revenues

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The Hidden Wealth of Cities

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To find it, a new book says, localities need look no further than their roads, airports and convention centers.

BY  | AUGUST 9, 2017
Downtown San Diego, with a view of the convention center.
Downtown San Diego, with a view of the convention center. (Shutterstock)

In the years since the Great Recession, there’s been a lot of effort made to ensure a government is sharing its complete fiscal picture. In many cases, this transparency push has resulted in a government’s bottom line going from a surplus to a shortfall thanks to the introduction of things like pension and retiree health benefit liabilities to annual balance sheets.

But some think governments are still leaving a few things off the ledger. Dag Detter and Stefan Folster, co-authors of the new book The Public Wealth of Cities, say localities are failing to realize the true value of the public assets they own, such as airports, convention centers, utilities and transit systems, just to name a few. “The public sector owns a lot of commercial assets,” says Detter, a Swedish investment advisor and expert on public commercial assets.

But, he adds, it doesn’t manage the risk of increased costs associated with those assets very well. Then, “the inclination is to give [management] away to the private sector,” he says. “But when you do that, you also have to give away the upside.”

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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: A Rate Hike, Unpredictable Taxpayers and Stress-Testing Budgets

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BY  | JUNE 16, 2017
The Federal Reserve headquarters in Washington, D.C.
The Federal Reserve headquarters in Washington, D.C. (Shutterstock)

A Rate Hike

The Federal Reserve announced this week that it's raising interest rates by one quarter of a percentage point, which is its second short-term increase of the year. The move was widely expected but comes amid expectations that inflation is running well below the central bank’s 2 percent target for 2017.

The Fed also released more details on how it plans to unwind its $4.5 trillion portfolio of bonds that includes Treasurys, mortgage-backed securities and state and local government debt. Each month, the Fed receives billions in principal payments from its various holdings, and much of that repayment is then reinvested in more bonds and other securities. Now, the Federal Open Market Committee -- which is part of the Federal Reserve -- said it intends to gradually reduce the Fed’s securities holdings by decreasing its reinvestment of its monthly principal payments it receives.

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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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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: Pensions Protest Bathroom Bills, a Billion-Dollar Showdown in Kansas and More

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BY  | 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.

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The Week in Public Finance: Diverging County Economies, Treasurers Talk Trump and Sanctuary City Threats

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BY  | 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.

Have States Reached Their Savings Limit?

After several years of growth, the amount states are socking away in rainy day funds has slowed.
BY  | JANUARY 11, 2017

Rainy day savings deposits appear to be plateauing.

After six straight years of squirreling away money, budgeted figures for fiscal 2017 show a slight dip in rainy day fund balances across the 50 states. States now have a median 4.9 percent of annual expenditures saved for the fiscal year, down from 5.1 percent the previous year.

What's more, four states -- Illinois, Nevada, New Jersey and North Dakota -- now show no budget reserve funds, up from two states last year. The overall shift is a signal that tighter financial times could be ahead for states as a whole.

The findings are based on Governing's analysis of projected 2017 budget data from the National Association of State Budget Officers. Given that roughly half of states are now expecting budget shortfalls for 2017, budget reserve balances could dip more than projected.

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5 Hot Topics Hitting Public Finance in 2017

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BY  | DECEMBER 29, 2016

In what could be a tumultuous year for state and local finances, these five issues are likely to take center stage.

Tax Reform

Many Capitol Hill watchers expect federal tax reform to roll forward in some fashion in 2017 now that a Republican will be in the White House. There are two major proposals on the table that could directly result in higher costs for states.

For starters, many in Congress have been supportive of limiting the tax-exempt status of municipal bonds. Removing this tax perk for bond investors would force governments to offer higher interest rates on the debt, thus increasing their cost of paying off that debt.

It’s hard to overstate the potential impact of such a move. One estimate pegged the current tax perk savings for state and local governments at about $714 billion from 2000 to 2014. For its part, the federal government estimates it loses as much as $30 billion in potential income tax revenue each year as a result of the perk.

Budget Shortfalls Expected in the Most States Since Recession

Almost half the states cut their budgets this year, and that trend is likely to continue into 2017.
BY  | DECEMBER 13, 2016

Weak revenues are causing the most state budget shortfalls since the Great Recession.

According to the National Association of State Budget Officers’ (NASBO) annual state spending survey, half of all states saw revenues come in lower than budgeted in fiscal 2016 and nearly as many (24) are seeing those weak revenue conditions carry into fiscal 2017, which ends in summer 2017 for most states. It marks the highest number of states falling short since 36 budgets missed their mark in 2010.

As a result, 19 states made mid-year budget cuts in 2016, totaling $2.8 billion. That number of states “is historically high outside of a recessionary period,” according to the report.

The revenue slowdown is caused mainly by slow income tax growth, even slower sales tax growth and an outright decline in corporate tax revenue

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To Prepare for the Next Recession, States Take Stress Tests

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No government can be fully prepared for every economic twist and turn. Still, some are trying.
BY  | DECEMBER 12, 2016

The Great Recession was uniquely devastating for states and localities because it hit all three major tax revenue sources: income, sales and property. It was a scenario that few, if any governments, were really prepared to absorb. As a result, governments were forced to make massive budget cuts.

Now, as the recovery trudges on longer than most, a growing number of states are making sure they aren’t blindsided by the next downturn.

Enter stress testing. The idea, which was borrowed from the U.S. Federal Reserve, essentially throws different economic scenarios at a state budget to see how revenues would be impacted.

“We’re in an environment where everyone is starting to think about the next downturn and what that’s going to look like,” said Emily Raimes, a Moody’s Investors Service analyst. “A stress test is a tool for states to think about what types of programs they should commit to and how much to save now.”

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Facing Weak Revenues, States' Spending Growth Slows

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BY  | NOVEMBER 17, 2016

Declining tax revenues has driven a slowdown in state spending, according to a new report from the National Association of State Budget Officers (NASBO).

In fiscal 2016, state spending grew by an estimated 4 percent. That growth rate is significantly slower than the relatively sharp increase of 6.9 percent in fiscal 2015, which also marked a 10-year high in spending growth.

Spending from the general fund grew 3.1 percent from fiscal 2015, which is significantly lower than increases in prior years and is a full percentage point lower than NASBO predicted for 2016 spending. The shrinkage was largely driven by declines in personal income and sales tax revenue growth.

In total, general fund revenues increased just 1.8 percent in 2016, compared with 4.8 percent the year before. Corporate income taxes -- a smaller portion of states’ general revenues -- saw a significant decline of 5.8 percent.

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Pleas for More Education Funding Fall Short on Election Day

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Voters in two states rejected measures that would have raised taxes -- either for consumers or corporations.
BY  | NOVEMBER 9, 2016

Voters in two financially-struggling states have struck down proposed tax increases that would have given more much-needed funding to education.

Public education was one of the biggest casualties of the Great Recession. Nearly a decade since it started, nearly half of states are still providing less general funding for schools than they were the year the economy tanked. But the rejections on election night reflect a feeling among taxpayers that governments are punting on a problem by passing on costs to them, rather than making their own difficult decisions.

In Oregon, which is facing a $1.3 billion deficit, voters shot down a proposal to impose a tax hike on corporations with more than $25 million in annual sales in the state. Opponents, largely corporations, called it a sales tax in disguise because they warned businesses would pass on the costs to consumers.

Pat McCormick, a spokesman for the campaign to defeat the tax, told the The Oregonian/OregonLive that Measure 97 "fell of its own weight when people understood what it would do."

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The Week in Public Finance: NYC's $3 Billion in Giveaways, Weak Revenues and Jacksonville's Pension Fix

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

Why New York City Gave Up $3 Billion in 2016

New York City is the first major government this year to release what it gives up in economic development-related tax incentives to corporations, following new financial reporting requirements. In its annual financial report, the city disclosed that it waived more than $3 billion in potential tax revenue in 2016 alone, mostly in uncollected property taxes.

The tax abatements represent a little under 4 percent of the city’s nearly $80 billion in general fund revenue in fiscal 2016, which ended on June 30.

The most expensive abatement was for the commercial conversion program, which cost nearly $1.3 billion in forgone revenue last year. The program encourages new housing in the city by offering a property tax discount on new construction or on commercial space that was converted into residential housing. Developments have to meet certain requirements, like reserving one-fifth of the units for affordable housing.

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The Week in Public Finance: New Jersey's Tax Plan, Online Lending Myths and Cities' Recovery

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BY  | OCTOBER 14, 2016

New Jersey: Between a Rock and a Hard Place

Moody’s Investors Service has panned New Jersey’s plan to beef up its transportation funding, mainly because it does so at the expense of other state programs. The legislature this month approved a 23-cent gas tax increase, which will raise approximately $1.2 billion.

But to offset the tax increase, the legislature also approved tax reductions.

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City Revenues Expected to Finally Recover From Recession

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But cities are still dealing with slow revenue growth and rising costs, according to a new report.

BY  | OCTOBER 14, 2016

 

City revenues have struggled to get back to pre-recession levels. But things may finally be looking up.

On Thursday, officials announced that they expect city incomes to fully recover by next year -- a decade after the start of the Great Recession.

It’s by far the longest revenue recovery period in more than a generation as the bounce back period after the previous two recessions was done in half the amount of time. Currently, officials estimate that city revenues (accounting for inflation) have reached 96 percent of what they were in 2006, the year before the recession started.

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The Week in Public Finance: New Jersey's Tax Plan, Online Lending Myths and Cities' Recovery

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BY  | OCTOBER 14, 2016

New Jersey: Between a Rock and a Hard Place

Moody’s Investors Service has panned New Jersey’s plan to beef up its transportation funding, mainly because it does so at the expense of other state programs. The legislature this month approved a 23-cent gas tax increase, which will raise approximately $1.2 billion.

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The Week in Public Finance: Unsustainable Health-Care Costs, an Oil State Not in Crisis and More

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BY  | SEPTEMBER 9, 2016

Retiree Health-Care Liabilities Are Dramatically Increasing

State governments’ cost of keeping all their promises to retirees is “unsustainable.” That’s the conclusion of a report this week by S&P Global Ratings that looked at the growth in total retiree health-care liabilities across state governments.

In just two years, so-called "other post-employment benefit" (OPEB) liabilities have increased 12 percent, to $554 billion for states alone. This reverses a trend of stable to declining liabilities found in S&P’s past two annual surveys.

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Is Ending Atlantic City's Casino Monopoly Worth the Gamble?

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The closure of casinos in Atlantic City has left the municipality in financial crisis. Now New Jersey wants to build more in other places.
BY  | SEPTEMBER 8, 2016

A proposal to end Atlantic City’s casino monopoly in New Jersey would spell the end for the struggling seaside resort town. At least that's what opponents of the idea say.

Backers of the ballot measure, however, say it's the city's best hope for revitalizing its downtown and diversifying its economy beyond gaming.

This November, New Jersey voters will decide whether to allow two new casinos to be built in the state. About one-third of any new casino revenue would go to Atlantic City for 15 years for economic revitalization.

The vote comes as Atlantic City, once the East Coast’s gaming capital, has struggled in the face of increased competition in neighboring states. In the past 15 years, more than a dozen casinos have opened in Maryland, New York and Pennsylvania