements on reverse- repurchase agreements which depend upon the purpose for which the reverse- repurchase agreement is made.”

If the reaction to this verbiage is “Huh?” Let’s back up a step.  Repurchase agreements (repos) and reverse repurchase agreements are defined as:

“A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.

For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction, (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.”  [Investopedia]

Still baffled?  Here’s another way to explain the gamble:

“In a repo, borrowers agree to sell primarily government-backed bonds to another party for cash, with the promise to repurchase the bonds at a slightly higher price in the future. Borrowers are often hedge funds, and lenders are typically money-market funds. Banks stand in the middle, moving cash between the two.”  [WSJ]

That “future” is tomorrow morning (more or less) and those government backed bonds are municipal bonds, state bonds, and/or federal treasuries of some form.  If, say, the state insurance fund decided to buy securities of this type and sell them off almost immediately, that would be a “reverse repo” deal.  The next question, of course, is why on God’s Green Earth we’d want to do this?

We really need to ask this question in light of the divestment in “repos” by the major banks, and the instability “repos” tend to create in financial markets.   Gaze back in time, back to 2008, when Lehman Brothers was for all intents and purposes out of securities it could use as collateral to back up the short term loans it needed for its own survival.  Lehman’s mad scramble to stay alive put a spotlight on the Repo Market on Wall Street.  What lit up wasn’t pleasant.

Enter the Dodd Frank Act, which required banks to maintain more capital in order to absorb potential losses in the Repo Market.  The banks, in turn, have cut back on their participation in the Repo Market game. [WSJ]  However, the Repo Market at present isn’t all rose blossoms, there are still some thorns. As of August 2014, the Boston Fed chief was calling for still more capital reserves to maintain stability in the Repo Market. [NYT Dealbook] (see also: BFR pdf)

Thus we have a Repo Market which is still too volatile for the comfort of the Boston Federal Reserve, in which the major banks are diminishing their participation, and in which the sponsors of AB 196 would have our state and local governments dabble more vigorously.  And, then there’s this:

“Section 3 eliminates the requirement that, when the governing body of a local government purchases commercial paper issued by certain corporations or depository institutions as an investment of its money, the purchase must be made from a registered broker-dealer. Section 3 also eliminates the prohibition against investing the money of the governing body of a local government in a repurchase agreement which involves securities that have a term to maturity at the time of purchase in excess of 10 years.” [AB 196]

Get that? AB 195 eliminates the requirement that the purchases must be made from a registered broker-dealer.  Excuse me, but I get a bit nervous when state and local officials are informed that they can use unregistered broker dealers when those folks  have been under SEC scrutiny since 2013. [Dinsmore] [Kurth]  A registered broker-dealer has to submit to an SEC investigation, and oversight by the SEC and the Financial Industry Regulatory Authority – and yet AB 196 eliminates the need for such certification and oversight when state and local government funds are involved?

When a bill such as AB 196 allows such actions by county commissions, school boards, and county treasurers are invited to indulge in a bit of Wall Street Casino gaming without benefit of a certified, regulated, supervised broker-dealer – What could possibly go wrong? Other than Everything?

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Filed under Economy, financial regulation, Nevada economy, Nevada legislature, Nevada politics

Everybody Wants to Bargain: Nevada’s SB 158

gridlock

The intent of SB 158, currently being discussed in the Nevada Assembled Wisdom, is relatively apparent – make the provisions of collective bargaining agreements between local governments and teachers, firefighters, police and law enforcement personnel, etc. publicly available 10 days prior to the meeting during which the agreement is to be voted upon.

If I’m reading the current law correctly, such agreements must be part of a public meeting agenda, duly posted, and subject to all the rigmarole associated therewith.  A copy of the “supporting material” available to the board or commission is also to be made available to the public. [NRS 288.153].  So, why SB 158?  Time.  From three working days prior to the hearing to “ten days before the date of the hearing.”

Superficially speaking this might allow for more time for public commentary and consideration of the agreement or master contract.  Realistically speaking, there are very few interest groups which are enamored of plowing  through contractual language and financials – the negotiating committees from labor and management, and the “anti-government” organizations which delight in microscopically examining supporting materials for clues to how “over-time is being abused,” or how “teachers are overpaid and underworked.”

SB 158 clearly gives the latter a few extra days to gather opponents of the collectively agreed upon contract prior to the hearing.  School Board members and County Commissioners already know the contents – they’ve been scrutinizing them throughout the bargaining process.  Members of union negotiation committees already know the contents – they, too, have been engaged in the same proposal, counter-proposal, amended proposal, process as their counterparts across the table.

The object is always that the employer (Commission or Board) will give the most they can without jeopardizing the priorities of the government entity, and the employees’ representatives will accept as little as they can without having to face a truly unpleasant mass meeting session with their membership.  The bargaining process itself can be competitive without being combative.  When things get combative there are ways out of the bind – mediation and arbitration.  And, herein lies the problem with SB 158.

Let’s assume that both sides in a bargaining agreement between, say. the Firefighters and the City have been negotiating in good faith.  The city has been forthcoming about its revenue projections, and the firefighters have been rational in their wage breakdowns.   They discussed hours and working conditions along with other related matters in a rational way.  They’ve avoided mediation and arbitration processes by agreeing to a collectively bargained contract. Now, we come to the question – why do opponents of the agreement need those extra days to round up their forces prior to the meeting?

  • Is it that the opponents of the agreement don’t trust the negotiating team from the city, district, or county?
  • Is it that the opponents of the agreement want to scuttle any deal which includes a modification of hours, adjustments in working conditions, or increases in pay?
  • If the negotiations hit a hard patch, and mediation or arbitration has adjusted the proposed agreement, then do the opponents want to scuttle the decision of the mediator or arbiter?

If the “scuttle strategy” is in place and the anti-government types want extra time for their media releases, press conferences, and the like, then what we have is an instance of obstruction at a key moment – a moment in which the intentions of both sides (both labor and management) are questioned and if the strategy is successful they’re both back at the bargaining table – and not where they want to be, which is home for a nice evening with the families.  In other, less delicate terms, Gridlock.

Public employee union representatives and members of school boards, city councils, and county commissions have donated countless hours of their own time to bargain these agreements.  They’ve authored proposals, revised them, spoken to them, adjusted them, and agreed upon compromise positions, usually on their own time and their own resources.  In this they should be praised – and should not be subjected to more organized (often professional) opposition which seeks to shoot down their efforts with shots below their Plimpsol Lines.

The burden of proof is on the proponents of SB 158 to demonstrate that the posting and publication of materials associated with the bargaining efforts of labor and management in the public arena, must allow for extra days for the processing and analysis of those materials – and NOT merely more time for the professional nay-sayers to advance their own narrow agendas.

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Filed under Nevada legislature, Nevada news, Nevada politics

Debt Devils in the Details

Money BagsNevada’s state debt load is moderate, but it’s another story when it comes to local government debt — Reno Gazette Journal — “For state government debt, Nevada seems frugal. Nevada ranked 46th in per capita debt by the state, with Nevada’s per capita debt 42 percent of the national average.”

Looking at the local levels of indebtedness is an object lesson in why generalizations are often misleading.

The Nevada Department of Taxation’s report as of June 30, 2012  (pdf) shows that most counties do not have outstanding general obligation bonds: Clark has $38,850,000 outstanding, Nye has $23,935,000, and Washoe has $43,655,000.   Other outstanding general obligation debt spreads more universally.  Carson City has $,142,477,454; Clark $1,913,615,000; Douglas $26,488,026;  Elko $385,000; Lincoln $413,452; Lyon $12,732,955; Mineral $193,483; Nye $2,213,000; Pershing $73,255; Storey $2,338,098; and Washoe $148,063,340.

Patterns one would expect are reflected in the Taxation Department’s report — school districts are likely to have obligations bonds for which they are still paying.  Special districts such as those for libraries or health services have bonds on which they are paying principal and interest.

Some caution should be applied towards conclusions drawn from the data.  (1)  That a county has not incurred any general obligation bond indebtedness may not necessarily be a signal of “fiscal responsibility.”

(a)  The lack of bond issuance by a county may also indicate a government entity which isn’t doing much of anything.  At least one might assert that the county isn’t investing in public projects beyond the immediate requirements and restrictions in its operating budget.  Living within one’s means is a grand thing — but on a micro-level most families have more indebtedness than some Nevada counties — i.e. they have taken on debt for housing in the form of mortgages and debt for motor vehicles, and major purchases.

(b) The lack of indebtedness may also be indicative of a splintered local system, one in which the Hospital Board, the School Board, the Library Board, or General Improvement Districts incur the indebtedness under the auspices of the county.   When perusing data on local indebtedness the reader is advised to look beyond the county data and into the subsidiary entities to get a comprehensive look at the “finances” of the local governing bodies.

(2)  Not all projects are created equally.   There are numerous cautionary tales across the country concerning local governments who took on debt — especially during the Housing Bubble era — who honestly believed the projects would enhance local property values or would generate revenue in the local area.

An example of such cautionary tales is the rapid expansion of minor league ball parks in the Richmond Federal Reserve District.  The best that could be reported by the Richmond Fed as of the winter of 2009 (pdf) was that the benefits were “intangible” (civic pride, etc.) and that property development hadn’t matched the projections made prior to the investments in the parks.

Then there’s the bankruptcy of Stockton, CA which built a hockey arena, a ball park, a marina, and a new public office building — before it had to declare bankruptcy. [DeseretNews 2012] By August 2013 the California State Controller had some harsh words for the Stockton town leaders: “Many of Stockton, California’s fiscal problems can be traced to poor decision-making, weak accounting and fiscal mismanagement, state controller John Chiang said on Monday.” [Reuters] Ouch.

Caution

Caution Sign RevenuesAmericans have a penchant for adopting rhetoric which fulfills the day-dreams of property developers and retailing associations:  “If we build it, they will spend $________ and we can expect $_______ new revenues.  “It” will generate _____ new jobs in our community.”  Not. So. Fast.

Prior to launching into the Project Du Jour  it might be well to investigate whether improvements to local public revenues would be just as easily enhanced by other investments, such as those related to infrastructure, school improvements and maintenance, the delivery of public utilities, and public health and safety expenditures.   Is Stockton better off because it has a “marina” or might it rate more highly in terms of “quality of life” measurements if it could attract and retain police, fire, and emergency personnel?

Was Greensboro, NC better off for having constructed a minor league ball park — or could a revitalization program in the downtown area be the reason behind the increases in the city’s property values?

Movie ProjectorProjections of promoters notwithstanding, the evaluation of public projects in which debt is to be undertaken needs more careful consideration than optimistic appraisals of the enthusiastic.

Who benefits?  Doing the greatest good for the greatest number is usually a fairly decent guideline for local governance.  Will a new hockey arena really provide an immediate boost to local revenues that it will make the property value increase related to repairing broken sidewalks pale in comparison?

Perhaps Stockton, CA might have wondered if money spent building a large boat docking facility could have been better spent on improving existing public parks and sandlot recreational facilities?

Who’s counting?  If you are still among those who believe that property values (the basis for most local revenues) will always go up, then please wake up.  It’s 2013 and the waves from the Housing Bubble debacle are still washing ashore.   Nevada has a debt limit ratio statute in place for local governments — it’s not a fail-safe, but it’s good enough to keep most local governments from going too far out on shaky limbs.   Are projected revenues from public initiatives taking into account worst case scenarios as well as optimistic ones?

Who’s selling?  What kind of debt is the local government taking on? General obligation bonds, based on the incoming revenues? Revenue bonds, using the proceeds from the facility to be built to repay them?  Are there bond sellers pitching esoteric forms of financing (see the sad example in Alabama) which benefit the investment houses and not the houses hooked up to the sewer lines?

Too often we’re convinced that having a low tax system combined with being enamored of public financing for semi-public projects is somehow “Pro-Business.”  Let Detroit, Stockton, Birmingham, Vallejo, and Harrisburg be more than cautionary tales.  Public employees were promised more than the governmental entities could deliver, members of the general public were promised more than system could provide.  Members of the business community promised more than they could manage.

When met with calls for greater investments, local governments, which do not have the power of the Department of the Treasury and the Federal Reserve at their backs, are usually best served by returning to the basics: (1) Do we need it? (2) Can we maintain it? (3) Are we planning for future contingencies?

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