Not for nothing, but I did follow the links. Every one of them (well, OK, I didn’t email Walt, but you know what I mean). My first response was apparently not well crafted, because I certainly didn’t want to seem “knee jerk.” I wanted to begin the process of understanding a fairly complicated subject on which I have some knowledge that may be helpful. So to respond your second post:
OK. I guess that I was projecting from Burien’s story about the radio station almost being shut down, and the mainstream media as a consequence considers it a “third rail” story, etc. If you say it’s not hidden, than it’s not hidden. We’ll move on.
Burien is half right. These entities do in fact hold substantial assets, but they are often insufficient to fund the liabilities that the entity has agreed to take on. So the entity is not sitting there flush with unclaimed assets that could be used in lieu of taxes. There are some exceptions, as we’ll see.
In virtually all cases, the liquid securities (stocks & bonds) he’s concerned about live three places. First, they live as stocks and bonds in pension plans. Second, they live as US Treasury bills, notes and bonds in escrow accounts meant to pay off bonds which have been defeased. Third, they live in short-term liquid securities (money market instruments) as a cash equivalent. In the case of pension plans, the laws that govern states and locality are more lax than those that govern private companies, and states do in fact “raid” pension funds from time to time to cover revenue deficits. This is in most cases considered poor form by the financial community and a sign that an issuer is in trouble. But in reality, the fact that the markets have performed so well over the past decade makes it possible sometimes to remove assets from pension accounts and still leave the thing actuarially sound.
This is a very tricky subject. But I used to work on a muni desk (about a billion years ago) and my current position requires financial statement analysis. So if you have a specific question about a document to which we both have web access, I may be able to help you. I chose the NJ link simply because Burien uses Jersey in his story. As it happens, it’s a terrible site with inadequate bandwidth - even my T1 took 15 minutes to download the Adobe version of the thing. So if you want to pick another state, let me know and I’ll find the CAFR.
I’ll certainly agree with you on the first part. But on the second part, states most often do not have the assets “at their disposal.” The funds are segregated for specific things like teacher’s pensions and the like.
Burien seems to go on a lot about authorities. If this is your concern, I can give a short tutorial (Here’s a really short one: Some are in fact “profitable.” But not as much as is imagined)
As it happens, states often go to pretty ridiculous lengths to make the financial condition as reflected in the CAFR appear better than it really is, to get higher bond ratings and lower borrowing costs.
Livin’ on Tums, Vitamin E and Rogaine
