Pennsylvania

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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: Petitioning for Bankruptcy, Lost Airbnb Revenue and Downgrading New Mexico

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BY  | OCTOBER 28, 2016

'Put Bankruptcy on the Ballot!'

Activists in financially beleaguered Scranton, Pa., are petitioning for a ballot initiativethat would let residents decide if the city should file for bankruptcy. It’s a first-of-its-kind petition and reflects the ongoing frustrations of a city that's been "fiscally distressed" for two decades.

Scranton is one of Pennsylvania’s Act 47 cities, which designates it as fiscally distressed and opens it up to aid and other resources from the state. The designation also means that the city must comply with certain fiscal requirements, such as developing a recovery plan.

But Act 47 has had its problems, the biggest being that it doesn’t seem to provide enough oversight.

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The Week in Public Finance: Pensions' Funding Gap, An Assault on Fees and More

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BY  | AUGUST 26, 2016

Most Pensions Falling Behind

A new analysis of state public pension plans this week shows that only one in three states are actually on a path to reduce their unfunded liabilities.

The report, by the Pew Charitable Trusts, used a new metric called net amortization, which essentially measures whether a pension plan’s accounting assumptions and payment schedule are holding up over time. Only 15 states are achieving positive amortization, according to Pew. In other words, they're following contribution policies that are sufficient to pay down pension debt. The remaining 35 states are facing negative amortization, or are following contribution policies that allow the funding gap to continue to grow.

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The Week in Public Finance: Demanding Better Government Disclosure, Uneven Recoveries and a Party at the Pump

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A roundup of money (and other) news governments can use.
BY  | AUGUST 19, 2016

More Disclosure Pressure on Munis

Investors in the municipal market have long demanded better access to governments’ financial information, particularly since the 2008 financial crisis. But tired of waiting, an industry group stepped up its calls for federal regulators to intervene this week in a letter to the Securities and Exchange Commission (SEC).

“The failure to publicly disclose bank loans to all market participants can lead to unexpected rating changes that negatively impact bond pricing,” said Lisa Washburn, chair of the National Federation of Municipal Analysts (NFMA). The group is calling for governments to disclose all interim but relevant information, such as an approved fiscal year budget and tax receipts, as well as clearly report any long-term debt obligations.

The letter also suggests that the SEC adopt the authority to ensure that municipalities file their financial disclosures in a timely manner. Currently, there is no enforced deadline, and governments typically file annual reports anywhere from six months to a year after the close of a fiscal year.

The Takeaway: The problem from an investor point of view is that the more troubled an issuer is, the more likely it will delay releasing relevant financial information. Take Puerto Rico, which is essentially out of cash and only recently issued its annual financial report for the 2014 fiscal year.

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The Week in Public Finance: Why Some Pensions Are Falling Behind, Stress Testing States and More

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A roundup of money (and other) news governments can use.
BY  | AUGUST 12, 2016

Pollyannaish About Pension Returns

Houston is fighting a losing battle with its pension system: The unfunded liability between Houston’s three plans totals at least $3.9 billion, up from $212 million in 1992. Meanwhile, pension costs as a percentage of the city’s revenue have doubled since 2000 and were one of the reasons behind a recent credit rating downgrade.

A new report from Rice University’s Kinder Institute identifies two main culprits for the funding crisis: Even though the city is now paying its full pension bill, it’s still not enough to chip away at the unfunded liability, and the three plans have assumed investment returns of between 8 and 8.5 percent -- that's higher than the national average and even higher than their own recent experience.

The report's authors looked at examples of pension changes in other major cities and highlighted potential solutions, including raising the cap on the city’s revenues so it can generate more money for pensions; increasing employee contributions; and reducing cost-of-living payments to retirees. “All of these options would generate different amounts of funding in different time frames,” the report said. "[But] none would likely solve the problem alone.”

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The Week in Public Finance: The Netflix Tax, Another Atlantic City Rescue and More

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A roundup of money (and other) news governments can use.
BY  | AUGUST 5, 2016

Taxing Netflix

Pennsylvania this week became one of a few states that taxes online streaming video services like Netflix and and Hulu, a development that has consumers complaining but other governments watching closely.

The expansion of the state’s 6 percent sales tax was part of a revenue package passed earlier this year to fill a $1.3 billion hole in the state’s new $31.5 billion budget. Pennsylvania also extended the sales tax to digital downloads like music and ebooks. Sixteen other states already do that, but it has proven difficult to tax streaming services.

Last year, Alabama lawmakers tabled a study that would have expanded its 4 percent digital downloads tax to streaming services. Vermont looked at the issue but then the technology was more akin to a service than a tangible good. Massachusetts passed a wide-ranging technology tax in 2013 that was quickly repealed after the tech industry complained of the difficulties of complying to it. (For the record, Florida does apply a small communications tax to streaming services.)

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The Week in Public Finance: Court Strikes Down Chicago Pension Reforms, Pennsylvania Ends Budget Standoff and More

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A roundup of money (and other) news governments can use.
BY  | MARCH 24, 2016

What Will Chicago Do Now?

The Illinois Supreme Court on Thursday ruled unconstitutional Chicago’s attempt to reduce its massive pension liabilities.

The decision, which affirms lower court rulings, doesn't come as a big surprise given that the state's highest court issued a similar ruling 10 months ago regarding Illinois’ proposed pension cuts. Still, it’s a blow to Chicago and its mayor, Rahm Emanuel, who had hoped the cuts would save the city hundreds of millions of dollars. Chicago is short $20 billion across five pension plans (including public schools), and the poor financial health of the retirement system has resulted in downgrades from credit ratings agencies.

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The Week in Public Finance: School Shutdowns, Trading Munis and Small Business Lending

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A roundup of money (and other) news governments can use.
BY  | MARCH 4, 2016

Education Opens Closes Doors

One of states' top spending items is education. When lawmakers can’t agree on a budget -- or they decide to make severe cuts -- higher education often gets hurt. Sometimes, even K-12 spending takes a hit. In Illinois and Pennsylvania, ongoing stalemates over the current fiscal year’s budget may lead to school closures. In Louisiana, potential major cuts have students protesting.

Let’s start in Illinois, where three state universities have taken severe hits. Last Friday, Chicago State University sent layoff notices to all 900 of its employees. The school is making plans to end its semester early unless the state makes good on funding promises. That alarming news came after Western Illinois University announced it would cut $20 million from its budget over the next two years, while laying off 100 employees. Southern Illinois University is contemplating $40 million in cuts and has already started closing programs, such as men’s tennis and women’s golf. Most recently, Eastern Illinois University, which saw its credit rating downgraded to junk status last month, laid off nearly 200 employees, although the school president offered assurances that the university was not closing.