I had the following debate today with an old muni master. Which would you rather own, assuming the same yield. Prince George's County MD, which is a wealthy Washington D.C. suburb, or New York City? Both came with BAB deals in the last two days, hence the debate. My friend took New York. I took Prince George's. Here's the low down on both.
- Population: New York 8.2 million, Prince George's 820,000
- Unemployment: New York 10.3%, Prince George's 7.5%
- Median Household Income: New York $38,293, Prince George's $55,526
- Case-Shiller Home Prices, last 12-mo: New York -10.35%, Prince George's (part of DC metro area) -9.78%
- Credit Rating: New York Aa3/AA, Prince George's Aa1/AAA
Here is the positives for New York over Prince George's. Obviously New York is a bigger economy with much more economic diversity. In addition, Prince George's bond issues have a fairly unusual "limited tax" stipulation. Typically a GO bond documents require the municipality to use their full and unlimited taxing power to repay bond holders. In a lot of cases, the property tax rate is determined by what is needed to fund debt service (as well as other government services). However, Prince George's has a limit of 2.4% of assessed value period.
Despite this, I like Prince George's better. First, much of the County's employment is based around the Federal government, which is the one part of the economy that is still growing. New York on the other hand is in the eye of the storm in terms of finance lay-offs. But more importantly to me, New York has a more complicated budget.
In reality, neither is likely to actually miss any bond payments. So the risk is a California-style budget battle, where the situation is unresolved for months and months causing spreads on bonds to widen dramatically. Isn't that much more likely to happen in the Big Apple? Prince George's just doesn't have a complicated enough budget to create this kind of problem. New York does. Hell, New York has gone through such budget battles multiple times in the past.
Anyway, food for thought among the muni guys in the audience.