Eric Fruits co-authored an article for the Municipal Finance Journal on the costs of issuing municipal bonds.

A municipal bond issuer has a choice in how its debt is issued. With negotiated issuance, one or more underwriting firms acting together  purchase the bonds from the issuer. The issuer and the underwriter negotiate many of the terms of the issuance. With competitive issuance, bidders buy all the bonds according to take-it-or-leave-it terms proposed by the issuer in a widely circulated prospectus.

Some observers believe they have seen systematic differences in the costs to the issuer under the two methods. These perceived differences have, in turn, led to research to evaluate whether–or under what conditions–one method is superior to another.

Our research indicates a strong tendency for issuers to select the method of issuance that best suits the nature of the issue at hand, such that policies to mandate one type of issuance over the other will likely increase, rather than decrease, issuance costs.

Citation:

Fruits, E., Pozdena, R., Booth, J., and Smith, R. (2008). A comprehensive evaluation of the comparative cost of negotiated and competitive methods of municipal bond issuance. Municipal Finance Journal, 28(4):15-41.

As the economy heads toward recession, state government budgets are projecting much lower revenues than in the past.  In an Oregonian op-ed, Eric Fruits suggests first applying some smart spending principles before heading down the tax hike route.

This isn’t a good time to be a state legislator. In Oregon, state revenues are now projected to be $1 billion short of paying for existing services in the next biennial budget. At the same time, the economic downturn is putting pressure on all levels of government to hand out help to households and businesses. …

As Oregon households and businesses see their incomes shrink over the next year or so, state and local governments will be challenged to explain to taxpayers why they should open their wallets wider for more taxes.

By adopting principles of “smart spending” the incoming Legislature can fund valuable services and calm taxpayer jitters. The principles of this concept allow for increased spending — even in a recession. However, smart spending puts a burden on policymakers to critically evaluate benefits against burdens. …

[I]f new road and rail projects truly are needed, then roadway users and rail passengers should be willing to pay for such improvements. Properly implemented mileage-based user fees can fund construction, reduce congestion and diminish emissions. Transportation revenue would rise in line with road use, ensuring adequate funds for road maintenance and expansion. Because better roads boost economic productivity, the benefits to all Oregonians would exceed the individual costs of user fees — an important principle of smart spending. …

Another principle asks whether more money will produce better outcomes: How much bang will Oregonians get for taxpayer bucks? In a series of studies for the Cascade Policy Institute, Randall Pozdena and I found that, after accounting for differences in income and demographics, Oregon’s state and local government spending is among the highest in the country. Spending on K-12 education and on police and corrections are especially high relative to that of comparable states.

Update: The Statesman-Journal, the Beaverton Valley Times and the Forest Grove News Times have also published the op-ed.

Eric Fruits was on the Jeff Kropf show (KUIK 1360), discussing the State of Oregon’s revenue projections.  Dr. Fruits advised that raising taxes would not sufficiently increase revenues.  More importantly, during this economic downturn tax increases will only deepen the recession.  Instead of raising taxes, cuts in state capital gains taxes will foster investment in the state.

The BBC reports that the European Commission has scrapped rules that prevent oddly-sized or misshapen fruit and vegetables being sold in Europe. The EU’s agriculture commissioner called it “a new dawn for the curvy cucumber and the knobbly carrot.”

Proponents of the scrapped rules say they were introduced to ensure common EU standards.  Critics decried the rules as examples of Euro-madness.  If the rules were madness, then surely everyone would have voted to scrap the rules.  Instead, the BBC’s blog notes that that 16 countries–mainly the big fruit and vegetable producers–voted against scrapping the rules.

If the rules were such Euro-madness, why would 16 countries vote to continue the madness?

Economists know that there was a method to the madness: the rules were designed to increase food prices and, in turn, producers’ profits.

How can beautiful fruits and vegetables increase food prices?

Adam Smith noted that meetings of people in the same industry usually result in “some contrivance to raise prices.” The contrivance is usually some agreement to restrict output, thereby force consumers up their demand curves to pay higher prices.

In an article published by the Journal of Law and Economics, Eric Fruits and his co-authors show that many agricultural cartels in the U.S. raise the prices for their crops by imposing quality restrictions on output. Produce that is too small or misshapen is not allowed to be marketed by cartel members.  Such rules raise prices in two ways:

1. Higher quality produce is more desirable to consumers. Consumers are willing to pay more for a larger beautiful melon than for a small ugly one.
2. Because some produce does not “make the grade,” quality restrictions reduce the amount available for sale.  If only “large” melons can be marketed, then the total number of melons for sale shrinks. The reduced supply of produce results in higher prices.

Eric Fruits recently was appointed to serve on a Fiscal Advisory Committee convened by Oregon’s Department of Environmental Quality.  The Committee was charged with evaluating the economic impacts of DEQ’s proposal for requiring emission controls at the PGE Boardman coal-fired power plant.  DEQ’s proposal is in response to the federal requirement for Best Available Retrofit Technology (BART), which is a mandatory requirement under the Regional Haze Rule.

Among the options considered, DEQ’s proposed action would provide the largest environmental benefit. However, DEQ’s proposed action would also produce the large electricity rate increases.