Moody’s Credit Rating Service just announced the ominous trend that credit quality in the municipal bond market is falling at the fastest rate since the collapse of Lehman Brothers in 2008. Data released showed that 5.3 times as many municipal bonds were credit downgraded over the three last months than were upgraded. Moody’s emphasized that: “Downgrades dominated rating revisions across all public finance sectors except for healthcare,” said Assistant Vice President-Analyst Dan Steed, author of the report. “A rapid deterioration in credit metrics led to a higher-than-average 14 multi-notch downgrades.” Often sold to individuals as “conservative investments with tax free income”, munis in states like California, Illinois, New Jersey, and Pennsylvania are increasingly looking like high risk rolls of the dice.

This credit implosion comes after a sustained period when muni bonds were performing much better than corporate bonds. During the credit crisis; corporate bonds prices dropped by 30%, while muni bonds suffered very modest losses. The main reason for this stability was bail-out money showered on state and local governments by the Obama Administration. But fed money has dried up and property reassessments are falling for the first time since the 1970s. Strains on core operating expenses and revenue sources will likely persist, according to Moody’s: “This will be mostly due to economic stagnation, high unemployment, declining home values, and low consumer confidence,” said Steed. “We expect downgrades to continue exceeding upgrades in upcoming quarters.” This is polite ratings speak for: “duck and cover”.

The state revenues fell by $14.3 billion, even as the national economy has seemed to stabilize. The quarter ending September 30th saw 163 ratings reductions, the second highest 90 total in history. Over 100 of those downgrades were cities and school districts where falling property-tax collection is playing catch-up on the downside to the 30% fall in real estate values.

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On the list of insane public policy moves we have come to expect from the current administration, Cap and Tax, Obamacare and Union Card Check, a fourth has garnered relatively little attention, although the implications for all Americans may be among the most far-reaching.  The recurring theme is centralized control.

On Monday, the Metropolitan Water District of Southern California will host a rare Congressional “Field Hearing“.  A Congressional delegation will venture out of the beltway and actually devote time to a problem in our country.  Better yet, they will be listening to real citizens.  Sort of.

At issue is what residents are calling a government-made drought in the Central and San Joaquin Valleys of California.   Legal and environmental regulations in the Endangered Species Act has resulted in the diversion of 200 billion gallons of water from the agricultural heartland of California into the Ocean.  According to California farmer Rose Corona,

“Potentially over $20 billion of California’s $43 billion of agricultural revenue could be decimated in America’s greatest breadbasket as farmers lose their farms and residents are forced to import food from China. While the solutions are not simple, local government officials are not even able to attempt them.”

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