A Wall Street Journal article published Monday raises a policy dispute that doesn’t yet seem to have hit another polarized hyper-partisan deadlock. Senators Mark Warner (D – VA) and Mike Crapo (R- ID) have sponsored legislation mandating federal standards by state and local governments’ financial reporting when they issue bonds.
Anyone who has worked in proximity to the municipal bond business knows that bond issuers – towns, counties, regional bodies, and states – are extremely variegated in their workings and configurations of authority. It is no surprise that their financial reporting is not standardized, as is reporting for corporations that wish to use the financial markets. Likewise, the process of putting a deal together involves highly variegated regional charters, state constitutions and local by-laws operated by similarly diverse administrators and politicians. Between this hodge-podge effect, plus a wide range of borrowers and often-small sizes of bond issues, “muni” bonds are not easily compared to each other and so are hard to trade. They might well be viewed as illiquid, perhaps particularly risky in times of stress. Standardization of financial reporting could alleviate some of this inefficiency, to make buying the bonds more attractive, to reduce financing costs for infrastructure projects.
On the other hand, there will be a cost to these entities to meet standards. Further, borrowers and brokers and investors do have their networks of connections; their ways and means have made for a market that hasn’t blown up through recent stresses and crashes.
The partisans have not made a stink one way or another about this idea, not that the general public would have seen. Prior versions of this proposal have quietly gone nowhere; the Warner / Crapo proposal passed the House after being attached to a defense spending bill. But never underestimate the pols’ interest in finding ammunition to fire at the other side. If this policy debate hits the partisan screen, what might the trench lines, defining the left’s and right’s rhetoric, look like?
Would the partisan right claim that federal authorities are ‘encroaching’ on pluralism and liberty and disrupting a market that works? Might their left wing counterparts respond by denouncing a ‘pervasive cronyism’ in the world of regional authorities and their bankers?
Or will the partisan left villainize a ‘power grab’ by big finance and claim that more centralized trading of muni bonds could subject those markets to the stock market-like booms and busts, while the other side demonizes their ‘anti-American roadblock’ to infrastructure finance?
The short answers are, first, that ‘both sides’ may have enough interests on both sides of the issue that everyone tries to isolate it among the directly involved interests, outside partisan lines of fire. Senators Warner and Crapo could, as a result, work their fellow legislators and score a bipartisan success, or they could be brushed aside on this issue, consigned to no-man’s land. Second, if some party does discern a political advantage in raising the issue to the partisan rhetorical stage, it will likely reflect money – contributions, whether from banks, unions, or particular interest groups. The balance of which interests use this power within “their” sides would then set up choices like the hypotheticals above.
The most likely outcome is that the two sides seal the issue into its own box, to wither on the vine or effect a quiet solution of some sort, either way with the general public none the wiser. Which result is less bad would depend on what solutions could actually work, which may never be known. Sadly, that last point best serves the interests of both partisan communities, but it may be better to facilitate quiet ignorance than to make more polarized headlines. That all-too-familiar course would be the worst outcome for America. The best would be a bipartisan win for Crapo and Warner, with people on ‘both sides’ engaging in meaningful deliberation on the workings of our system. Could we show that free people in a free-wheeling society can do this?