Migration and Municipal Bonds

The slowdown in migration in the U.S. has significant consequences for municipal finance.  New population growth in a community has been the driving force in municipal infrastructure finance since the beginning – and the slowdown we have seen over the last two years will affect bond volume in previously high growth centers.  Borrowing to meet the needs of growth is politically easier when expectations for repayment fall on the new beneficiaries.  Borrowing for maintenance is more challenging and we expect capital spending to fall in the near term both from internally and externally generated funds.  In addition, problems from high foreclosures and developer bankruptcies have cropped up on the suburban frontier, where the slowdown in migration is pronounced.  A look at the recent census report adds an important dimension to our understanding of state and local fiscal condition.

Local movers – people who move from city to suburb and suburb to suburb are typically first time homebuyers, mover-uppers and those whose family circumstances have changed (births, deaths, and divorce).  The stimulating tax credit for first-time homebuyers plus reduced downpayment requirements (which combined to allow zero downpayment for many) has offset some of the downturn in the housing industry over the last six months – first the threat of tax credit expiration pushed some into the market and then the extension brought in some additional buyers. 

People move long distance mainly for jobs.  With many economists predicting a slow recovery for employment, long distance moves are unlikely to pick up near term.  “Long-distance migration acts as an engine of growth in many metropolitan areas…younger adults are far more likely to move than older individuals,” according to William Frey of the Brookings Institution.  (There is a small peak in migration among people in their early sixties who move for retirement.) Long distance movers tend to be college educated and professional. 

Florida:  Frey peeled back the demographics on Florida’s net out-migration, a historic trend and a surprise to many.  “The shift from net in-migration to net out-migration in Florida was especially strong for whites, Hispanics, younger people, married couples and persons with some college education…Despite its total net out-migration, Florida still attracted people ages 55 and over in 2007-2008.”  Sales taxes and health care services may perform satisfactorily under this demographic shift to older residents.  But older migrants on fixed incomes will reinforce anti-property tax sentiment in the state and there will be even less interest in supporting stressed school finances.

California: More people are staying put.  The state is the mirror image to Florida – a reflection of softening real estate costs and the weak job market in magnet states such as Arizona, Nevada and Oregon. 

Arizona and Nevada: These states’ dependence on construction will hurt in the current environment.  Arizona’s net in-migration, while still positive, has fallen by more than 54% from its peak in 2006 to 2008.  Nevada’s net in-migration has fallen more than 75% from its peak in 2006 to 2008.  At the peak of Nevada’s building boom in April, 2006, more than 11% of all employment in the state was in construction.  Arizona’s construction employment was next highest at 9.3% followed by Florida at 8.6%.  This compares with a U.S. level of 5.6%.  Managing through this drop-off is critical.  The negative comment in Moody’s downgrade report on Arizona’s upcoming COP sale caught our attention: “lack of institutionalized best financial management practices”. 

Trouble in suburbia: The outer suburbs are suffering the fall in migration with increased crime and squatters in empty houses.  Some writers, such as Christopher Leinberger declare that exurban communities will become the next slums.  ABC Australia covered this phenomenon last spring: “…it is easy to find signs that America’s relentless suburban expansion may have petered out…Streets remain incompletely paved and poorly lit, the legacy of a builder that declared bankruptcy.  And transient renters have replaced homeowners who were forced out by the foreclosure crisis.”  Prince William County, where the subject community is located saw a nearly 40% drop in property values according to the county’s 2010 budget message.  The “Aa1” rated county is entering the year well-positioned for the challenge, but has cut the budget across the board, eliminated services and increased classroom sizes.  The county has taken down its capital improvement budget by 64% since last year.  Other governments that are less well managed may not fare as well. 

Cities and dense metro areas well-positioned for economic recovery: “Migration matters,” according to the Economist December 19 edition.  “Economic growth depends on productivity and the most productive people are often the most mobile…When clever people cluster they can bounce ideas off each other.  This is why rents are so high in Manhattan.  Robert Lucas, a Nobel economics laureate, argues that the clustering of talent is the primary driver of economic growth.”

I have placed a longer discussion of these issues for download when you click Migration Report.

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2 comments on “Migration and Municipal Bonds

[…] This post was mentioned on Twitter by Municipal Bonds, Kathy McQuiston. Kathy McQuiston said: Migration and Municipal Bonds – The Public Purse: http://bit.ly/79pSL8 via @addthis […]

[…] the recovery is the lack of migration.  The housing mess is a contributing factor.  We noted in a previous post the first-time reversal of migration patterns since those statistics were collected.  We have […]

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