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Post by Jolly on May 2, 2022 14:26:52 GMT
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Post by Ozarks Tom on May 2, 2022 17:47:40 GMT
Municipal bonds vary in interest paid, and those paying the highest are also those municipalities the most underwater in their debt obligations, usually to union pension funds. They also tend to be in cities where their tax base is declining due to crime/taxes/regulations, which means they're also the most likely to default.
Our financial guy called one day saying the bonds for the city of ?? in California we had were being recalled, no explanation. But, he recommended bonds for Louisville KY. I did some research, and found that Louisville was on the verge of default, so upside down in their obligations they'd promise high interest rates to get their hands on money right then, probably knowing they'd never repay.
I can't say all cities are like this, but when you consider nearly all major cities are run by democrats......
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Post by DEKE on May 2, 2022 21:52:19 GMT
There is a private fund that figured out a way to beat the muni bond problem. The fund goes to desperate local gov'ts and tells them, instead of having to pay 10% or higher on muni bonds, sell us the water treatment plant and you'll have lots of money for other things. Then we will sell you the water you need at a cost that would be equivalent to you paying 7 or 8% on bonds.
The city looks at this as being a great deal. Look how much they are saving.
Why is this better for the fund?
1. The gov't, being gov't, is necessarily inefficient. The fund operates the plant like a biz, all for efficiency and to maximize profits. So where the local gov't was losing money or at best breakeven, the fund can usually operate the plant at an 8 to 14% profit. They do this by just good mgmt, by replacing bad gov't employees who couldn't be fired by the gov't, etc.
2. The city can't default. If the city goes bankrupt with bonds, the bondholders lose. If the city goes bankrupt with the fund owing the plant, no big deal. The people still have to have water to live, so the city will find a way to keep paying that bill.
Between what the city pays and the improved efficiency, the fund makes an average of 15 - 20% on their investment and the only real risk is that the value of the plant would decline if a significant portion of the population moved away from the city, as happened in Detroit.
I predict that more and more deals will be done like this for city infrastructure but that is ultimately going to leave the cities in worse shape because when the city has no money and no assets left to sell, what do they do when they are inevitably mismanaged?
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Post by farmrbrown on May 3, 2022 0:43:54 GMT
Answer: Raise taxes even higher.
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Post by DEKE on May 4, 2022 1:43:10 GMT
Answer: Raise taxes even higher. That works until it doesn't. The famous Laffer curve was about there being a point where raising the rates any further decreases tax collections because people cheat, avoid, move away, or whatever else they can think of to keep their money.
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Post by farmrbrown on May 4, 2022 2:21:54 GMT
Answer: Raise taxes even higher. That works until it doesn't. The famous Laffer curve was about there being a point where raising the rates any further decreases tax collections because people cheat, avoid, move away, or whatever else they can think of to keep their money. Oh, well of course. You and I know that doesn't work well, I just answered what I expected the gov't to do in response to the question.
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Post by sawmilljim on May 4, 2022 16:27:15 GMT
Small town not far from me taxed the town away. People just closed their doors and left. Uncle and I were out driving around and passed through it and I remarked about a good place to find a bargain house. He said sure house is cheap but the water and sewer were two to three hundred a month. That was several years ago.
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