Kenneth A. Kriz

Comparative costs of negotiated versus competitive bond sales: new evidence from state general obligation bonds

Abstract Previous work on the interest cost implications of the municipal bond underwriting method of sale decision has produced results asserting that competitive bid sales result in lower interest costs. However, negotiated offerings still dominate the municipal market. This paper invokes financial certification theory to explain the apparent paradox. After correcting for selection bias which is predicted by the theoretical model, empirical estimates show that for a sample of state general obligation bonds, negotiated offerings have at worst no higher and perhaps lower interest costs.

WHY DO INDIVIDUALS EVADE PAYROLL AND INCOME TAXATION IN ESTONIA

This paper employs micro-level data to determine the factors characterizing individuals who evade payroll and income taxation in Estonia. Using logit estimation on three different cross-sectional datasets, we estimate the marginal effects of different individual characteristics on tax evasion. The three datasets give broadly analogous results. Payroll and income tax evasion is most prevalent in small firms and in the construction and agricultural sectors. Evasion is more common among individuals who work part-time, are of non-Estonian ethnicity, have relatively short education, earn a low income and are men. Tax evasion is more frequent among the young and the elderly than among the middle-aged. There are clear regional differences. The overall picture is that the relatively disenfranchised are most likely to evade payroll and income taxation in Estonia.

Local Government Revenue Structure: Trends and Challenges

This paper examines trends in local government revenues and current challenges that local governments face in raising revenue. We alsolook into the future in an effort to make recommendations to localgovernments regarding their revenue structure. Important trends that wedocument include a long-term decline in the property tax and an increase inboth state aid and user charges. Recent economic changes present seriouschallenges for local governments due to volatility of sales taxes, decreasesin property values, and threats to state aid. As local governments shape theirrevenue structure, they will need to respond to external economic,technological and demographic changes. Only user charges offer hopefulprospects as a productive revenue source.

How Does the Health of Transportation Infrastructure Affect State Credit Ratings? An Empirical Analysis

A well-developed and carefully maintained public infrastructure system is of critical importance to ensure that the economy can function effectively. To investigate the consequence of deficient public transportation infrastructure conditions on states’ creditworthiness, this study constructs an infrastructure health index to measure the physical conditions of state highway transportation systems and empirically estimates the effect of the overall health of state highway transportation infrastructure on Moody’s and Standard and Poor’s state credit ratings by using a data set from 1999 to 2009. The empirical results indicate that the poorer the quality of a state’s highway infrastructure, the lower the probability that the state will be in a higher credit rating category, and the higher the probability that the state will be in the medium or low credit rating category. This finding suggests that state policy makers should be cautioned about the negative consequences of cutting spending on infrastructure maintenance and expansion.

Assessment of Micro-Enterprise Development through IT Adoption

While prior work has focused on the process through which IT may be adopted by micro-enterprises, this research takes it one step further by assessing the outcomes from IT adoption in micro-enterprises that have undergone technology, training and trust building interventions. It analyzes these using a systematic evaluation model that ties in the key components of development. The contribution of this paper is in providing insights into how researchers and practitioners can better stimulate micro-enterprise growth and economic development through IT adoption.

The effect of board composition on public sector pension funding

Public pension plans in the U.S. are seriously underfunded, especially following the financial market crisis of 2008-2009 which resulted in large investment losses. However, funding levels vary widely across plans. Pension boards of trustees make key management decisions in pension systems and these decisions have significant effects on funded levels, yet our empirical knowledge of board management is limited. This study explores the effect of board composition on pension funding levels. Existing theoretical debates lead to differing expectations, and previous studies have mixed results. Our research uses a panel data set of large public pension plans from 2001-2009. We also collect data for pension board composition from this time period. We find that increasing political appointees and employee members on the board increases the funding performance of the pension system.

The Two Worlds of Municipal Bonds: ARE Lower-Rated Bonds Punished More by Financial Crisis?

Since the inception of the financial crisis in late 2008, the municipal bond market has undergone tremendous disruption. While some parts of the market are returning to normal, other parts are still under pressure in the aftermath of the financial crisis. By comparing the yields on municipal bonds and comparable corporate bonds, we find that since the crisis, municipal bonds of lower investment grade ratings, those rated A and BBB, are now paying a significantly higher risk premium than their corporate counterparts as seen in light of the traditional yield spread between these two bond markets. This higher risk premium has negative implications for the municipal bond market. Factors for this perception of increased risk in the municipal bond market are discussed and potential solutions are suggested.

The Impact of Rating Recalibration on Municipal Bond Yield Spreads

In this paper, we examine the effects of the global rating recalibration conducted by Moodys and Fitch credit rating agencies in early 2010. We test the hypothesis forwarded by the rating agencies that the recalibration was “yield neutral.” Using time series methods, we find that the rating recalibration brought a structural change to the municipal bond market and increased the spread of municipal bonds in the Aaa, Aa, and A rating categories over their risk-free comparison group by approximately 15 basis points. The impact of the rating recalibration on the spread of Baa-rated bonds was not statistically significant.

Is There an Optimal Size of Fiscal Reserves for Local Governments

This chapter examines the topic of the optimal size of fiscal reserves. The fundamental question of whether there is an optimal level of reserves is considered, along with the elements of a model of the optimal reserve size. We examine existing research on the topic, and then build a model of reserves using a forecast simulation approach. We first develop a forecast model using data from a local government. The forecast model consists of two time-series systems equations. The first equation contains economic variables, producing a forecast of the local economy. Those forecasts then enter the second equation as predictors of revenues and expenditures. We then simulate the equations going forward to produce estimates of revenues and expenditures for the government, thus leading us to the level of fiscal reserves that should be required to cover potential shortfalls.