Congress

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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 Downgraded, Low Income-Tax Revenues and Congress Meddles in Online Sales Taxes Again

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BY  | JULY 21, 2017
The U.S. Capitol (FlickrCC/Geoff Livingston)

 

Alaska Downgraded Again and Again

Just weeks after it passed yet another budget that relied on rainy day savings, Alaska was downgraded by two credit ratings agencies.

First came Moody’s Investors Service, which downgraded Alaska to Aa3, citing the state's continued inability to address structural fiscal challenges and come up with a complete fiscal plan. Just days later, S&P Global Ratings dropped its rating to AA. Like Moody’s, S&P chastised Alaska lawmakers: A reliance on reserves, S&P analyst Timothy Little said, “coupled with the state's economic contraction since 2012 and the fallout of oil prices in mid-2015, have reached an [unsustainable] level."

The Takeaway: The downgrades, while not good news, should come as no surprise. Last month, S&P outright warned officials that it would downgrade the state if the governor and legislature failed to pass a sustainable budget that fully addressed its massive decline in oil revenues.

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The Week in Public Finance: Lobbying Congress on the 'Tax Perk,' Chronic Deficits and the Credit Threat in Illinois

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BY  | JULY 14, 2017
Illinois Gov. Bruce Rauner speaks during a news conference. (AP/G-Jun Yam)

Tax Deductions Aren’t Just for the Super-Rich

As the Trump administration promotes a tax reform agenda that would take away the state and local tax deduction, government organizations are pushing back hard against the notion that the tax perk is utilized only by the uber-wealthy. A new report this week shows that more than half of the tax filers who take the deduction earn less than $200,000 per year. In fact, the largest group of filers who deduct their state and local taxes from their federal taxable income earn between $100,000 and $200,000 per year.

“Contrary to popular opinion, the deduction of state and local taxes does not exclusively benefit the wealthy, even though that argument has been used countless times in attempts to modify or repeal the deduction,” says the report, which was prepared by the Government Finance Officers Association.

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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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The Week in Public Finance: Bleak Pension Forecasts, Down on Stadium Debt and More

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BY  | JUNE 23, 2017
The 49ers stadium. (Flickr/Travis Wise)

Pensions: Best Case, Worst Case

In the best-case scenario, governments' pension costs will significantly increase over the next two years, concludes a new report by Moody's Investors Service. The report, which analyzes 56 state and local pension plans with liabilities totaling more than $778 billion, finds that under the best circumstances governments' pension bills would increase by 17 percent assuming investment returns totaling about 25 percent over three years.

Meanwhile, total unfunded liabilities would remain relatively flat, shrinking by about 1 percent. The paltry progress is in part due to some major pension plans changing their accounting assumptions which have increased their reported liabilities.

In the worst-case scenario, pension plan returns would continue to look a lot like they have in the past two years. That is, eking out a little more than a 2 percent return between 2016 and 2019. If that were the case, Moody's predicts unfunded liabilities could go up by nearly 60 percent and governments' bills would swell by roughly half.

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The Week in Public Finance: The Trump Budget Edition

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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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The Week in Public Finance: Puerto Rico's Quasi-Bankruptcy, Congress Meddles With State Retirement Plans and More

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BY  | MAY 5, 2017

Puerto Rico (Sort of) Declares Bankruptcy

Puerto Rico declared a form of bankruptcy protection this week that puts it in uncharted territory for U.S. governments and municipal finance.

As a territory, Puerto Rico is not eligible to file for Chapter 9 protection. But thanks to the Puerto Rico Oversight, Management and Economic Stability Act, it has a similar option available to it: Title III protection.

The act, which was passed by Congress and went into effect last July, put a temporary moratorium on litigation regarding Puerto Rico’s more than $70 billion in bond debt and created a seven-member financial oversight board with final say over the commonwealth’s finance decisions. The litigation moratorium was lifted on May 1, and with creditor negotiations going nowhere, the government is allowed to file debt restructuring petitions in federal court.

The Takeaway: Puerto Rico has been in a financial downward spiral for years. When it first started defaulting on debt, there were concerns that it could have a negative ripple effect on the municipal market. As it turns out, those concerns have not been justified. So, while this latest move by the commonwealth is a great concern for anyone with money tied up in Puerto Rico, there have been few concerns that the event will cast a shadow over other U.S. governments now issuing bonds.

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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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This Infrastructure Program Ended Up Costing Governments Millions. Trump Might Bring It Back.

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States and localities are wary of the president's support for the Build America Bonds program.
BY  | APRIL 6, 2017

A popular Obama-era infrastructure financing program may get revived this year as President Trump moves forward on his pledge to invest $1 trillion in infrastructure. But this time around, state and local governments might not be as excited about it.

The program, Build America Bonds (BABs), was created in 2009 as one of many recession-era initiatives aimed at jump-starting the economy. Unlike tax-exempt municipal bonds, BABs are taxable, and, as a result, open up the municipal market to new investors, such as pension funds or those living abroad. But BABs are also more expensive for governments. So to defray the added cost, the federal government offered a direct subsidy of 35 percent of state and local governments' interest payments on BABs.

But the program became a casualty of sequestration: cutbacks in federal subsidies promised under the program left state and local governments scrambling to fill the void. A recent estimate by the Institute of Government and Public Affairs at the University of Illinois found that so far Illinois and its localities have had to pay out a collective $70 million to offset the higher costs of BABs.

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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: Paying for Repeal and Replace, SEC's New Disclosure Rule and the Online Sales Tax Fight

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BY  | MARCH 10, 2017

 

The Cost of 'RepubliCare'

Congressional Republicans this week revealed their replacement plan for the Affordable Care Act. Fiscally, the plan does what the GOP promised: If passed, it is expected to make health-care spending less expensive for the federal government (pending the assessment from the Congressional Budget Office.) States, on the other hand, will have some tough decisions to make regarding Medicaid.

Under the proposed plan, Medicaid allotments would be capped based on the program's per-capita enrollment in that state. Currently, Medicaid has an open-ended funding structure based on matching whatever a state spends.

While the plan doesn't repeal the Medicaid expansion, it starts to ramp down that population beginning in 2020 by discontinuing the federal subsidy for any new expansion enrollee. It also works to pare down the population by disqualifying any participant who lets their enrollment lapse and requiring states to redetermine enrollee eligibility every six months.

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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.

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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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Puerto Rico's Warning for States, Cities: You Might Be Next

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Gov. Alejandro Garcia Padilla said the island's rescue might simply be a harbinger of things to come on the mainland.
BY  | JULY 14, 2016

President Obama recently signed into law a highly anticipated -- and much debated -- rescue bill for debt-laden Puerto Rico. While the bill has its detractors, it marks a positive step toward the promise of recovery for the island. But the bill's impact could go far beyond the commonwealth's shores.

Puerto Rico, like states and many cities, can't legally declare bankruptcy. Saddled with $70 billion in debt, Gov. Alejandro Garcia Padilla's administration has spent the last few years unsuccessfully trying to reach an agreement with creditors. During that time, the commonwealth watched its tax base decline as residents fled stateside and Puerto Rican government entities defaulted on debt.

That's what life without bankruptcy protection is like for governments, Padilla said this week in a speech at the Brookings Institution in Washington, D.C. He went on to suggest that Puerto Rico, with its smaller economy and population size, might simply be farther along on a path other U.S. governments are also traveling. "We are only ahead of the curve -- the curve that looms for many states and municipalities," he said. "We are forced to try the route that others have not tried before, to knock on the doors that others may need to approach in the not-so-distant future."

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The Week in Public Finance: Rescuing Puerto Rico, Brexit Fallout and Minimum-Wage Trends

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A roundup of money (and other) news governments can use.
BY  | JULY 1, 2016

Puerto Rico’s New Path

Congress this week has reached an agreement on a rescue bill for Puerto Rico. The troubled territory is set to default for a third time over the past year on a debt payment due today. The legislation, which was signed by President Obama Thursday, follows a long-running debate about whether Congress should intervene at all.

The bill, called the Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA, passed the House of Representatives earlier this month and the Senate on Wednesday. The legislation would allow the island a path to restructure its more than $70 billion in debt while installing a financial control board to govern its finances. It was modeled after similar legislation for Washington, D.C., whose finances were also subject to a control board two decades ago.

The Takeaway: The legislation won’t stop Puerto Rico from defaulting on its $2 billion debt payment Friday. But the fact that it now has a path to solvency -- however murky and long -- delivers a message of certainty to municipal market investors. To be sure, investors will take a hit and Puerto Rico’s officials will lose immediate control of the island’s financial future. But the process will be far more orderly than it has been in the past year or so. Litigation promised “to be endless and to consume scarce resources of the beleaguered commonwealth’s government," former New York Lt. Gov. Richard Ravitch pointed out in an op-ed this week

Cost of Tax Breaks for States, Localities May Be Exposed

If approved, a new rule would make it easier for groups to challenge the tax exemptions that state and local governments get from the feds.
BY  | JUNE 7, 2016

A proposed change in financial rules would shed more light on what the federal government gives up in tax breaks to state and local governments. If approved, it could provide ammunition to groups that want to reduce those benefits as a way of eliminating the federal budget deficit.

The new rule, proposed by the Federal Accounting Standards Advisory Board (FASAB), would require the feds to include in annual financial reports the "revenue impact" (but not a precise calculation) of all Washington's lost revenue from tax breaks. The U.S. Treasury Department already estimates the cost of these expenditures, but they aren't included in federal annual financial reports.

According to the Treasury Department, the provision that lets filers deduct their state and local income and property taxes from the income they declare to the federal government cost $84 billion in lost revenue just this year. An additional $32 billion accounts for state and local governments' much-beloved tax exemption for municipal bonds, which critics have been trying to repeal for years.

But the largest federal deduction by far is the one employers get for their contributions to employee health insurance premiums and medical care. That cost the feds $211 billion in lost revenue this year. For perspective, the federal budget is a little under $4 trillion, while the budget deficit is a little over $500 billion.

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The Week in Public Finance: Broke Puerto Rico, Slow Financial Disclosures and Trouble in Kansas

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A roundup of money (and other) news governments can use.
BY  | APRIL 29, 2016

Broke in Puerto Rico

Congress stalled this week on legislation that could help Puerto Rico restructure its debts. That leaves the financially strapped U.S. territory continuing to try and piece together agreements with its creditors.

The commonwealth’s next debt payment, which is nearly a half-billion dollars in securities, is due Monday, and it's expected to default. There are reports that Puerto Rico’s main financing arm is negotiating a deal with creditors to pay slightly less than half of what is owed. But even so, credit rating agencies still view such negotiated cuts as a default on debt.

Puerto Rico, however, won't get out of its jam with a series of deals. In total, the territory owes about $70 billion in debt that it can’t pay.

Congress is considering installing a federal oversight board, among other financial reforms, but lawmakers this week said they don’t expect to move on that legislation until July. Absent a federal oversight board, Puerto Rico is vulnerable to lawsuits from creditors. If that happens, that would likely drag down any restructuring process even further, according to an analysis this week by Moody’s Investors Service.

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The Week in Public Finance: Puerto Rico Drama and a Corn-y Kind of Tax Credit

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A roundup of money (and other) news governments can use.
BY  | APRIL 15, 2016

Beyond the Numbers in Puerto Rico

The drama over whether Congress should allow financially strapped Puerto Rico to restructure its debts has kicked up a notch after the recent announcement that the territory’s main financier was putting a moratorium on paying its debt, among other things. This week, a group called Main Street Bondholders launched an ad campaign calling the proposed federal legislation a “bailout” that “removes any incentive for Puerto Rico to remain at the table with bondholders.” The group says it represents the interest of retiree investors.

In response, House Speaker Paul Ryan issued a lengthy statement charging that “big-money interest groups on Wall Street” were dumping “a lot of money toward sabotaging this legislation in order to force a last-minute bailout upon Puerto Rico.” That would put U.S. taxpayers on the hook for creditors’ “bad loans,” Ryan said, which is what Congress is trying to avoid.

Anytime someone mentions “big-money interest groups on Wall Street,” it can be tempting to assume they're referring to Republican mega-donors Charles and David Koch. In this case, that's correct: The Main Street Bondholders were formed by the 60 Plus Association, a conservative small-government group that spent millions in the 2012 and 2014 election cycles to help elect conservative or Tea Party candidates. Much of its funding came from conservative groups with ties to the Koch Brothers. The group has been quiet until recently and no information is readily available yet on its funding and expenses this election cycle.

Congress Creates Bipartisan Municipal Finance Caucus

The group's top priority will be preserving the tax-exempt status of municipal bonds, which President Obama wants to reduce for higher earners.
BY  | MARCH 2, 2016

State and local governments have a new bipartisan set of advocates for their interests on Capitol Hill. This week, two congressmen launched the Municipal Finance Caucus to protect the municipal bond market.

U.S. Rep. Randy Hultgren, an Illinois Republican, and Rep. Dutch Ruppersberger, a Maryland Democrat, announced the formation of the caucus on Tuesday at the annual legislative meeting for the National Association of State Treasurers in Washington, D.C. They didn't say how many members they've recruited, but both have regularly rallied support on municipal finance issues from more than 100 of their Democratic and Republican colleagues.

“Our primary focus will be on telling the story of how important the current tax [status] of municipal finance is, and how risky, damaging and how harmful a change would be,” said Hultgren. “So we’re going to be very active, very vocal in telling these stories.”