Aula 7: Política e Financiamento Municipal (Material apresentado durante o seminário: Nova Gestão Pública e Finanças New Public Management & Finance) Seminário Especial FGV-EAESP Jeffrey Leifer Kurt von Mettenheim 5–9 Junho 2006 Rua Itapeva 474 Sala 4002 13:00 – 16:00
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Aula 7: Política e Financiamento Municipal (Material apresentado durante o seminário: Nova Gestão Pública e Finanças New Public Management & Finance) Seminário.
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Aula 7: Política e Financiamento Municipal
(Material apresentado durante o seminário:Nova Gestão Pública e Finanças
New Public Management & Finance)Seminário Especial
1) US Municipal Bond Market“Municipal bonds have been issued by US
local government since 1812” Fahim, Mayraj.
Infrastructure in the United States is generally financed through municipal bonds(all sub-national governments, agencies, quasi-public “special districts”).
1st paper: General obligation bond, i.e. backed by taxing power and revenues of issuer.
“…without the ability of state and local governments to issue debt … today’s America, as we know it, would cease to exist.”
Creative ways to avoid debt limits and procedural hurdlesLease financing (Certificates of Participation (COPs), Tax increment financing (TIF), Bond banks, Revolving loan funds. Issuers protect investors via letter of credit (LOC)
Reset securities, or floating rate debtInterest rate exposure mitigated via swaps and derivatives.
All above increase liability risks… Simpler instruments needed?
Recommendation Brazil Situation-------------------------------------------------------------------------------------1. Devolution of sufficient Clear Intragovernmental revenues to encourage Budget Flows, but myth?
ofpayment. no repayment (00s vs 90s)-------------------------------------------------------------------------------------2. Devolution of authority Yes > % Budget = Mun. Govt.for budgeting. (orçamento participativo...)--------------------------------------------------------------------------------------3. Borrowing authority NOto issue short- & long-term debt.-------------------------------------------------------------------------------------4. Provision of public uses Repressed Demandof borrowing. Low Capacity--------------------------------------------------------------------------------------5. Limits on sources LRF: Fed. Ministry of Financeof borrowed funds. (Sec. Treasury & CAE Senate)
Recommendation Brazil Situation-------------------------------------------------------------------------------------6. Requirement that debt Must Design Frame: approximates economic life Cost/Benefit Analysis...asset or project. Revenue Stream-------------------------------------------------------------------------------------7. Transparent and reasonable Transparent YES debt limits % total spending Reasonable NO (2%RLC)on past budget of future.-------------------------------------------------------------------------------------8. Provision for payment Who? 1) Insurance co´sdebt service arrears & default. 2) Govt., 3) Bond Bank -------------------------------------------------------------------------------------9. Budget law distinguishes NO? Accounting culture:capital from recurrent expenditures. From “debt” “capital”
Recommendation Brazil Prospects-------------------------------------------------------------------------------------1. Yields priced for risk. Primary Market Launches...-------------------------------------------------------------------------------------2. Instruments placed in Underwriter? Insurance Co´sMarket with private parties Bond Bank as underwriters or lenders. Consortia-----------------------------------------------------------------------------------3. Risk assessed by institutions, Must Adapt Credit Analysisbanks, insurance, pension, to Municipal
Finance/Budgetsecurities firms.-------------------------------------------------------------------------------------4. Criteria for grants & Policy Discretion for Gov´t.subsidized market loans clear & classified from low to high risk.
Recommendation Brazil Prospects--------------------------------------------------------------------------------------1. Accounting systems that Low Capacitysupport local liability management. (asset management systems>).--------------------------------------------------------------------------------------2. Regular reports to compare Hi Capacity
Budgetplanned-to-actual expenditures and Lo experience financetrack budget progress (debt schedule).--------------------------------------------------------------------------------------3. Projects evaluated individually and Low Capacityaccording to economic criteria. Local units have professional capital programming, budget systems, and apply cost/benefit and net present value techniques.
Recommendation Brazil Situation--------------------------------------------------------------------------------------Central government guarantee NO--------------------------------------------------------------------------------------Devolution of authority to borrow NO--------------------------------------------------------------------------------------Tighter reporting requirements Tight as Stand in on commitments and capital expenditures. Budget/Fical Law---------------------------------------------------------------------------------------National governments and donor BIG ADVANTAGErequirements can direct institutional savings into domestic investments. --------------------------------------------------------------------------------------Can provide subsidies to certain BIG
Security B = pledge of County assets, (former City Hall building, unencumbered portions of the downtown County jail, Parking Garage to be constructed, and Salida Library).
Bond insurance = commitment from AMBAC, Assurance Corporation.
AAA Moody´s = saved County $667,000 debt service compared to uninsured COPs ‘A3.’
Democratization* Reverse Brain Drain to Private Sector* Develop Bank Capacity & Market Differentiation
4) “Relational Financial Management” = Pre-Sale Post-Sale, education / training < cost of capital new issues education / training < cost of capital... INVESTMENT GRADE...
June 24: List of Projects for “Pearl” launches, test market, build confidence, demonstration effect (47 São Paulo State Strategic Projects? Package Refinance existing?)
August 31: Presentation & Discussion: Market Design
September 30: Approve Draft Memorandum: Market Design
October 28: Roundtable and Discussion: Veto/Amend Market Design
November 25: Present Proposal to FGV Presidency, Public Opinion, Fed & State Finance Authorities 2007+