“The municipal bond market is $2.5 trillion marketplace,” he added. “I think when folks are looking at the liabilities and obligations of states, they’re acting as if these liabilities come due tomorrow or next week. These liabilities are very long-term in nature.”
State governments aren’t like corporations, said Reynolds, because they have lots of resources, including taxing authority. As for troubled states, such as Illinois and California, Reynolds predicted that officials will have the political will to turn the situation around.
The cost of borrowing funds for projects isn’t an issue either, maintained Reynolds. “The debt service of a state budget is generally at 10 percent, usually in the 4 to 7 percent range is what they’re paying for debt service, so it’s not a big part of their budget.”