Budget Deal
Last week’s federal budget deal, which included a rise in the top income-tax rate to 39.6 percent from 35 percent, was “positive for municipals,” said Alan Schankel, head of fixed- income research at Janney Montgomery Scott LLC in Philadelphia.
Bill Gross, manager of the world’s largest bond fund at Pacific Investment Management Co. in Newport Beach, California, has directed 5 percent of the fund’s $285 billion to munis for three straight months -- the longest since at least 2006 that local borrowings have represented that large a share of holdings.
Gross said he’s taking a “cautious” approach to state and local debt because Congress may change the tax-exempt status of the securities.
“We’re holding on to our positions, but muni rates are in this cloud of ‘will they or won’t they’ be taxed in terms of withholdings,” he told Bloomberg Television’s “Market Makers” on Jan. 4.
Austerity Mode
Faced with the need to balance their budgets, state and local governments were forced into austerity mode after the recession hit, Diffley said. That continued into last year. Payrolls in December alone fell 10,000 on a seasonally-adjusted basis, as reductions by counties and cities overwhelmed an increase by the states, according to data from the Labor Department in Washington.
Now they may be poised to expand, said Donald Boyd, a senior fellow at the Rockefeller Institute of Government in Albany, New York. “We’re likely to see some growth in payrolls” this year, he said.
California, the most-populous U.S. state, will end unpaid furlough days for its workers in June, a policy it first put in place in 2009 at the height of the financial crisis.
Rising Construction