From the Houston Chronicle: Municipal Utility Districts in Texas have sweeping power to sell bonds, levy taxes

MUDs are among the smallest of the special districts, and are primarily a device used by developers to fund infrastructure, like "water and sewage systems, drainage, parks, recreational facilities, roads and fire stations." The Chronicle reports that their numbers are increasing, which increases the amount of debt held in the state - a state like likes to brag about not having any. Multiple other complaints about them exist as well, as this story lays out.

- Click here for the article.

Across bright-red Texas, where many politicians tout small government and low taxes, MUDs and other so-called special purpose districts are proliferating - and selling bonds - at a rate many experts inside and outside government find increasingly problematic. They cite high indebtedness, insufficient state oversight, cozy relationships with developers, a lack of responsiveness to citizens and potential conflicts of interest. MUDs can be created either by the Texas Commission on Environmental Quality or the Legislature.

Their spread throughout the prairies that once surrounded Houston and other municipalities has helped fuel "growing unrest" about the property tax burden in Texas, said John Kennedy, senior analyst for the Texas Taxpayers and Research Association, a nonprofit group based in Austin. Many taxpayers like Gay find it hard to track all the property tax bills they receive from counties, school districts, MUDs and other special purpose districts, Kennedy said.

"Those special purpose districts sort of operate in kind of a semi-netherworld out there," he added.

There are 1,751 active water districts in Texas, a class of special purpose districts tracked by TCEQ, ranging from large river authorities to tiny irrigation districts, including 949 MUDs, according to the state.

The epicenter of water district financing: Houston's suburbs.

Forty-four percent of those 1,751 districts are in Harris, Fort Bend and Montgomery counties. Sixty-five percent of the 949 MUDs are in those three counties - 389 in Harris County, 146 in Fort Bend County and 85 in Montgomery County.

MUDs are the most popular type of water district in Texas with developers, in large part because they hold enormous sway over how they're created and because MUDs are empowered to issue tax-exempt bonds covering the developers' infrastructure costs.
Taxpayers' advocates increasingly view them as a problematic way to pay for infrastructure in the face of climbing local government debt, given their sweeping power to sell bonds and raise taxes.

 

From Grits for Breakfast: Debtors prison and the Great Texas Warrant Roundup

Debtors prisons aren't allowed under the Texas Bill of Rights, but they still seem to exist.

- Click here for the article.

The State’s unreasonable traffic ticket scheme and the devastation it can wreak on low-income Texans receive considerably less attention.

Depending on the jurisdiction, a ticket for failing to signal a lane change—the pretext for Sandra Bland’s tragic traffic stop—will cost you around $66. But the State tacks on $103 in court costs and a host of fees, some bordering on Kafkaesque. Texas will charge you a public defender fee, even though courts refuse to appoint a public defender for traffic ticket cases. If your fine is already too expensive to afford, Texas charges a fee to put you on a payment plan. You’ll even pay an “administrative fee” for the privilege of handing money over to the court. For people who are too poor to pay their tickets, that $66 fine can grow to over $500.

If you can’t afford to keep up with these fees, the State will suspend renewal of your driver’s license (add another $30 for the License Renewal Suspension Fee), and you’ll be unable to register your car, making it illegal for you to drive to the job you need to take care of your kids and pay off your spiraling debt. An expired registration means you’re certain to be pulled over and put back at square one, with new tickets, new fines, new fees, and no hope.

From ProPublica: Old Debts, Fresh Pain: Weak Laws Offer Debtors Little Protection

We're reading through some of Federalist #10 in GOVT 2305 this week and this story reminded me of some of the paper's content. In it Madison argues that political conflict ultimately stems from self interest. We take positions on issues based on how they impact us. Policy tends to be set by which ever side has a majority - so the interests of the majority will be most likely be served.

He offers this little tidbit:

Is a law proposed concerning private debts? It is a question to which the creditors are parties on one side and the debtors on the other. Justice ought to hold the balance between them. Yet the parties are, and must be, themselves the judges; and the most numerous party, or, in other words, the most powerful faction must be expected to prevail.

Based on this, its fair to say that the interests of creditors are far more represented in the legislature that the interests of debtors. The piece in ProPublica illustrates this. It concerns a law that allows wages to be garnished for credit card debt. It's worth considering whether the law presents the best and fairest way to handle credit card debt - or merely one that best secures the interests of the most powerful groups in Congress and those that support them.

- Click here for the article.

The federal law regulating garnishment harkens back to 1968, when the financial life of Americans was much simpler. Time has eroded what even then were modest protections. The law barred creditors from taking any wages from the very poorest of workers, but used a calculation based on the minimum wage to identify them. Since the federal minimum wage hasn't kept pace with inflation, today, only workers earning about $11,000 annually or less— a wage below the poverty line— are protected. The law also allows collectors to garnish a quarter of a debtor's after-tax pay, an amount that government surveys show is plainly unaffordable for many families.

And the law is silent on perhaps the most punishing tactic of collectors: It doesn't prohibit them from cleaning out debtors' bank accounts. As a result, a collector can't take more than 25 percent of a debtor's paycheck, but if that paycheck is deposited in a bank, all of the money in the account can be grabbed to pay down the debt.
State laws, while often more comprehensive than the federal rules, vary widely. Only a handful, for instance, automatically protect a minimum amount of funds in a debtor's account.

When garnishment protections do exist, the burden is usually on debtors to figure out if and how the laws protect their assets.

Debt-At-A-Glance

The comptroller's office has unveiled a site which helps determine the level of debt different cities, counties and special districts in Texas have accumulated over time.

Click here for Debt-At-A-Glance.

Here's the info for Alvin Community College.

Two theories about what's ailing the US economy

Both look at factors that retard the ability of people to spend, whcih is critical in a consumer based economy like ours.

1 - It's high student debt:

Nowadays, younger Americans are becoming less likely to take out loans to buy a house or a car. One possible reason? They’re too overloaded with student debt.

. . . student debt has grown dramatically over the last decade — some 43 percent of Americans under the age of 25 had student debt in 2012, with the average debt burden now $20,326. By contrast, back in 2003, just 25 percent of younger Americans had debt, and the average burden was $10,649.

What’s particularly notable is that these student loans appear to be crowding out other types of borrowing. For a long time, younger Americans with student debt were more likely to own homes than those without — largely because college grads are likelier to have higher earnings. But that trend has reversed . . .

2 - It's underwater mortgages:

It is widely recognized that the fall in housing prices had a “wealth effect” that led homeowners across the country to cut back on spending. In the updated paper, Mian, Sufi and Rao measured how much more underwater borrowers probably cut back on spending compared to borrowers without an overhang of mortgage debt. (More precisely, they measured how much homeowners cut back on auto spending for each dollar loss of housing wealth. But that’s important; the decline in auto sales was a significant part of the economic contraction.)

The authors found that being underwater makes a big difference. . . Zip codes with fewer than 15 percent of homeowners only cut back only a little – spending only half a cent less for every dollar their home fell in value. But in Zip codes where more than 50 percent of homeowners were underwater, borrowers cut back five times as much – spending 2.5 cents less on car purchases for each dollar of reduced housing wealth.

Does low growth make governing difficult?

An analysis from the NYT. Its not a new idea. Some argue that low growth and high debt will make politics in the next few decades far more difficult than in recent years. As if that's possible.

We typically blame Washington for not doing more to help the economy grow. But what if we have it backward: What if it is the weak economy that is driving the failures in Washington?

That is what Benjamin Friedman, a Harvard economist who has studied the way slow growth frays societies and strains politics, thinks. “We could be stuck in a trap,” he told me last week. “We could be stuck in a perverse equilibrium in which our absence of growth is delivering political paralysis, and the political paralysis preserves the absence of growth.”

Is the debt ceiling unconstitutional?

As we come close - again - to the debt ceiling, questions are being raised - again - about whether the debt ceiling is constitutional. Can Congress - after it has authorized spending - refuse to provide those funds?

Here's an argument that they cannot, and that doing so violates the 14th Amendment, but the issue gets complicated:

Section 4 of the Fourteenth Amendment provides that "the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." Its purpose was to prevent Southern Congressmen and Senators from trying to hold payment of the nation's debts hostage in order to get their way on Reconstruction policies. The point of Section 4 was to put this sort of hostage-taking beyond ordinary politics. The framers of the 14th amendment did not want future politicians to threaten to destroy the country's finances by refusing to pay the country's debts in order to win political concessions from their opponents. After all, once politicians did so successfully, they would try it over and over again and it would become a normal feature of politics. That is precisely what we are seeing now.

If Congressional Republicans are threatening to let the nation to default on its debts if Obama doesn't agree to their demands, they are violating the Constitution. And the president should call them out for such an outrageous demand. But does that mean that the president can raise the debt ceiling himself to remedy the violation?

Not so fast. Article I, section 8 of the Constitution gives Congress, not the president, the authority to borrow on the credit of the United States. Even so, under section 4 of the Fourteenth Amendment the president has an independent constitutional obligation not to allow the validity of the debt of the United States to be put into question. That means, at the very least, that the president must make sure that interest payments continue on existing federal bonds and similar obligations. He must assure bondholders that they will continue to get paid even after the debt ceiling is reached.

If the president follows his constitutional obligations, then some government operations will not get funded because payments to the bondholders must come first. That means a partial government shutdown, with more and more of the government closed as the president continues to pay the bondholders. 

More on the rise in local debt

This builds off a post below regarding the rising level of local debt in the state.

The Texas Comptrollers office has released a report - Your Money and Local Debt - pointing out the rising level of local debt over the past ten years. She argues that not enough information is provided people about the amount of money already owed "for roads, schools and other public projects."

The Chronicle comments on the plan, and point out that critics argue that increased local debt is a consequence of decreased state support for local services. They add this nugget from Harris County Judge Ed Emmett:

Although Harris County has no bond proposals on the ballot this fall, County Judge Ed Emmett criticized the report's use of population growth and inflation as a benchmark to compare spending and debt. The state built the University of Texas and Texas A&M University with proceeds from oil discoveries, Emmett said, and could not have done so if it had been constrained by that alone. "The Ship Channel, the highway system, all those things were built in anticipation of future growth, not waiting until you get the growth and then saying, 'OK, now you can spend the money,' " he said.
Emmett stressed the difference between debt backed by property taxes and that backed by revenues, such as tolls paid to the Harris County Toll Road Authority.
Combs acknowledged that "there is plenty of good debt" that voters approve to help finance highway and water-related projects, for example. Still, she charged that too many governmental bodies are piling up debt without regard to its impact on future generations of Texans. "Have they done all their due diligence? Have they tried as hard as they know how to be strategic, to be careful?"

She makes this recommendation for how referenda for bond approvals ought to be presented to the public:

Combs suggested several ways to make debt obligations more transparent. As new debt is presented to voters for approval, her report recommended including on the ballot the amount of outstanding debt, debt service, per capita obligation, the amount of new debt, estimated debt service and the estimated per capita burden for proposed bonds.

Local debt increases in Texas

Here's a story from Quorum Report about the rising debt in local governments (local jurisdictions they're called in the story) in Texas. It amount to an increase of 36% to a total level of almost $193 billion.

The details are contained in a report issued by the Texas Bond Review Board, as presented to the Pensions, Investments and Financial Services Committee. Part of the problem is that the state has shifted financial burdens to local governments and still uses "antiquated state funding formulas" to determine what level of funding is required by the state to local jurisdictions.

Here's the full story:

Jurisdictions across Texas now carry debt on the books of almost $193 billion, an increase of a third over the last five years and a total that keeps the state pegged as having the second heaviest local debt load in the country.

The Texas Bond Review Board, bowing to public interest, has published its first report on that debt. Executive Director Bob Kline told the Pensions, Investments and Financial Services Committee the increasing debt load is the results of local jurisdictions that moved forward with debt at the height of economy.

“Local debt has increased by 36 percent over the last five years, to $193 billion,” Kline said. “That’s a lot of local debt issuance.”

According to a report issued by the Texas Bond Review Board in May, debt issues by local jurisdictions breaks down as roughly a third to school districts, a third to municipalities and the balance to various other jurisdictions. The total debt per capita has risen from $4,359 in 2002 to $7,507 in 2011.

No jurisdiction has teetered on the brink of bankruptcy in Texas, as they have in other states, but Kline still sees the stressors on local jurisdictions. On the other hand, cities and school districts have steeply increased bond re-fundings. In most cases, the re-fundings bring down interest costs on outstanding bonds.

“That’s a positive out of this,” Kline said. “I think the concern is that the erosion of the tax base and the ability for the debt service to occur.”

Former Superintendent Joe Smith, who tracks school bond and tax rate elections over at the website Texas ISD, agreed that school districts are under additional stress to repay bonds out of current revenue. Despite those limits, many school districts strapped for cash have turned to bonds to pay for items that once came out of operating expenses, such as district-wide technology upgrades.

“I see the stress on funding, even on the operating side,” Smith said. “School districts oftentimes are funding things off of bonds that they once funded off of maintenance and operations.”

The state also has failed to keep up its end of the bargain when it comes to sharing the cost of bond issues, Smith said. The rate for equalizing debt hasn’t been changed in more than a decade, and because it’s equalized to 1999 levels of property wealth, fewer districts qualify for the state subsidies.

“That rate hasn’t changed since 1999, and so more of it is falling on the districts, and the districts don’t have any avenues for meeting the need except for bond issues and tax increases,” said Smith.

Growth hasn’t stopped in Texas, Smith said, but the number of bond issues that have been called in recent years has declined steeply. Putting together a plan to pay off bonds is tough, especially for property poor districts, which typically have much longer bond terms than their property wealthy counterparts, Smith said.

A few stories related to the failure of the "Super Committee"

The big news yesterday was that the "super committee" (the unofficial name given to the Joint Select Committee on Deficit Reduction) failed to arrive at an agreement to trim at least $1.5 trillion in deficit reduction over the next ten years - which is a pretty modest goal considering the total budget over the next 10 years is likely to exceed $40 trillion. The failure will lead to

For summaries of the process and what went wrong click here:
- NYT: The Plans for Reducing the Deficit.
- Click here for background from Times Topics.
- Supercommittee announces failure in effort to tame debt.
- Panel Fails to Reach Deal on Plan for Deficit Reduction.

And here are a handful of opinions about the consequences:

Roger Hickey of the Huffington Post is glad the super committee failed: "If the so-called "Super Committee" had made a bi-partisan deal based on the announced negotiating positions of the Republicans and Democrats on that panel, the result would have been higher unemployment, serious damage to the social safety net -- and worsening deficits." The consequence would have been higher deficits over the next ten years due to a worse economy.



NYT commentators point out that the triggers put in place by the deal's failure - plus the increased likelihood that the Bush tax cuts will expire at the end of next year could lead to recession: "A Moody’s Analytics report warns that failing a deal, the combined impact will amount to a “historically extreme” reduction in the deficit that could push the economy into recession. It notes that under current law, federal revenue would increase as a share of economic activity by 3.7 percentage points over 2012 and 2013 — the sharpest rise since 1969, when, Moody’s says, sudden tax increases “helped set off a mild recession.” Combined with the required budget cuts, the deficit would shrink to $510 billion from $1.3 trillion by 2013."

The Washington Post provides a guide to the rhetoric surrounding the debt debate.

The Christian Science Monitor provides a briefing page - what do you need to know about the committee's failure?

Student loans outstanding will exceed $1 trillion this year

Ouch, and good luck.

Update: Expect even fewer college grants in the future.