Your Money: Water and sewer bonds still a safer bet

We pay our water and sewer bills, usually without fail. We would cancel cable TV before not paying those necessary utilities. Otherwise, no one's happy in the house, right?

That's exactly why some cities in Pennsylvania are circling back to municipal bonds backed by water and sewer, and why they may offer a more secure payout if the cities run into financial trouble, says muni bond expert Alan Schankel at Janney Montgomery Scott in Philadelphia.

Stressed municipalities are getting creative, ginning up revenue on which to refinance outstanding debt. Detroit proposed such a maneuver before declaring bankruptcy, while Allentown and Harrisburg are both monetizing city enterprises such as utilities and parking lots.

Detroit's bankruptcy is establishing some interesting legal precedents that make these bonds look more attractive.

"One outcome of Detroit's bankruptcy filing is that the trustee said water-and-sewer bonds will be paid in full," said Schankel, while other bondholders will receive haircuts, getting paid back as little as 10 cents on the dollar. "These muni bonds have pledged revenue behind them," he added.

The federal bankruptcy code allows for bonds secured by pledged revenues to be paid, while other bonds might get a severe haircut.

The Allentown bonds are offering decent yields of around 5.09 percent to 5.32 percent, and trade at just under par, depending on the day.

Allentown's transaction has some similarities to a proposed Detroit plan. The Allentown bonds have a different name on them: The Lehigh County Authority actually issued the $307 million in bonds, with proceeds used to pay Allentown $220 million as an up-front payment, most of which will be to fund the city's pension liabilities.

"The benefit to Allentown in this approach is that the costs are spread across all water- and sewer-rate payers in the city, which includes nonprofits and other entities that do not contribute to property taxes," Schankel said.

Consider the Harrisburg receiver's plan, which includes monetizing the city's 9,000-space parking system. Although details have not been released, based on past proposals, the parking system is valued at about $200 million.

In short, there are some muni bonds in our own backyard that could be a decent investment.

Here is a little data point for the paranoid. Could the U.S. government spy agencies get a peek at your brokerage account? It's theoretically possible, said Elad Yoran, chief executive of Vaultiv.com, which specializes in encryption of data.

However, Yoran said, "we're not seeing evidence of that - at least not yet."

Vaultiv has some Philadelphia roots: Yoran received an MBA from the Wharton School of the University of Pennsylvania, and the Vaultive co-founder, Ben Matzkel, graduated from Penn with an undergraduate degree in computer science.

More vulnerable are our data stored in the so-called cloud, or servers that don't belong to you or your company. Whoever operates the cloud may be asked by the U.S. government to hand over your data. Apple, Google, Yahoo, and others have reluctantly complied with American spy agencies to provide access and ongoing government monitoring, and there is no reason brokerage firms or bank accounts wouldn't also be asked to provide access at some point in the future - if they aren't already.

In addition, cloud-based data storage is vulnerable to government intrusion.

"People went to the cloud and weren't aware of the issues," Yoran said. For instance: that their company or personal data technically no longer belongs to them if it is stored in a cloud-based operation. Vaultive specializes in encrypting data before, during and after the storage process.

"Make sure you hold the encryption key to your data, no matter where it's stored," Yoran advised.