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The Week in Public Finance: Trump's Impact on Muni Bonds, Panning Social Investing and More

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BY  | NOVEMBER 18, 2016

2 Takes on Trump's Impact on Muni Bonds

 President-elect Donald Trump’s proposed policies could partially change the landscape of the municipal bond market for investors in two primary ways.

First, his election could put Build America Bonds (BABs) -- or a program like it -- back on the table for government issuers. BABs were introduced in 2009 and 2010 by the Obama administration as a way to stimulate the economy and create jobs. Republicans on Capitol Hill killed the program, but Trump has spoken favorably about it. He's interested in stimulating more investment in infrastructure.

Unlike regular municipal bonds, BABs aren’t tax exempt, making them more appealing to investors such as international bondholders or institutional investors who aren’t eligible to claim an exemption. Thus, they broaden the municipal bond market.

Second, an analysis by the Court Street Group Research (CSGR) says Trump’s income tax plan could affect the municipal market because it would eliminate or reduce the tax exemption for municipal bondholders. “The CSGR approaches the reality of a Trump administration with some trepidation as it applies to municipal bonds,” the analysis said.

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The Week in Public Finance: Pensionomics, Hidden Bank Loans and Private Equity Fees

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BY  | 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.

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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: Defending Wall Street Fees, Ranking Property Tax Rates and More

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A roundup of money (and other) news governments can use.
BY  | JUNE 17, 2016

Defending Wall Street Fees

The performance fees that public pension plans pay private equity and hedge fund managers are coming under scrutiny. Some say the high fees aren’t worth the returns on investment and complain that many costs remain hidden. Those two points were part of a critical report last month by the right-leaning Maryland Public Policy Institute on Maryland’s hidden Wall Street fees.

Now, the Maryland State Retirement Agency has issued a lengthy response questioning the institute’s conclusions. In a letter published this month by Executive Director R. Dean Kenderdine and Chief Investment Officer Andrew C. Palmer, the system’s officials attack the institute’s methodology while defending its own financials.

Maryland reported paying $85 million in performance fees in 2014, but according to the report it may have actually paid more than $250 million. The policy institute made that estimate by comparing Maryland’s disclosed performance fee rate against the rate of performance fees disclosed by New Jersey, which has a similarly sized alternative investment portfolio and fairly comprehensive fee disclosure policy.

But Kenderdine and Palmer say Maryland's $85 million in reported fees are accurate because New Jersey has been “much more aggressive in its pacing of investments.” In other words, the private equity funds New Jersey invests in are designed to start producing returns soon after the pension puts money in the fund. Maryland’s private equity funds, however, haven’t hit that so-called harvesting period when investments are sold and managers receive performance fees from that profit, said Kenderdine and Palmer. So the performance fees are smaller but could theoretically be larger in the coming years.

The Hidden Wall Street Fees That Could Be Costing Pensions $20 Billion a Year

A new report says the fees pension plans pay private equity and hedge fund managers aren't worth it.
BY  | MAY 24, 2016

The fees public pension plans pay Wall Street money managers -- some of which go unreported -- have come under increasing scrutiny in recent years. It's estimated that disclosed and undisclosed fees cost public plans upwards of $20 billion annually, according to the author of a new study.

That's a big dollar amount when you consider that public pension plans' collective unfunded liability is a little over $1 trillion. So far, just a few state plans have been trying to get a handle on these fees. One of them, the California Public Employees Retirement System (CalPERS), reported late last year that it paid $3.4 billion in undisclosed fees over the past 25 years on $24 billion in total investment earnings. CalPERS is the nation's largest retirement system.

Jeff Hooke, a consultant for the right-leaning Maryland Public Policy Institute, estimates in the study that Maryland's public employees' plan paid $500 million in 2014 -- twice as much as it reported for that year. Hooke said that if other states' hidden fees are similarly underreported, the total fees pensions actually pay could be as much as $20 billion annually. "And that's just for states -- forget about all the counties and cities," he said, "which could easily add another 25 percent to that."