debt

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The Week in Public Finance: Bankruptcy Looms in Hartford, Worries About the Sales Tax and Puerto Rico's Many Defaults

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BY  | AUGUST 11, 2017
Hartford Mayor Luke Bronin (AP/Jessica Hill)

Bankruptcy Is On the Table in Hartford

Over the past several months, the shadow of a potential bankruptcy has loomed large over Connecticut’s capital city. Hartford is struggling to close a $50 million budget hole -- nearly 10 percent of its spending -- and has stagnant revenues. As a result, it has been downgraded into junk status.

Hartford officials have already cut the budget to the bone, and with one of the highest property tax rates in the state, Mayor Luke Bronin says he won't raise them more. So now the question is, will the financially beleaguered state -- which already pays for half of the city's budget -- step in with more aid? Connecticut, which is facing a two-year, $3.5 billion deficit, has yet to pass a budget more than one month into the fiscal year.

Meanwhile, the city is likely trying to restructure its debt with bondholders. But if that is unsuccessful, it could seek permission from Gov. Dannel Malloy to file for Chapter 9 bankruptcy. Either way, things are coming to a head with a $3.8 million debt payment due in September and another $26.9 million payment deadline in October.

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The Week in Public Finance: Kansas' Experiment Ends, Alaska Still Has No Budget and Keeping Track of Debt

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BY  | JUNE 9, 2017

Kansas is rolling back its controversial 2012 income tax cuts after the Republican-controlled legislature this week succeeded in overriding a veto by GOP Gov. Sam Brownback.

The state is facing a $900 million budget shortfall and has struggled under budget deficits since the tax cuts went into effect. With the new legislation, the state’s income taxes will increase, although most tax rates will still be lower than they were before the 2012 cuts. The increases are expected to generate more than $1.2 billion for the state over the next two years. Opponents of the action call it a $1.2 billion take hike on Kansans.

On Thursday, the ratings agency Moody's Investors Service applauded the legislature's move, calling it "a significant step" toward achieving a sustainable budget.The action comes four months after lawmakers failed to override another Brownback veto preserving a tax loophole that lets scores of business owners pay no income tax.

Fresh Off Another Downgrade, Connecticut Has a Plan to Lower Borrowing Costs

But observers disagree about whether it will work.
BY  | MAY 17, 2017

Besieged by budget shortfalls, Connecticut's credit rating was downgraded in recent days by Fitch Ratings and Moody’s Investors Service. The downgrades were the state’s fourth and fifth in the past year alone. But if State Treasurer Denise Nappier gets her way, that credit hit might not matter the next time Connecticut goes to sell bonds.

Nappier wants the state to start offering investors revenue bonds that are paid back directly from the state’s income tax revenues. Called tax-secured revenue bonds, these new bonds would be offered in place of general obligation bonds, which are backed by the state’s general revenue collections. Nappier’s office believes the dedicated income stream would mean the bonds would fetch ratings as high as AAA, resulting in a better interest rate and lower debt service costs.

The idea has received mixed reviews.While some observers call it a product that will offer comfort to bondholders wary of Connecticut’s troubles, others say it’s a “financial engineering gamble” designed to game the market. “To create something out of nothing -- they’re not being more fiscally responsible by doing it this way,” says Municipal Market Analytics’ Lisa Washburn.

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The Week in Public Finance: Revenue Relief in 2018, Good GDP News and the Debt-Shy

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BY  | MAY 12, 2017

A Revenue Pick-Me-Up?

For the past two fiscal years, tax revenue has lagged. A new analysis, though, predicts states may soon see some relief.

A report this week by S&P Global Ratings says the climate may be right for “a revenue rebound” in fiscal 2018. A big reason, writes analyst Gabe Petek, is that investors may have held out in 2016 on cashing out stocks because they hoped a Trump presidency would give them a more favorable tax climate for their capital gains. With tax reform now looking like it’ll take longer, investors are more likely to cash out sooner. Petek says job growth and recent interest rate hikes will also benefit state income and sales tax growth in fiscal 2018.

That's good news given that a new analysis by the Nelson A. Rockefeller Institute of Government found that state tax revenue last year grew just 1.2 percent and actually declined by one-tenth of a percent after adjusting for inflation. It’s the weakest performance since 2010 and a major drop from 4.7 percent growth in fiscal 2015.

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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 Refinancing Debt Can Help Pensions

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North Carolina wants to use existing low rates to shore up retiree pensions and health-care debt.
BY  | MARCH 8, 2017

In the low interest rate environment, states and localities have been saving billions by refinancing old debt. In most cases, the savings have benefited the general fund balance. But in North Carolina, State Treasurer Dale Folwell is making a push to instead use those savings to pay down pension and retiree health-care debt.

Starting this spring, Folwell plans to refinance “every dollar we possibly can.” He'll ask the General Assembly to divert the savings to the treasurer’s office, where he'll then divvy up the extra dollars: 15 percent goes into the pension fund and 85 percent goes toward retiree health-care debt, which has a larger unfunded liability.

The approach has garnered rave reviews, but some question just how big a dent any such savings can make in an unfunded liability that in North Carolina totals nearly $38 billion between retiree pensions and health care.

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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.

Startups Seek to Democratize the Muni Market

They're bringing in new investors, big and small, to disperse the power and lower interest rates. It's already paying off for some governments.
BY  | DECEMBER 15, 2016

For all the post-recession financial market reforms, few ultimately made their way to the municipal bond market. For the most part, the muni market remains a low-tech place by Wall Street standards, and one that's still largely controlled by the same group of big investors.

"The muni market has a lot to do with relationships, power and influence," said Rob Novembre, a former trader who has spearheaded a new alternative bond trading system. "The bigger you are as an account, the more attention you get from sellers. If you buy bigger blocks [of bonds], that gets you more power."

Thanks to Novembre's new startup and another in San Francisco, though, that's starting to change. The two companies are not only set to give the market a tech update but also to bring it more buyers. The idea is that more buyers will increase demand for municipal bonds and, in turn, will net governments lower interest rates on their debt.

Arkansas, California Voters Approve Spending on Mega Projects

In an anti-debt climate, voters in the two states cleared the way for spending on major economic development projects.
BY  | NOVEMBER 9, 2016

In the post-recession era, "debt" is a four-letter word. State debt levels as a whole have been stagnant in recent years and, in 2014, actually recorded the first decline in the 28 years Moody's Investors Service has been tracking them.

It's in this climate that voters in Arkansas and California have cleared the way for more spending on mega projects that could be economic development boons in those states.

In Arkansas, voters overwhelmingly passed a ballot initiative that eliminates the state's current 5 percent cap on debt related to economic development projects. Proponents of Arkansas’ Issue 3, who included Gov. Asa Hutchinson, want the cap lifted so the state can be more competitive in attracting new corporations by helping fund mega projects. Voters easily approved the measure, 65-35.

In California, which has one of the highest taxpayer debt burdens in the country, the results were much closer. Voters narrowly rejected a proposal, 51-49, that could have derailed two of Gov. Jerry Brown's legacy projects. Prop. 53 would have limited the state's ability to issue debt for major projects by requiring voter approval to issue more than $2 billion in revenue bonds.

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To Limit Debt or Make It Limitless? 2 States’ Voters Will Decide.

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In an anti-debt climate, one state aims to rein it in while another tries to uncap it.
BY  | OCTOBER 27, 2016

In the post-recession era, "debt" is a four-letter word. State debt levels as a whole have been stagnant in recent years and, in 2014, actually recorded the first decline in the 28 years Moody's Investors Service has been tracking them.

It’s in this climate that voters in two states are considering nearly opposite proposals on debt.

California, which has one of the highest taxpayer debt burdens in the country, will decide whether to limit lawmakers’ ability to issue debt for major projects. Prop. 53 would require voter approval to issue more than $2 billion in revenue bonds.

In Arkansas, a ballot initiative proposes making it easier for the state to incur more debt. Issue 3 would eliminate the state's current 5 percent cap on debt related to economic development projects.

Each state's history with bond debt has a lot to do with these conflicting proposals

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Chicago’s Shockingly Bad Finances

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You’ve probably read about the Windy City’s money problems. But chances are they're worse than you thought, and a recent ruling didn't help.
BY  | MARCH 25, 2016

You’ve probably read headlines about the Windy City’s financial woes. About how Chicago’s years of borrowing to pay for its operations has finally caught up to it. About how inadequate funding of its pensions has saddled it with huge annual payments.

But unless you’ve been paying close attention, chances are Chicago is worse off than you think.

The numbers are staggering. The city has about $34 billion in outstanding debt, with roughly $20 billion of that coming from its five pension plans. That’s compared with a little more than $9 billion total annual budget. The teachers’ retirement fund is short about $9.6 billion and owes an additional $6 billion to bondholders. The outstanding bonds alone exceed the system’s annual $5.8 billion budget. Overall, Chicago Public Schools has struggled to sell enough bond debt to get through the current year, and the system is even facing a possible state takeover. Both the city and the school system’s credit ratings have been downgraded to junk status.