Management

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The Hidden Wealth of Cities

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To find it, a new book says, localities need look no further than their roads, airports and convention centers.

BY  | AUGUST 9, 2017
Downtown San Diego, with a view of the convention center.
Downtown San Diego, with a view of the convention center. (Shutterstock)

In the years since the Great Recession, there’s been a lot of effort made to ensure a government is sharing its complete fiscal picture. In many cases, this transparency push has resulted in a government’s bottom line going from a surplus to a shortfall thanks to the introduction of things like pension and retiree health benefit liabilities to annual balance sheets.

But some think governments are still leaving a few things off the ledger. Dag Detter and Stefan Folster, co-authors of the new book The Public Wealth of Cities, say localities are failing to realize the true value of the public assets they own, such as airports, convention centers, utilities and transit systems, just to name a few. “The public sector owns a lot of commercial assets,” says Detter, a Swedish investment advisor and expert on public commercial assets.

But, he adds, it doesn’t manage the risk of increased costs associated with those assets very well. Then, “the inclination is to give [management] away to the private sector,” he says. “But when you do that, you also have to give away the upside.”

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The Week in Public Finance: Tardy State Budgets, Philly's Soda Tax Sputters and Raising the Debt Ceiling

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BY  | AUGUST 4, 2017
Connecticut state Sen. Majority Leader Bob Duff, left, holds a GOP budget alongside state Democratic President Pro Tempore Martin M. Looney. (AP/Jessica Hill)

And Then There Were Three...

It's been one month since the fiscal year began and three states still don't have a signed budget. Meanwhile, Rhode Island just enacted its budget Thursday night.

Gov. Gina Raimondo signed Rhode Island's new budget almost immediately. The $9.2 billion plan includes a $26 million cut in the car tax, free community college tuition and an increase in the minimum wage, among other policies. The agreement means the governor now has to find $25 million in savings across state government.

The three remaining states without a budget are Connecticut, Pennsylvania and Wisconsin. In Connecticut, the legislature recently approved a new collective bargaining agreement with public employees that’s projected to cover $1.5 billion of the state's estimated $5 billion budget deficit over the next two years. The deal may now help move along negotiations on how to address the rest of the budget gap.

Pennsylvania lawmakers have approved a spending plan, but have yet to address the state’s revenue problems. Key in the coming days will be whether the state’s House approves the Senate’s revenue package that includes several tax increases and expansion of legalized gambling.

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The Week in Public Finance: Alaska Avoids Its Problems, More Health-Care Pain and Municipal Defaults Are Up

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BY  | JUNE 30, 2017The Alaska State Capitol in Juneau
The Alaska State Capitol, right, sits near the water in Juneau. (Flickr/Jasperdo)

Alaska Avoids Fixing Its Budget Problem (Again)

Facing a $2.5 billion budget gap, Alaska lawmakers have sent Gov. Bill Walker a budget that once again relies on one-time fixes and a massive withdrawal from the state’s rainy day fund.

Walker had proposed a compromise fiscal package that included a combination of revenue-raising measures and spending cuts, reforms to the state’s oil and gas tax credit program, modifications to the income tax, and reductions to residents’ annual dividend payments from the state's Permanent Fund. Instead, the $4.1 billion general fund spending plan passed by lawmakers caps Permanent Fund payments to $1,100 and relies on a $2.4 billion withdrawal from the state’s once-robust rainy day fund.

Walker has repeatedly warned lawmakers that they can't keep relying on the state’s reserves to fund its annual spending plans. But lawmakers have consistently done so anyway, making multibillion-dollar withdrawals for the past three budgets.

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Uncertain of the Future, States Save and Save Some More

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Governors and legislatures are keeping spending growth at its lowest level since the recession to make sure they're prepared for the next one.
BY  | JUNE 21, 2017
(Shutterstock)

In the face of a politically and financially uncertain fiscal 2018, states are hunkering down, pulling back on spending increases and beefing up rainy day funds.

General fund revenues for fiscal 2017 are coming in below forecasts in 33 states, according to a new survey by the National Association of State Budget Officers (NASBO). That’s the highest number since the recession, and it also marks the second straight year that more states have failed to meet projected revenues than exceeded them. As a result, it’s increasingly likely that more states will be forced to make spending cuts (23 have already reported doing so).

The survey also finds that thanks to states’ “thin margins,” spending for fiscal 2018 will tick up by a mere 1 percent -- the lowest growth rate since 2010, when states were in the midst of dealing with the recession. Most of those spending increases will be targeted toward education, where many states are still trying to make up for cuts following the recession, and Medicaid.

Despite slow revenue growth -- or perhaps because of it -- governors and legislatures in many places are prioritizing saving money for the next economic downturn. After a slight dip in 2017, rainy day fund balances are expected to hit the highest total ever at more than $53 billion across 48 states. (Georgia and Oklahoma were not able to provide data.)

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Can a Cyberattack Cause a Credit Rating Downgrade?

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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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Amid Shutdown Talk, States and Cities Seek Clues to the Future

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Whether and how Congress passes a budget this week could indicate what's to come when negotiations start for the next year, which will be the first full budget under President Trump.
BY  | APRIL 25, 2017

 

As lawmakers in Washington work to avoid a shutdown of the federal government this week, the tenor of the negotiations could provide a window for states and localities into what to expect from future budget debates on Capitol Hill.

“The big picture is how well the Republican conference gets along in terms of this run-of-the-mill budget stuff,” says Dan White, a director at Moody’s Analytics. “If they take it down to the wire, that portends some very uncertain fiscal times over the next couple months.”

The federal government has been running on a continuing resolution that funds agencies at 2016 levels. Congress has until midnight on April 28 -- this Friday night -- to agree on a spending plan for the remainder of the federal fiscal year, which ends Sept. 30, or approve another short-term resolution.

In the aftermath of the Republican party’s failure to repeal the Affordable Care Act (ACA), observers are eyeing the amount of drama it takes for Congressional leaders to agree on the budget. A political squabble now over closing out fiscal year 2017 wouldn't bode well for hopes of getting through a new fiscal 2018 budget, which must be approved by Oct. 1.

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As the Clock Ticks, Senate Stalls on State-Run Retirement Plans

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Congress could overturn a rule that allows states to create private-sector retirement programs. But it only has a limited time to do it.
BY  | APRIL 19, 2017

The U.S. Capitol (FlickrCC/Geoff Livingston)

Late last month, Congress voted to overturn an Obama-era rule that cleared the way for cities to create retirement programs for private-sector workers that didn't have one through their employer. But a similar resolution targeting the rule as it applies to states is stuck.

For the past three weeks, that resolution has lingered in uncertainty as the Senate stalls on taking an up or down vote. Many believe that signals an opportunity. "Based on the conversations we've had with staff and colleagues working on this," says Cristina Martin Firvida of AARP, which supports the Obama-era regulation, "I think there are a number of senators who still have a lot of questions about the state rule."

The rule, which was issued by the Department of Labor, reaffirmed cities' and states' legal right to help support private-sector savings programs for small businesses. Seven states are implementing such programs, while another dozen states and cities are considering them.

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The Week in Public Finance: Pay to Play, High Investment Fees and the Small Business Credit Crunch

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BY  | APRIL 14, 2017

Pay to Play? Hardly.

Pennsylvania is going with passive funds. That was the message this week from State Treasurer Joe Torsella, who says he plans to move the state’s $1 billion in actively managed public equity (stock) funds over to index funds within six months.

Index, or passive, funds are known for their lower fees and lower volatility. Rather than managed by a trader, these funds are built using computer models that are designed to mimic the performance of stock indexes like the S&P 500. Torsella expects the shift to save at least $5 million a year in fees.

The treasurer’s announcement is part of an effort to return faith in the office after his predecessor left in disgrace amid a pay-to-play scandal. Former Treasurer Rob McCord pleaded guilty in 2015 to federal charges that he used his office to influence future investment deals and other contracts as a way raise cash for a failed gubernatorial bid.

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The Week in Public Finance: States Warned of 'Profound Shift' in Finances, Hurting in Illinois and More

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BY  | APRIL 7, 2017

State Finances to Experience a 'Profound Shift'

Some states might soon be facing a come to Jesus moment. That was the sobering message this week from a senior analyst at S&P Global Ratings, who warned that a “profound shift” is occurring in state finances pressured by pension debt, slow revenue growth and demographic changes.

Gabe Petek noted Illinois, Kentucky and New Jersey are particularly vulnerable as they have persistently struggled to balance budgets during one of the longest economic expansion periods in modern U.S. history. But they’re not the only ones who should be put on notice. "This long period of relative calm may have lulled some people into complacency when it comes to state finances," he wrote in an editorial for The Hill. "It shouldn’t have."

In addition to slower revenue growth, declining worker-to-beneficiary ratios in state retirement systems and rising Medicaid enrollments "have meant that fiscal stress is no longer confined to recessionary times," he wrote.

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How to Beat Teacher Burnout: With More Education

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A continuing education program for teachers has the power to reduce attrition rates, but it's having trouble catching on.
BY  | APRIL 3, 2017

When mathematician John Ewing started lobbying state governments to adopt a new model for keeping top teachers in the classroom, he anticipated all the usual pushback over funding and resources. One thing he didn’t anticipate was a resistance to the idea in general.

In education right now, “the focus is on everything that’s not working," he says. By contrast, his model "invests in teachers that are doing a really good job.”

In 2009, fellow mathematician and philanthropist Jim Simons called and asked Ewing to help him take over his fledgling nonprofit to provide continuing education for K-12 math teachers in New York City. But the organization, called Math for America (MfA), eventually evolved into a larger fellowship program aimed at cultivating and keeping top science, technology, engineering and math (STEM) teachers in public schools.

It’s an appealing concept at a time when keeping good teachers is becoming harder and harder.

On average, one-third of teachers leave the profession within five years. Burnout is blamed for the short tenure. A recent report from the Robert Wood Johnson Foundation found that 46 percent of teachers say they feel daily stress on a level that’s shared by doctors and lawyers.

When teachers are that stressed, the report notes, it not only compromises their health and quality of life but also adversely impacts their teaching performance. That, in turn, can harm students' academic performance and behavior. The report recommends mentoring programs, social emotional learning and mindfulness as proven ways to improve teacher well-being and student outcomes.

That's where MfA comes in.

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The Week in Public Finance: Bad Balancing Acts, Best Taxpayer ROI and Double Taxation

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BY  | MARCH 31, 2017

Race to the Bottom?

New Jersey’s pension problems and Illinois’ lack of a budget continue to dog their reputation in the eyes of creditors.

In New Jersey, Moody's downgraded the Garden State one-notch this week to A3, citing the state’s “significant pension underfunding, including growth in the state's large long-term liabilities, a persistent structural imbalance and weak fund balances.”

It’s the 11th downgrade by a credit rating agency during Gov. Chris Christie’s more than seven years in office. Overall, New Jersey’s credit rating has fallen four notches under Christie’s watch, from what’s considered high investment grade to borderline medium grade. Meanwhile, the state's unfunded pension liability has climbed to $136 billion, which mean it has less than half of what it needs to pay its retirees down the road.

For its part, Illinois is the only state rated lower than New Jersey.

States Go Old School to Fight Tax Fraud

D.C. and more than a dozen states are shunning paperless refunds to avoid being conned out of hundreds of millions of dollars.
BY  | MARCH 22, 2017

As fraudsters go high-tech to scam governments for tax refunds, some states are employing decidedly low-tech ways of stopping them.

In 15 states and the District of Columbia, tax returns that are flagged as unusual are issued as a paper refund check. The old-school method comes as tax filers are more susceptible to having their identity stolen. "When there's a suspicious situation, we send paper checks because that has to go to a physical person," says D.C. CFO Jeff DeWitt.

Things that could flag a return include the filer having a new mailing address or using a bank account from previous years.

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The Week in Public Finance: Trump's Budget, the CBO on Health Care and Accounting for Higher Ed

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BY  | MARCH 17, 2017

Trump’s Budget Cuts

This week, President Trump proposed his budget and, as expected, it focused federal spending cuts on a narrow area that impacts state and local governments the most: discretionary spending. The cuts come by way of diverting more than $54 billion from various federal agencies to defense spending.

The Takeaway: Paying for all these cuts would mean many programs beneficial to states and localities would be targeted. Under the plan, grant funding -- which accounts for 31 percent of state budgets and 22 percent of state and local spending combined -- takes an enormous hit. Specifically, Trump would eliminate the $3 billion Community Development Block Grant program, which was started by President Nixon as a way to provide direct federal assistance to city projects.

In transit, the president calls for a half-billion cut from the wildly popular TIGER grant program. He would also cut $175 million in subsidies for commercial flights to rural airports, eliminate funding for many new transit projects and discontinue support for long-distance Amtrak trains.

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The Week in Public Finance: Oil State Woes, Why 401(k)s Might Not Be For All and More

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BY  | MARCH 3, 2017

Oil State Woes

Oklahoma's credit rating was downgraded this week, making it the third oil state in just one month to suffer such a blow. S&P Global Ratings pushed Oklahoma's rating down to AA, citing the state's chronically weak revenue. The downgrade comes as news broke this week that the state is facing a nearly $900 million shortfall.

"Collectively the state's financial position has deteriorated to a point that further precludes the state from building up reserves in subsequent fiscal years,” says S&P credit analyst Oscar Padilla, who adds the state is now more vulnerable to regional or national economic weakness.

This is Oklahoma's third consecutive year with a deficit, and the second straight year of a so-called revenue failure, when collections fall more than 5 percent below estimates.

The action follows downgrades in two other oil states last month: Moody’s Investors Service downgraded West Virginia and Louisiana one notch each. States that rely on oil and energy for significant portions of their economy have had to grapple with revenue shortfalls since the price of oil dropped drastically a year and a half ago.

How Libraries Are Fighting Fake News

Fake news is as old as Bigfoot. But social media and the president have fueled its recent proliferation.
BY  | FEBRUARY 28, 2017

Less than seven miles from the White House, where President Trump has popularized the term "fake news," residents in a suburban Maryland library gathered recently to learn how to not be duped themselves.

“Social media is a common theme here because you see things being shared over and over again,” Ryan O’Grady, media producer and director of the Maryland State Library Resource Center, told the audience. “Just because something is popular doesn’t make it true.”

The program, which O’Grady is running at several libraries in Maryland’s Montgomery County, is in response to the recent explosion of unverified, unsourced and sometimes untrue information that purports itself as news. The program aims to educate residents about how to spot fake news.

While it's not a recent phenomenon -- the Bigfoot myth goes back centuries, and fabricated stories abounded when emailing was new, for example -- fake news played a prominent role in the 2016 presidential election and continues to do so in the new administration. Sites like Facebook and Twitter give fake news outlets a platform to reach more people than they would otherwise be able to. Once the misinformation is out there, it can spread quickly, often before users even read or verify a story

From $37 to $339,000: Why the Price of Public Records Requests Varies So Much

The laws about public records differ from one government to the next and are further complicated by some technologies, like police body cameras.
BY  | FEBRUARY 14, 2017

 

In 2015, the editor of a newspaper in Florida filed a public records request with the Broward County Sheriff's Office asking for the email of every employee during a five-month period to be searched for specific gay slurs.

In response, the South Florida Gay News received a $339,000 bill.

The office said fulfilling the request would take four years and require hiring a dedicated staffer. The exorbitant charge set off a year-long legal battle that attracted the Associated Press and its lofty resources. To show how arbitrary the number was, the AP and South Florida Gay News filed a similar request to the sheriff's office in other Florida counties. They were quoted fees ranging from as little as $37 to more than $44,000.

Why then is there such a big range of costs for similar information?

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The Week in Public Finance: Battling Over Retirement, Gorsuch on Online Sales Taxes and Fiscal Irresponsiblity

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BY  | FEBRUARY 10, 2017

A Curious Battle Over Retirement Security

Congressional Republicans this week made a move to block states’ efforts to expand access to retirement savings to all citizens. Michigan Rep. Tim Walberg and Florida Rep. Francis Rooney have introduced a resolution that would overturn a Department of Labor (DOL) rule last year that reaffirmed states’ legal right to help support private-sector savings programs for small businesses.

Walberg, chairman of the Subcommittee on Health, Employment, Labor, and Pensions, said the DOL rule created a “loophole” that undermined the retirement security of working families because it could discourage small businesses from setting up their own retirement program. “Our nation faces difficult retirement challenges," he said, "but more government isn’t the solution."

The resolution comes as seven states are in the midst of and more than a dozen states -- and even some cities -- are considering establishing such programs. Called Secure Choice, the programs require most employers that don’t currently offer a pre-tax retirement savings program to automatically enroll employees into one. The programs are run independently from the state and employees can opt out at any time.

The AARP issued a swift and harsh rebuke of the resolution, noting that 529 college savings programs give states precedent for creating independently managed, pre-tax savings accounts. Overturning “this rulemaking will have a significant chilling effect on states, sending the political message that state flexibility is not a priority,” wrote AARP Executive Vice President Nancy A. LeaMond.

The Takeaway: The facts upon which this political gamesmanship are based are, well, weak.

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The Week in Public Finance: What We Don't Know About Sanctuary Cities' Funding, New Reasons to Save and More

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A roundup of money (and other) news governments can use.

BY  | JANUARY 27, 2017

What We Don't Know About Trump's 'Sanctuary City' Order

On Wednesday, President Donald Trump took his first move to defund cities that refuse to cooperate with federal efforts to deport undocumented immigrants. Trump signed an executive order directing the Secretary of Homeland Security to look at federal grant funding to cities “to figure out how we can defund those streams,” said White House Press Secretary Sean Spicer.

Many of the nation’s largest cities -- including Chicago, Los Angeles, New York City and San Francisco -- are immigrant sanctuaries and have said they won’t back down from their policy.

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The Week in Public Finance: Trump's Infrastructure Plan, Risky Pensions and NYC's Surprising Fiscal Health

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A roundup of money (and other) news governments can use.
BY  | JANUARY 13, 2017

How Will Trump's Infrastructure Plan Affect the Economy?

Economic impact estimates are all over the map when it comes to how much of an affect President-elect Donald Trump’s 10-year $1 trillion infrastructure proposal will have on the economy. To that end, two reports came out this week that come to completely different conclusions.

The first, by Georgetown University, says that Trump's plan could create as many as 11 million jobs. However, it cautions, the additional spending in combination with proposed tax cuts and other economic policy shifts could “overheat the economy” by increasing inflation and setting the stage for further interest rate hikes.

The Tax Foundation had a much more modest take. This is partly because the report assessed the varying degrees of economic impact the proposal would have depending on what other policy measures are implemented. The foundation looked at the impact of a theoretical $500 billion investment by the federal government through five funding mechanisms: borrowing, cutting government spending, raising excise taxes, raising the top tax rate on individual income and raising the corporate income tax.

Have States Reached Their Savings Limit?

After several years of growth, the amount states are socking away in rainy day funds has slowed.
BY  | JANUARY 11, 2017

Rainy day savings deposits appear to be plateauing.

After six straight years of squirreling away money, budgeted figures for fiscal 2017 show a slight dip in rainy day fund balances across the 50 states. States now have a median 4.9 percent of annual expenditures saved for the fiscal year, down from 5.1 percent the previous year.

What's more, four states -- Illinois, Nevada, New Jersey and North Dakota -- now show no budget reserve funds, up from two states last year. The overall shift is a signal that tighter financial times could be ahead for states as a whole.

The findings are based on Governing's analysis of projected 2017 budget data from the National Association of State Budget Officers. Given that roughly half of states are now expecting budget shortfalls for 2017, budget reserve balances could dip more than projected.