Some people pay more than their fair share of taxes -- and it’s not the rich.
The Week in Public Finance: How the New NAFTA Deal Impacts States
After President Trump threatened for more than a year to withdraw from NAFTA, auto-manufacturing states breathed a sigh of relief when he announced a renegotiated trade agreement earlier this month with Canada and Mexico.
A U.S. withdrawal from the 1994 pact would have resulted in the reimposition of tariffs on specific goods between the U.S., Canada and Mexico. The impact would have been felt most acutely by states such as Michigan that do a lot of business with the two countries.
Pension Plans Had a Great Year, But Retirees Likely Won't Benefit From It
One good investment year isn't enough to fix struggling systems' problems.
A trader working on the floor of the New York Stock Exchange. (AP/Richard Drew)
Public pension plans are reporting double-digit investment returns, and some are even finishing with record highs this year.
The high earnings are due to a robust stock market and are welcome news after two straight years of below-average returns for most pension plans. But finance experts say the investment boost likely won’t translate into an equally impressive reduction in pension debt because of the increasing cost of pensions.
"Government contributions tend to be insufficient to reduce unfunded liabilities -- even if the plans meet their target," says Tom Aaron, vice president and senior analyst at Moody's Investors Service.
Pension plans rely heavily on investment earnings because annual payments from current employees and governments aren’t enough to cover yearly payouts to retirees. As it stands, roughly 80 cents on every dollar paid out to retirees comes from investment income.
The Week in Public Finance: Revenue Relief in 2018, Good GDP News and the Debt-Shy
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.
The Week in Public Finance: Pensions Protest Bathroom Bills, a Billion-Dollar Showdown in Kansas and More
| FEBRUARY 24, 2017
Pension Funds Mess With Texas
The country’s largest public pension systems and investors are pressuring Texas officials not to approve a so-called bathroom bill introduced in January. The legislation targets transgender individuals by requiring them to use the public restroom that aligns with the gender on their birth certificate.
Pointing to North Carolina, which lost hundreds of millions in business from canceled sporting events, concerts and conventions after its bathroom bill became law last year, the group warned in a letter that Texas could meet the same fate. Already, the National Football League and the NCAA have said that the siting of future events in Texas would be jeopardized if lawmakers move forward.
The more than 30 signatories on the letter include comptrollers, controllers and treasurers of California, Connecticut, New York, Oregon, Rhode Island and Vermont, as well as major firms such as BlackRock and T. Rowe Price. Collectively, the group represents more than $11 trillion in assets.
The Takeaway: Threats like these aren't new. Called social divesting, stewards of major pensions have increasingly urged corporate boards in recent years to make policy changes, such as pressuring energy companies to move away from fossil fuels.
The Week in Public Finance: Diverging County Economies, Treasurers Talk Trump and Sanctuary City Threats
| FEBRUARY 17, 2017
County Recoveries Coincide With Political Shifts
The nation's economic recovery accelerated in 2016, with more than 1 in 4 counties reporting a full recovery to pre-recession levels on four key economic indicators. That portion is a huge jump from last year when 1 in 10 reported fully recovering counties, according to the National Association of Counties (NACo).
The four indicators are: job totals, unemployment rates, economic output (GDP) and median home prices. Two-thirds of the nation’s more than 3,000 counties have recovered on at least three of the economic indicators.
Most of the counties that have fully recovered are in Kentucky, Iowa, Minnesota, Missouri, Nebraska, South Dakota, Texas and Wisconsin. In addition, the mid-Atlantic, the Northeast and the West Coast have many nearly-to-fully recovered counties. Large counties (more than 500,000 residents) had the highest rate of full recovery at 41 percent. In contrast, more than three-quarters of small counties (fewer than 50,000 residents) still had not reached their pre-recession peaks in any of the indicators by the close of 2016.
The Takeaway: Both the acceleration of the economic recovery and the fact that it’s mostly happening in very populated areas is widening the gap between the municipal haves and have nots. It also partly explains shifting political allegiances in some mid-sized counties in 2016.
No 401(k)? No Problem. States Have You Covered.
Several states are preparing to offer a retirement plan that helps private-sector workers -- and taxpayers -- save money.
This July, Oregon will become the first state to offer a retirement plan to part- and full-time private-sector workers who don't have access to one through their employer. The program is ultimately expected to cover nearly one million workers in the state.
Six other states -- California, Connecticut, Illinois, Maryland, New Jersey and Washington -- are also planning to roll out similar programs within the next five years. When that happens, the seven states will cover nearly one-quarter of the nation's private-sector workers without an employer-sponsored retirement plan.
Called Secure Choice, these programs have been catching on since California in 2012 decided to study the feasibility of creating one. They aren't pensions but instead independently managed and pooled retirement accounts. The programs pay for themselves through fees, so states aren't liable for the cost. In addition to the seven states that have approved a program, at least eight other states -- including populous New York -- have or are considering legislation to launch their own.
The Week in Public Finance: Trump's Infrastructure Plan, Risky Pensions and NYC's Surprising Fiscal Health
The Week in Public Finance: Repealing Obamacare, How a California Ruling Threatens Pensions and More
The Income Gap Between Black and White Men Is Getting Worse
The Week in Public Finance: What the Rate Hike Means, a Legal Win for Online Sales Taxes and More
The Week in Public Finance: Pensionomics, Hidden Bank Loans and Private Equity Fees
| SEPTEMBER 16, 2016
Do Pensions Help the Economy?
A new study on how pensioners spend their money will likely give a boost to those who want to keep traditional, defined benefit pension plans in the public sector.
Published this week by the nonprofit National Institute on Retirement Security (NIRS), the analysis on pension retiree spending in 2014 estimates it resulted in $1.2 trillion in total economic output. The total is based on about a half-trillion in benefits paid to public and private pensioners in 2014. State and local pension benefits account for about half ($253 billion) of those benefits.
The Week in Public Finance: Demanding Better Government Disclosure, Uneven Recoveries and a Party at the Pump
Public Pensions Facing Worst Returns Since Recession
The Week in Public Finance: States in Recession, Higher Ed Winners and Losers, and Virtual Retirement
A roundup of money (and other) news governments can use.
Oklahoma's in a Recession
New economic data shows what Oklahoma officials have been fearing: The state has officially entered a recession. Revised federal Bureau of Economic Analysis (BEA) data shows that the state’s gross domestic product was negative for most of 2015.
A recession starts when there are two quarters of economic contraction. Originally, the BEA reported that Oklahoma’s economy contracted in the second quarter, grew by 0.1 percent during the third quarter and contracted again in the last quarter of last year. But the third quarter figure was recently revised downward to -0.6 percent.
Data for the first quarter of 2016 is expected to be released later this month, but according to State Treasurer Ken Miller, the prospects don’t look good.
“General indicators fail to point to any marked economic recovery at this point,” he said in his latest state economic report.
The $4.3 Trillion That States and Localities Are Missing Out On
The Week in Public Finance: Rescuing Puerto Rico, Brexit Fallout and Minimum-Wage Trends
A roundup of money (and other) news governments can use.
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
The Week in Public Finance: What Brexit Means for Muni Bonds, Pension Projections and More
A roundup of money (and other) news governments can use.
What Brexit Means for the Municipal Bond Market
On Thursday, Britain voters shocked the world by deciding to exit the European Union in a vote that became known as "Brexit," a combination of Britain and exit. The result, which prompted Prime Minister David Cameron to say he will step down in the coming months, has implications for global financial markets, which in turn can affect the U.S. municipal market.
Even before the results of the vote were in, the uncertainty of the outcome was affecting markets everywhere. Global stocks and some corporate bonds had slumped while demand for traditionally safer assets like U.S. Treasuries and municipal bonds had “soared,” according to Ivan Gulich, senior vice president of the financial firm Loop Capital Markets.
This increased demand for municipal bonds has driven down interest rates, which is good for governments looking to borrow money. For example, the interest rate on a 30-year Treasury bond is currently lower than it was even in the wake of the Lehman Brothers' 2008 bankruptcy that roiled the corporate market and drove demand toward government securities.
“What was initially seen as an issue for Europe has rattled markets around the world,” wrote Gulich this week in an analysis.
After Milestone Year of Recovery, State Spending to Slow
The Week in Public Finance: Muni Credit Trends, the Next Round of Tax Reforms and More
A roundup of money (and other) news governments can use.
What’s Going on With Muni Credits?
The trend of local governments only seeking out one credit rating for bonds is growing. Now, one in five bonds issued in the municipal market has just a single credit rating assigned to it, according to data from Municipal Market Analytics (MMA).
This can be attributed to several factors. For one, fewer individual investors -- the biggest users of credit ratings information -- are directly purchasing muni bonds, so the demand for multiple ratings has lessened. Also, agencies are increasingly giving different ratings to the same bond, which “undermines the notch-by-notch value of individual rating assignments," said MMA analyst Matt Fabian.
Along with this trend is another one: A significant portion of municipal issuers are worse off than they were at the end of the Great Recession. By the measure of PNC Capital Markets analyst Tom Kozlik, 20 percent of state and local governments have seen their underlying credit quality decline -- some significantly so.
Kozlik blames this on one key fact: governments' inability to balance their revenue and spending to live within their means. “Also,” Kozlik adds, “some state and local governments still have not grasped the scale, costs and risk that pension liabilities and other post-employment benefits still pose to credit quality and fiscal balance.”