October 27, 2008

Making It Through to the Wallop

Justin Katz

Well, RI General Treasurer Frank Caprio sold his $350 million in bonds today:

General Treasurer Frank Caprio announced today that the State of Rhode Island raised $350M from the sale of Tax Anticipation Notes (TANs).

Just over $25M was sold directly to Rhode Islanders. In a rare retail push of TANS, Bank of America and local brokers aided the sale, reporting substantial retail investor activity, despite the lower than expected yield. Given priority, Rhode Islander's stepped up, with retail interest building momentum that was "felt by institutional investors," according to trading desk reports.

We now return you to an inadequately alarmed tone of government. Thanks to Mr. Caprio, the General Assembly will get through the election without any major fires, leaving it free to boost our taxes once the ballots are all counted. They'll probably do so largely by expanding the application of the sales tax, thus driving more business across the border and worsening the problem.

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"They'll probably do so largely by expanding the application of the sales tax, thus driving more business across the border and worsening the problem."

Don't be so sure. There are enough Democrats of the "corrupt but sane" faction (think Murphy and Montalbano) to realize this won't benefit them in the long, short or medium runs.
Of course the minority Communi-I mean "progressive" faction is more than willing. But they are NOT taken seriously by the leadership on economic matters. Or much else for that matter.

Posted by: Mike at October 27, 2008 7:39 PM


You are off base on this one.

The State is doing nothing more than what many businesses do: borrow short term to balance cash flow needs to receipts.

This isn't a gaming of the budget. It is a commonplace practice in most governments and many, many businesses. Large companies issue commercial paper, small businesses have lines of credit, and governments issue revenue anticipation notes.

Most of your receipts arive in the spring, but your expenses are spread throughout the year. You borrow now to pay the expenses and retire the debt in a few months when the revenue is collected.

There is enough in state government to complain about. This isn't one of the issues to bitch about. Indeed, focusing on this makes you seem unversed in the basics of finance.

Posted by: Pragmatist at October 27, 2008 8:43 PM

No, I get debt. The point (which I should have made more explicit) is that I was rooting against the common practice so that the state couldn't kick the can any more.

Posted by: Justin Katz at October 27, 2008 9:18 PM

I might have agreed with you, Pragmatist, but the state has only been doing this for three years. So up until then, they had apparently been spending more reasonably within their cash flow.

The Treasurer makes this borrowing sound very reasonable - and, let's be clear, in this matter, he has to do the best he can under circumstances that he does not control but which are handed down by the General Assembly. But it's not clear how this can be interpreted as anything other than another red flag signaling poor fiscal management by the G.A.

Posted by: Monique at October 27, 2008 9:21 PM

Pragmatist is correct. This practice has been been going on under your noses for some time. The change here was that ordinary people were given a chance to purchase these bonds rather than just large companies. Sounds like socialism is afoot in our fair state. Call the talk shows at once.

Posted by: Phil at October 28, 2008 6:26 AM

That is wrong Monique. The state has issued short term debt from time to time over several decades. It certainly happened regularly in the late 1980s and until the mid 1990s. The specific devices used to borrow have changed over time, but cash flow borrowing in governments, as in the business world, is nothing new or extraordinary.

Posted by: Pragmatist at October 28, 2008 9:52 AM

In other words, Pragmatist, during the credit union crisis, the previous collapse of the real estate market and the fallout years from those dire fiscal conditions? You've made my case.

Posted by: Monique at October 28, 2008 1:28 PM
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