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UPDATE: MUNI WATCH: Voters Willing To Bond, Tax Despite Econ

Published: 06 Nov 2008 01:51:30 PST

NEW YORK --While voters in Tuesday's presidential election opted for change, the nation's fiscal and economic ailments didn't appear to stop them from opening their wallets to take on additional debt and rejecting key tax-reduction measures.

Fifteen statewide bonding proposals totaling just under $18.4 billion appeared on ballots in eight states, and people pulling the levers and pushing the buttons on voting machines appear to have approved all but one, a $5 billion renewable energy measure in California.

Assuming that two measures which are still running neck and neck are approved, voters will have given the go-ahead to $13.4 billion in statewide bonding, 72.8% of the amount proposed.

"Voters have been receptive to bond measures, as they usually are," said Jennie Drage Bowser, senior elections analyst at the National Conference of State Legislatures. "But they also recognized that, if you cut taxes drastically, services and programs would have to be cut, and people are going to find themselves paying for it themselves or new taxes will come along."

The two statewide measures still slugging it out include one in California that would spend $9.95 billion to finance a high-speed train between Sacramento and San Diego and another in Maine that would allocate $3.4 million to water projects. With 98% of precincts reporting, the Golden State's transit measure had 52% of the vote. The Maine measure had 50.8% in favor with 99% of the vote tallied.

At the same time, the three major tax cuts on ballots were spurned by the electorate.

The one worrying the $2.6 trillion municipal bond market the most was a Massachusetts question that would have cut the state's income tax to 2.65% on or after Jan. 1 and eliminated it entirely a year later. It would have have cost the Bay State about $12.5 billion a year, roughly 40% of its current budget. A similar proposal was defeated in 2002 but garnered 45% of the vote.

"By voting down Question 1, Massachusetts taxpayers helped the commonwealth maintain its double-A bond rating and manage its debt, but there are still tough and uncertain economic times ahead," Treasurer Tim Cahill said in an email. "The Treasury will continue to push for fiscally responsible solutions to manage the state's finances."

Also receiving the thumbs down signal was a North Dakota proposal that would have cut the personal income tax rate in half and cut the corporate income tax rate by 15%.

A measure in Oregon would have removed the $5,600 cap on how much federal income tax Oregon taxpayers could deduct from their state income taxes. It would have reduced state revenues by about 14% by 2011. Oregon voters rejected an identical proposal in 2000.

New Jersey voters, meanwhile, said yes to a constitutional amendment that will require their approval of new laws that permit the state to borrow money by issuing appropriation-backed bonds through any state agency or independent authority. Such bonds count on annual promises of future legislatures for their backing, usually leaving them a rung lower on the ratings ladder than state general-obligation bonds.

Nationally, state and local governments placed $67 billion of debt on ballots, the second-largest amount behind $78.6 billion in November 2006. With results tabulated for $65.9 billion, 82% - or $54.2 billion - was approved, according to The Bond Buyer, a municipal bond trade publication. Even if all the uncounted bonds are defeated, the approval percentage couldn't dip below 80%, the paper said.

Lottery and gambling results were mixed.

Arkansas voters approved a new state lottery whose revenue will fund college scholarships for Arkansas students. In Maryland, voters approved placing 15,000 slot machines around the state to fund education. Colorado and Missouri voters agreed to expand casino gambling.

Maine and Ohio voters nixed proposals that would have allowed a single new casino in each state. Massachusetts voters approved a ban on greyhound racing.

An overwhelming majority of the proposed bonding on statewide ballots came from California, a state that faces a $10 billion budget deficit but continues to demand more funds for various purposes.

A $5 billion proposal there to help develop alternative energy sources went down, as did one that would have required publicly owned utilities to purchase or produce half their power from renewable sources by 2025. Voters may have feared that this measure would translate into a price increase on home energy bills, the NCSL's Bowser said.

Still, Californians approved $980 million for children's hospitals and $900 million to help finance veterans' mortgages.

The $16.8 billion of measures proposed for the nation's most populous state accounted for 91.3% of statewide ballots across the nation. A record 17.3 million people were registered to vote in the Golden State.

Meanwhile, $400 million of bond issues in Ohio and Pennsylvania each got the green light, as did $300 million of debt requests in Alaska and Arkansas.

At the local level, huge debt requests of $7 billion and $3.8 billion for construction were approved for the Los Angeles Unified School District and the Los Angeles Community College District, respectively. Another $2.1 billion was approved for the San Diego Unified School District.

In Los Angeles County, voters approved a half-cent sales tax increase that is expected to raise up to $40 billion to build a so-called Subway to the Sea that Los Angeles Mayor Antonio Villaraigosa has campaigned for heavily since taking office more than three years ago.


(Stan Rosenberg, a veteran observer of the municipal bond industry, writes about issues and trends in the muni market for Dow Jones Newswires. He may be reached at 201-938-2143 or at stan.rosenberg@dowjones.com.)


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