Bloomberg News

Ohio Returns Go From Worst to First in Obama’s Term: Muni Credit

October 23, 2012

President Barack Obama

President Barack Obama speaks during a campaign event at Ohio University in Athens, Ohio. Photographer: Brendan Smialowski/AFP/Getty Images

Ohio, which sided with the winner in each of the past 12 U.S. presidential elections, has already made victors of investors in the $3.7 trillion municipal-bond market.

Debt from Ohio and its localities has earned 8.6 percent this year, most among states, Standard & Poor’s data show. In 2008, when President Barack Obama won back the White House for Democrats during the longest recession since the 1930s, Ohio bonds lost 9.6 percent, the steepest decline nationwide.

Voters in the seventh-most-populous state will decide in two weeks whether they are better off than four years ago. Ohio’s jobless rate is the lowest since 2008 amid a boost in natural-gas exploration and the federal bailout of the automobile industry. Tax revenue has exceeded the forecasts of Republican Governor John Kasich’s administration and the state is replenishing its rainy-day fund.

“Ohio has done a nice job of being conservative with their budget estimates, and, as the economy has recovered, they’ve been well-positioned,” said Jamie Pagliocco, director of bond managers at Fidelity Investments in Merrimack, New Hampshire. He oversees $31.5 billion of munis, including Ohio debt.

Battleground State

Ohio joins states seeing tax collections exceed their prerecession peak and is among six battleground states where the unemployment rate fell last month. No Republican has won the White House without claiming victory in Ohio.

Obama won the state with 51.5 percent of the vote in 2008. He led among likely voters in Ohio by 50 percent to 45 percent for Republican challenger Mitt Romney, according to a Quinnipiac University/CBS News poll released yesterday.

The state closed a deficit of as much as $8 billion without raising taxes in the two-year budget that took effect July 1, 2011, while boosting its rainy-day fund to $482 million from 89 cents in January 2011, Kasich has said. Tax receipts were 1.4 percent ahead of administration estimates through September in the fiscal year that began July 1, Office of Budget and Management data show.

“If you look at its fiscal condition, if you look at its budget, if you look at any number of different metrics, the state is doing exceptionally well,” said Daniel Close, who helps manage about $1.1 billion in Ohio munis for Nuveen Investments in Chicago. He said he’d buy Ohio general-obligation debt, which is rated AA+ by S&P, the second-best grade.

Penalty Shrinks

The extra yield that investors demand to own bonds of Ohio issuers rather than benchmark AAAs fell as low as 0.18 percentage point in August, the smallest since 2009, according to data compiled by Bloomberg.

The state’s bonds have outearned their rivals even as Ohio issuers have sold $9.3 billion this year, about 75 percent more than in the same period in 2011, data compiled by Bloomberg show. Municipalities are taking advantage of interest rates near 45-year lows to start projects and refund higher-cost debt.

Ohio’s economy is benefitting from increased oil and natural-gas development. There have been 429 permits issued since December 2009 for hydraulic fracturing, or fracking, according to the Ohio Department of Natural Resources.

Energy production may add $4.9 billion to Ohio’s economy by 2014, according to a study sponsored by the Ohio Shale Coalition, which supports energy-industry growth.

After losing more than 618,000 jobs from 1999 to 2009, Ohio has added about 176,000, according to federal data. Only four states added more jobs in that period. The unemployment rate in the Buckeye State was 7 percent last month, compared with the U.S. rate of 7.8 percent.

“Ohio has just done considerably better than most other states, and a large part is attributed to fracking,” said Close, whose company manages about $90 billion in munis. “The biggest thing it has created is decent-paying jobs.”

In the broader tax-exempt market yesterday, yields on benchmark 10-year munis rose about 0.02 percentage point to 1.70 percent, the highest since Oct. 1, a Bloomberg index shows.

Following are pending sales:

COLORADO HEALTH FACILITIES AUTHORITY plans to sell $1.5 billion in taxable revenue bonds as soon as this week on behalf of Catholic Health Initiatives, according to data compiled by Bloomberg. (Added Oct. 23)

CALIFORNIA plans to sell about $550 million in general- obligation refunding bonds as soon as today, according to data compiled by Bloomberg. The debt will be sold via auction. (Updated Oct. 23)

To contact the reporters on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net; Mark Niquette in Columbus at mniquette@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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