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    Wednesday
    Jun072017

    Can a Cyberattack Cause a Credit Rating Downgrade?

    While it seems far-fetched, the danger is real for small governments.
    BY  JUNE 7, 2017
    (Shutterstock)
     

    Last month saw an unprecedented global ransomware attack that infected tens of thousands of computers in nearly 100 countries, including the U.S., the U.K. and Russia. Hospitals in the U.K. were the hardest hit as more than a dozen were forced to turn away nonemergency patients and doctors had to rely once again on pen and paper.

    The disruption has caused many to consider how vulnerable U.S. government services are to a similar attack. But some are raising the possibility of another vulnerability: That a cyberattack has the potential to lower a government’s credit rating, making borrowing to fix the problem even more expensive for taxpayers.

    The possibility seems remote: No government yet has been downgraded because of a cyberattack. But S&P Global Ratings analyst Geoff Buswick says the risk is real, particularly for smaller governments with less financial flexibility. That’s because attacks can cost a lot, but can also cost taxpayer trust. That in turn, can hinder a government’s ability to raise taxes. “As a rating analyst, I look at the willingness and ability to repay debt,” says Buswick. “Without taxpayer support you don’t have that ability.”

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    Friday
    Jun022017

    The Week in Public Finance: Pension Reform in Texas, Fitch Lowers Expectations and Illinois Downgraded Again

    BY  JUNE 2, 2017 

    Even the Pension Deals are Big in Texas

    There has been a big break in Houston's and Dallas' pension crises over the past week: The Texas Legislature approved reforms that require all sides to pony up big.

    In Houston, the changes will cut the city’s $8 billion unfunded liability in half. Municipal and public safety unions agreed to $2.8 billion in benefits cuts. Meanwhile, Houston will issue $1 billion in pension bonds to boost the system’s balance. It will also stick to a payment plan -- that includes capping the city's future pension costs -- to pay off the remaining unfunded liability over 30 years.

    Similarly, Dallas’ police and fire workers will shoulder $1.4 billion in benefit cuts over the next 30 years and more than $1 billion in additional contributions from their pay. For its part, the city will be required to significantly boost its annual payments into the fund, starting with more than $150 million next year. Mayor Mike Rawlings will also get to pick six of the 11 trustees on the currently union-dominated pension board, whose poor investments contributed to more than $1 billion in losses.

    The Takeaway: The common theme to these reforms is shared sacrifice. While unions and officials are happy to have a plan in place, no one is pleased about what comes next. "This is not a time to high-five," Dallas Police Association Vice President Frederick Frazier told the Dallas Morning News. "This is a time to pull the boots up and get back to work."

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    Tuesday
    May302017

    In Scranton, Pa., Fiscal Progress Comes With Political Costs

    The city is on the brink of making a speedy turnaround. Many worry that the tough financial decisions it took to get there could reverse some of its political progress.
    BY  MAY 30, 2017
    Bill Courtright, the mayor of Scranton, Pa. (Photos by David Kidd)
     

    After a quarter-century of being branded by the state as "fiscally distressed," Scranton, Pa., is the closest it's ever been to shedding that label. If its finances remain stable, the city is expected to exit the state’s Act 47 distressed cities program -- which it entered in 1992 -- in the next three years.

    What makes the news remarkable is the tailspin that Scranton was in just a few short years ago. When Mayor Bill Courtright took office in 2014, he inherited a city that had balanced its budget for five straight years using onetime revenues and deficit financings. “In early 2014, everyone wrote us off,” says Courtright. “It was like we had a disease.”

    But thanks to what observers are calling a new era of political cooperation between the mayor and council, Scranton has made considerable progress. City officials have approved several tax increases aimed at balancing the budget, including a hike in property taxes and garbage fees. Those, combined with a new commuter tax, have injected $16.2 million in new annual revenue into the $90 million general fund.

    Courtright credits a team that stubbornly adhered to a financial recovery plan devised with the help of a financial consultant. The mayor, also a former councilmember, says he and the current council have communicated better and worked to move beyond the infighting that dominated public meetings in previous years. “We knew we had to change the image between past mayor and past council,” he says. “We knew we wouldn’t get the financial community to go along with us if we couldn’t cooperate amongst ourselves.”

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    Friday
    May262017

    The Week in Public Finance: The Trump Budget Edition

    BY  MAY 26, 2017
    Someone holds a copy of President Trump's fiscal 2018 budget at the U.S. Government Publishing Office's plant. (AP/Carolyn Kaster)

    Hysteria Over Cuts

    President Trump unveiled his budget this week, and while it merely expanded upon an outline he submitted in March, it was still met with near-immediate outcry from state and local government groups.

    In the budget, the president proposes diverting more than $54 billion from various federal agencies to boost defense spending. He also cuts $260 billion over 10 years in expected discretionary spending, a move that critics say drastically reduces federal funding and grants for vital state and local programs that create jobs, raise wages and protect low-income Americans. In total, Trump’s proposal would cut federal spending by more than $3.6 trillion over the next decade.

    U.S. Conference of Mayors CEO Tom Cochran issued a statement saying that mayors across the country were "deeply troubled by President Trump’s brazen attack on the very people he promised to protect."

    The Takeaway: Trump’s budget included so many drastic changes that even Republicans in Congress were uncomfortable with parts of it. It’s unlikely to pass as is, but it still has state and local governments worried.

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    Friday
    May192017

    The Week in Public Finance: Recalculating Pension Debt, Hartford Discusses the 'B' Word and Prudent Rainy Day Policies

    BY  MAY 19, 2017

    new analysis by Josh Rauh at Stanford University's Hoover Institution says state and local governments’ collective unfunded pension liabilities are actually about three times the amount they claim. Rauh, a finance professor who has long been a critic of public pension accounting, arrived at his figure by assigning pension plans a much lower assumed investment rate of return.

    Pension plans in 2015 collectively reported about $1.3 trillion in unfunded liabilities. In other words, they have about 72 percent of the assets they need to meet their estimated total liabilities. That figure assumes plans will earn an average of 7.4 percent each year on their investments.

    Rauh, pointing to the wild swings of the stock market and the fact that pensions are putting more of their assets into volatile, alternative investments, says that assumption is too risky. He argues it's more responsible to consider a rate of return closer to what long-term bonds earn: slightly less than 3 percent. Under those assumptions, Rauh says unfunded U.S. public pension liabilities would roughly triple to $3.8 trillion, or less than half-funded.

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