Arenas, Stem Cells Among US$29.7b Of Bonds On Ballot
By Darrell Preston

SOURCE: China View
http://www.chinaview.cn
http://tinyurl.com/3nzeg

2004-11-01 07:46:20

Beijing, Nov. 1 (Xinhuanet) -- US voters will consider US$29.7
billion in bond sales on November 2, from borrowing to study stem
cells in California to renovating the Orange Bowl in Miami, as
governments take advantage of interest rates near a 36-year low,
reported China Daily on Monday.

The proposals, the second-highest amount in US history, include
asking Phoenix voters to spend US$8.5 billion on highways, trains and
buses, and a Denver ballot initiative for US$3.5 billion to extend
rail lines.

Authorities are seizing on low rates for projects that were deferred
as state budget reserves fell 70 per cent in three years and only
began to recover this year. The bonds, if approved, will generate as
much as US$174.6 million in fees and reach investors whose demand for
municipal issues has driven the Bond Buyer 20 General Obligation
Index yield down to 4.50 per cent or lower for nine weeks this year
the longest such run since 1968.

"The economy is good," says New Orleans Mayor Ray Nagin, 48, a
Democrat who is asking voters to approve a US$260 million bond sale,
the largest in city history, to pay for street repairs, playgrounds,
parks and libraries. "The cost of borrowing is very good. If you're
going to do it, do it now."

The Bond Buyer 20 index, the oldest measure of public borrowing,
index is at 4.44 per cent, within 37 basis points or 0.37 of a
percentage point of 4.07 per cent on August 8, 1968.

Governments now have more money to pay for projects. Tax receipts
have climbed this year as US gross domestic product rose 3.31 per
cent to US$11.64 trillion in the first six months, ahead of a 2.51
per cent gain in the year-earlier half. The US economy grew at a 3.7
per cent annual rate in the third quarter, a government report showed
on Thursday.

'More luxuries'

"There are more luxuries, such as stadiums, on the ballot this year,"
says Evan Rourke, senior vice-president with Popular Securities in
New York, who trades municipal bonds. "In years before, from the
politician's point of view, we could do without some of these
things."

Voters may reject spending on major projects as cities and states
recover from deficits, last year's election results show.

Last November 4, voters approved 60.8 per cent of US$10.6 billion of
proposed bond issues, the lowest rate since 58.6 per cent of US$10.2
billion in spending was approved in 1997, Toronto-based Thomson
Corp's Thomson Financial says.

This year, US President George W. Bush and Democratic Senator John
Kerry have been tied in nationwide polls ahead of Tuesday's
presidential election. The close race reflects a divided political
climate that means support may not be uniform, says Charles Emrich,
vice president and municipal credit research senior analyst at Legg
Mason Inc in Baltimore.

"Our country seems really divided nationally, so the bond issues are
all going to come down to local politics," Emrich says.

Closing deficits

The proposed borrowing is the second-highest amount for a US general
election behind the US$47 billion considered in 2002 when California
alone put US$23 billion on the ballot to pay to build new schools to
ease overcrowding, according to Thomson Financial.

Projects were put on hold when reduced economic growth cut tax
revenue, Rourke says. Year-end state budget reserves fell to US$14.5
billion in fiscal 2003 from US$48.8 billion in fiscal 2000, the
National Association of State Budget Officers says.

States raised fees, spent reserves and received US$20 billion from
the US Government by September 30 of this year to reverse three years
of deeper deficits sparked by recession. In fiscal 2002, total
revenue for states declined 6 per cent to US$466.9 billion, the first
time in the postwar US that receipts fell, the National Governors
Association says.

State tax revenue began to recover this year, rising 11 per cent to
US$145.4 billion in the first quarter from the year-earlier quarter,
according to Nelson A. Rockefeller Institute of Government in Albany,
New York.

Rising demand

The passage of all the proposals would total about one-10th of new US
municipal bond issues next year, based on historical demand that
peaked with a record US$383 billion last year.

Investors will welcome the debt because demand is rising in the
US$1.9 trillion municipal bond market as more Americans retire and
shift to tax-exempt assets, says Timothy McGregor, who manages US$3
billion in municipal bonds for Chicago-based Northern Trust Corp.
Bonds can provide better returns in a year when the Standard & Poor's
500 Index has climbed 1.4 per cent and the Dow Jones Industrial
Average has fallen 4.3 per cent.

"Our supply-demand picture for municipal bonds is a lot more positive
than people might envision," he says.

The passage of all US$29.7 billion of bonds on the ballot and
subsequent competitive sales would generate as much as US$174.6
million of underwriting fees for investment banks, based on an
average US$5.88 per US$1,000 of debt sold in negotiated sales in
2003. The largest managers of municipal debt sales this year include
Zurich-based UBS Financial Services Inc, New York-based Citigroup Inc
and New York-based Lehman Brothers Holdings Inc.

Stadium financing

Sports arena financing sparked three ballot initiatives. A referendum
in the St Louis area will decide whether to require voter approval
for spending on sports stadiums, and approval would mean the local
county may have to go to court to pay back US$45 million in taxable
bonds already sold to finance a new baseball stadium for the St Louis
Cardinals. The Cardinals lost baseball's World Series to the Boston
Red Sox on Wednesday.

A group supporting the referenda, the Coalition Against Public
Funding for Stadiums, succeeded in passing a similar measure in 2002
in the city of St Louis. City officials decided before that vote to
give the Cardinals a tax break on the stadium.

Voters in Arlington, Texas, 10 miles west of Dallas, will be asked to
increase their sales tax one-half of a per cent and use hotel and
rental-car taxes to pay the city's half of the cost for a planned
US$650 million stadium for the Dallas Cowboys football team.
Arlington officials plan to sell bonds to cover the city's share of
an agreement that may move the Cowboys out of Texas Stadium in
Irving, where they have played for 33 years.

Stem cells

In Florida's Miami-Dade County, voters will be asked to approve
US$2.9 billion in bonds, partly to pay for renovations on the Orange
Bowl, the former home of the Miami Dolphins football team, as well as
three museums and preserving open space. The proposal is the county's
biggest since voters approved US$550 million in 1972, while county
population has doubled to more than 2.3 million since 1970.

In California, voters will decide whether to borrow US$3 billion for
embryonic stem-cell research. The vote may make the state the largest
source of US funding for stem-cell studies, which scientists say may
lead to treatments for such diseases as Parkinson's and Alzheimer's,
diabetes and nerve damage.

Half of likely voters on November 2 back the referendum, according to
polls this month by the Public Policy Institute of California and the
Los Angeles Times.

Ban criticized

Bush and Kerry have clashed over stem-cell studies. In 2001, Bush
banned the destruction of embryos for use in research funded by the
US Government, allowing the study of existing stem cells taken from
embryos. Kerry told supporters in New Hampshire on October 4 that the
ban should be lifted to make more stem cells available.

Passage of the measure may mean state leaders will have to ease
lingering concern with using public money to invest in embryonic
research, says J. Thomas Futrell, vice-president and fund manager
with Nuveen Asset Management in Chicago, who helps manage US$55
billion of municipal bonds.

"The devil will be in the details," Futrell says. "I am sure there
will be ethical issues raised as a result."

(China Daily)

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