Municipal budget surpluses are reducing revenue and bond anticipation note issuance. Revenue anticipation notes (RANs) are short-term debt instruments that are issued in expectation of future revenues. At this time of year, many municipalities are running low on cash as they wait for income or property tax bills to be sent and revenues to come in. To ease the revenue/expenditure mismatch, municipalities issue such short-term notes. Budget surpluses reduce the need for RANs because municipalities have more cash to match expenditures. Similarly, bond anticipation notes (BANs) are issued in advance of larger bond deals. Budget surpluses also lower BANs issuance. More often than not, budget surpluses are the result of one-time events or above normal revenue growth. The easiest way to spend the additional revenue without creating ongoing programmatic expenses is using "pay-go" financing. Pay-go, or cash financing, can be a credit positive because municipalities do not issue more debt and new ongoing programmatic spending is limited. While we are seeing less muni bond supply, long term off-balance sheet liabilities continue to grow. For example, the State of Massachusetts just released its pension plan’s annual financial report for the fiscal year ending June 2013. Asset performance beat long term return assumptions of 7.5% by about 500bps. This performance is a credit positive; however, unfunded actuarial accrued liabilities grew by a whopping $4.7 billion, which resulted in a pension funding ratios declining to ~60% from ~65%. This is a material weakening of the funding ratio and means pension liabilities grew at a rate well north of 12.5% annually. To sum up, current economic conditions are benefiting municipal budgets and reducing the need to issue debt, but off-balance sheet liabilities continue to grow at rates greater than actuarial and market returns.