Christine Todd Whitman won election as New Jersey's governor in 1993 vowing to cut taxes 30% in three years. Now she says it may take four years, not three, and she also is considering higher taxes on gasoline and higher tolls on New Jersey highways. To that extent, her tax program has hit snags that could warn this year's bumper crop of politicians promising lower levies.

George Pataki is running strongly in New York on a pledge to reduce the state's top tax rate by 25% in four years. Other politicians from Maryland to Arizona have pledged to cut taxes if elected. The electorate seems receptive, if recent polls are accurate.

From the perspective of the municipal bond market, this rush to promise lower taxes means investors must keep a close eye on state spending. As appealing as tax cuts are, they can't be made without side-effects, as Whitman's problems show. Lower state taxes almost certainly will require lower state spending, and that may mean shifting government programs to lower levels, which in turn may affect county and town taxes and spending. Bond ratings may suffer.

The political tide of 1994 is going to change bond values. If some states reduce taxes, cut spending, and spur economic growth, their bonds will gain value. If they cut taxes but fail to control spending, their bonds will lose ground. Ledgers have two sides, and bondholders must watch both.

Mary Catherine Messner, a municipal bond research analyst for John Nuveen & Co., spoke at The Bond Buyer's California Public Finance Conference, and she made a cogent case for secondary market disclosure. To Messner the principle was this: Bond issuers' use of low-cost funds is a privilege extended to them by the American public, and it carries with it certain responsibilities. To Messner, the use of low-cost funds is not an unfettered entitlement.

The responsibilities are plain. For bond issuers to gain access to the municipal capital market, they must be willing to ensure secondary market disclosure that will enable investors to exercise their right to assess the ongoing credit-worthiness of their investment. That's Messner's argument for ongoing disclosure.

With this philosophical underpinning, the municipal bond market can function properly only when issuers continue 16 disclose their revenues and expenses annually as long as their bonds are outstanding. If you accept the premise that access to the capital markets is a privilege and not a right, disclosure is vital, essential, fundamental.

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