Dueling Revenue Caps and Municipal Bond Yields: The Case of Houston, Texas

Two competing revenue cap proposals, one from a citizen's group and the other proposed by the mayor, were on the November 2004, election ballot of the City of Houston, Texas. Both propositions passed, yet the citizen's group had to sue to have their initiative enforced. This study examines the effect on Houston bond yields of the series of events (from June 2004 through March 2006) surrounding these dueling revenue cap propositions. The empirical findings suggest that the budget-related events can have a significant effect on yields demanded by investors in the secondary market for outstanding uninsured tax-exempt general obligation debt.