Municipal deadbeats

19 August 2008 By Martin Hutchinson

Jefferson County s nearbankruptcy stems from foolish financing choices. Other municipalities have related problems. But falling house prices could cause even more trouble. Most vulnerable to potential bankruptcy are places that had housing bubbles and high property taxes.

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The county commissioners of Jefferson County, Alabama voted on August 15 to hold a referendum on whether the county should declare bankruptcy Jefferson had borrowed $3.2bn, mostly through auctionrate securities with interest rate swaps attached, to finance a new sewage system. David Bronner, head of Alabama's pension system, on August 15 advised the county to authorize its attorneys to prepare for bankruptcy.

Municipal issuers in total have borrowed approximately $160bn through auction rate securities, with the peak annual borrowing being $42bn in 2004, according to Analysis Group.

On average, state and local governments rely on property taxes for 22% of government revenue , according to a 2007 report by the National Association of Home Builders. The greatest reliances as of 2005 were in New Hampshire (43%) and New Jersey (35%). New Jersey collected $5,352 per home in property taxes in 2005; the second highest state was New Hampshire at $3,920. The states with the highest property tax rate as a percentage of home values were Wisconsin and Texas, at averages of over $18 per $1,000 assessed value. Niagara County NY had the highest tax rate of any county, at $28.12 per $1,000. California's rate was $4.77 per $1,000. New Jersey's was $16.03, New York's $11.88 and Connecticut's $14.24.

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Municipal issuers in total have borrowed approximately $160bn through auction rate securities, with the peak annual borrowing being $42bn in 2004, according to Analysis Group.

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