This is the sixth and final article in a series highlighting the most important aspect of municipal bonds: how project bonds finance help the community. It appropriately started with Municipal Bonds: Investing In Our Communities. This piece looks at how fiscally responsible governments have a more positive impact on their communities because they can better meet the needs of those residents
When thinking about impact factors, fiscal prudence is often overlooked.
Yet in the event of fiscal irresponsibility, the negative impacts can be severe to a community and investors alike. Puerto Rico and Detroit are just two recent examples of why fiscal responsibility is an essential factor to consider when investing in municipal bonds.
Investing in municipalities and authorities with initiatives and processes aligning with good governance, such as consistent, prudent, and transparent financial management, can provide stable returns for investors and lower capital costs for communities.
It goes beyond credit and ratings.
With all the balance sheets and income statements quantifying that responsibility, the primary impact is not a number; it is trust. A financially responsible community engenders trust between citizens and the municipality’s leadership, and this affords the community the ability to provide necessary services to all its residents.
Alameda County has a gilt-edge credit rating (Moody’s: Aaa; Standard & Poor’s: AAA). Located in the San Francisco Bay Area, the county has a large and diverse tax base, a growing assessed valuation of taxable properties, and a low debt burden. Where pension issues bedevil other communities, Alameda County management consistently funds this long-term liability.
In addition, while most cities and counties have moved away from public health systems, Alameda County saw providing health care as a critical part of its responsibility to its citizens. The Alameda Health System (AHS), a public health authority, has hospitals, psychiatric care, and senior care services, including the only Level One Trauma unit in the East Bay area. Through its 7 clinics and 4 emergency rooms around the County, AHX had more than half a million patients come through these community access points.
While most of the 1.6 million residents enjoy comfortable to affluent lifestyles, there is a less affluent population that often faces the most difficult health challenges and these community members are those most often treated by AHS. Federal, state, and local reimbursement programs covering this care can be complicated, slow to reimburse, and often do not cover all costs. To address that, the county uses its strong credit status to provide a $200 million working capital liquidity facility for AHS, and also applies the proceeds of a voter-approved half-cent sales tax to cover AHS indigent care costs. That program is self-sustaining with no further cost to the county’s residents.
Fiscal responsibility also means being able to meet obligations, particularly pension obligations to civil servants such as teachers, law enforcement, first responders, and government workers who work on the front lines to provide us with the municipal services we come to expect.
While headlines often (and correctly) highlight the problems of underfunded pensions, those states and local governments that continue to maintain funding to assure adequate financial resources often go unheralded.