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Author:  W. Bartley Hildreth.


Source: Volume 33, Number 01, Spring 2012 , pp.1-121(121)




Municipal Finance Journal

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Abstract: 

Our country continues to recover from a severe economic period that has significantly influenced government finance. This issue of MFJ addresses state, local, and special district (airport) finance matters. It closes with an innovative proposal that responds to the loss of the bond insurance industry. The economic downturn and the loss of property value affect a local government’s fiscal health. In an interesting study, public administration professor Beth-Anne Schuelke-Leech examined local governments in Florida and found that they indirectly benefited from lax bank lending practices through increased property values and directly benefited through increased spending (but were slow to cut on the downside). The paper discusses the implications of these effects for local banking policy, tax limits, and revenue diversification. Governments desire a diversified and stable revenue source for budget purposes. Public administration professor Cleopatra Grizzle goes the next step and explores the significance of revenue diversification on credit ratings and interest costs at the state level. She finds evidence that an increase in revenue diversification increases credit quality but does not appear to be incorporated into interest costs. Airports are major economic activities of their city and state. Municipal analysts Nick Larsen and Chris Mier provide a detailed study of the strength of 49 airports relative to their states’ economies. Results show that the airports specializing in cargo were disproportionately hurt during the recent economic period. Given the loss of bond insurance and the threat of issuer default, it may be time to consider innovative structures. Investment banker Paul Fennell offers the rationale for a patent-pending idea of allowing bondholders to receive a transferable tax credit against local taxes. As Fennell states: “It is as if the bondholder directs his own taxes in the event that an issue fails to pay [on the debt].”

Keywords: Mortgage Crisis; Revenue Diversification; Airports; Tax Offset Municipal Securities

Affiliations:  1: Georgia State University.

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