NEW YORK -- Issuers should familiarize themselves with the global taxable market, because many will soon find themselves there whether they like it or not, says that incoming president of the Government Finance Officers Association, Richard Dixon.
In an interview last month, Mr. Dixon said globalization will therefore be a watchword for the GFOA. He also touched on a wide variety of other issues that will concern him in his one-year term, which starts tomorrow.
The idea is to "prepare public finance for the 21st century by increasing our recognition of the importance of globalization," said Mr. Dixon, chief administrative officer of Los Angeles County, in an interview last month.
"Increasingly we're going to find things that local government and state government need to finance that under existing or future federal regulation we can't do in the tax-exempt market," he said. "So I want to be out in the taxable global market, and I want to encourage other issuers to do the same before it is a matter of necessity."
For issuers accustomed to the U.S. tax-exempt market, where name recognition is generally not a problem, the global market will be much more of a challenge, he said.
And the time to get name recognition and experience is when you have the luxury of picking the time and circumstances of a taxable issue, he added.
As chief administrator of Los Angeles County, Mr. Dixon in 1988 led the county through one of the nation's first major taxable municipal issues aimed at overseas investors. The sale was so unusual, according to county officials at the time, that it began with an explanation of what an American county is. But the effort also got Los Angeles County's name into the world markets.
Bigger Share for Taxables
The program has since been ended because of declining spread advantages in the taxable market. But Mr. Dixon stuck by his prediction that taxable issuance and overseas revenue sources will comprise a growing share of the municipal market in years to come.
Globalization also applies to breaking down barriers at home, Mr. Dixon said, explaining that for the market to prosper it must encourage more women and minorities to enter the government finance business.
"We have to take much better advantage of the diversity of our community," he said.
The industry also needs to expand its marketing of municipal bonds to a broader range of investors, Mr. Dixon said, explaining that a greater level of market participation by less traditional investors will give the industry greater political influence nationwide.
"One of my goals is for us to do a much better job of marketing our tax-exempt paper to Tom, Dick, and Harry -- and particularly their grandmothers -- so that we can have the same support in Congress for tax-exempt financing as Social Security has or the AARP [American Association of Retired Persons] has," Mr. Dixon said. "If every grandmother depended not only on her social security check but on her municipal bond income, I would think that tax-exempt financing would have a much rosier future in America."
One means of accomplishing greater acceptance of municipals as a broader investment vehicle is to increase disclosure, Mr. Dixon said.
"I don't care who you are as an issuer, I think you benefit from disclosure," he said. "Even if you have very bad news to tell the world, if they hear if from you, you are better off than if they have to dig it out. You get a chance to explain it your way."
Realignment, or the shift of responsibilities from one level of government to another, has become another buzzword among government finance officers. Mr. Dixon said one of his concerns is that this trend may harm local budgets by failing to provide for commensurate levels of funding.
He also said government needs to ensure that local entities are given the freedom to administer new programs to meet differing community needs.
"The whole attraction, if what you're interested in doing is improving the system, rather than just solving your own deficit problem, is recognition that there is a difference between Los Angeles and Des Moines, or Los Angeles County and Butte County, [California]," Mr. Dixon said.
That recognition should result in allowances for alternative methods of meeting state or federal goals, he added.
"If you give them the freedom to do that, then I think turnback or realignment makes sense," Mr. Dixon said. "If you tie their hands, all it is is a political move to solve your deficit problem and give it to somebody else."
Thoughts on Realignment
A major realignment has been proposed by California Gov. Pete Wilson, who offered a plan in his 1992 budget to shift responsibility for several state health programs to the county level.
Mr. Dixon gave the governor high marks for the proposal, mainly because the $2.3 billion plan also included authority to raise revenues needed to finance the new responsibilities.
Although there is some question as to whether the growth of the new revenues will keep pace with the cost increases associated with the new programs, Mr. Dixon said the overall plan makes sense. He expressed concern, however, that Gov. Wilson is the exception rather than the rule nationwide.
Elsewhere, he said, the shifts are taking place without taking into account the fact that different local entities have different implementation needs, and might not be able to meet state standards in the same way as other local entities.
"There's frankly no point in moving programs from the federal to the state or the state to the local level if there are so many strings or chains or cables attached to them that you have no flexibility," Mr. Dixon said.
Not only is Gov. Wilson's realignment plan winning praise from local California officials, but his proposal to ease restrictions on bond authorization elections also is viewed favorably.
Part of the governor's plan is to switch the current law requiring a two-thirds majority to approve local bond elections to a simple majority, which is the restriction placed on state bond elections.
"We're very enthusiastic about it," Mr. Dixon said. "It's been very difficult to get a two-thirds vote for a tax raise," which is typically needed to back bond issues.
Overall issuance might not increase dramatically if the plan is approved, however, because it may result in fewer state issues for local pools, he said.
In addition, the eased restrictions would only apply to county jails, parks, open-space acquisition, and schools. Mr. Dixon and other county leaders are pushing to have hospitals included as well.
Mr. Dixon also discussed the nationwide trend toward giving private interests a go at providing services usually reserved for local governments.
Time to Privatize?
"Do for yourself, and indeed do for others, those things that you're good at, and hire somebody else to do the things you're not good at," Mr. Dixon advised.
Los Angeles County, for example, has decided it is not necessarily the best provider of internal services, such as data processing and building maintenance.
As a result, the county decided three years ago to allow agencies the freedom to choose their own internal services providers, forcing the county provider to compete for the first time.
Fleet maintenance, hospital food service, and laundry operations are other areas in which the county has decided to let private enterprise have a role in county services.
On the other hand, the county offers "the best front-line law enforcement agency you could hire," Mr. Dixon said. So it "contracts in" that service to about half of the county's 88 local towns and cities in the county.
As states around the county grapple with record deficits, it remains to be seen how local governments will be affected. Mr. Dixon said it is unclear how California's $14 billion budget shortfall will affect Los Angeles County. But he said county revenues, based predominantly on property taxes, are not as sensitive to variable economic factors as the state budget, which is heavily dependent on sales and corporate tax receipts.
Los Angeles County is likely to sell between $250 million and $500 million in debt during the 1992 fiscal year, and is planning a $1.3 billion tax and revenue anticipation note offering later this year.
Mr. Dixon said that whatever effect the state's budget crisis has on local entities, the fact that Gov. Wilson is in charge gives him comfort.
"At the moment, we have in the statehouse in Pete Wilson by far the best friend of county government I can remember, which is a pleasant surprise for us," he said.
