Management

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In Phoenix, Women Are Breaking Public Safety's Brass Ceiling

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The city has an unusually high number of women in leadership positions, even in male-dominated departments like police and fire. Why is that?
BY  | JANUARY 9, 2017

Excluding education, women make up nearly half of the roughly 9 million workers in state and local government -- but they remain underrepresented in management and leadership roles. In general, the higher you look on a government's organizational chart, the more likely a position is to be filled by a man.

Not so in Phoenix.

In that city, nearly half of the 36 department heads and other executive positions are held by women, a share that far exceeds the national average. Women head notoriously male-dominated agencies like transportation, water infrastructure and even public safety. In fact, the city of 1.5 million is the largest municipality in the country to have both a female police and fire chief. Women also lead the city's homeland security and emergency management departments, as well as the prosecutor's office.

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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.

A Budgeting Break for Small (and Big) Governments

With less people and money, small towns are prone to making big and expensive errors. One company wants to change that.
BY  | DECEMBER 27, 2016

Small towns and districts know all too well about limited resources. Their departments are made up of just a few employees; they have almost no support staff; and they can't afford fancy software that might help speed things along.

For finance directors, this makes budgeting a difficult and time-consuming task. In most less-populated places, the process is stuck in the 20th century: Budgets are created on Microsoft Excel, and directors are expected to consolidate versions between different departments.

At best, it’s arduous work. At worst, it leaves a lot of opportunities for errors.

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The Week in Public Finance: What the Rate Hike Means, a Legal Win for Online Sales Taxes and More

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A roundup of money (and other) news governments can use.
BY  | DECEMBER 16, 2016

Movin' On Up

The Federal Reserve announced a short-term interest rate hike on Wednesday, the first one in a year and a move that was largely expected. But what wasn’t on the radar was the Fed's announcement that it plans to raise rates three more times in 2017, up from previous expectations of two rate hikes.

Given the reticence to move rates for most of the last decade, the faster pace for next year has municipal analyst Chris Mauro calling the decision a “rather splashy hawkish surprise.”

The rate hike will move the target interest rate on short-term debt up one-quarter of a percent -- to a range of 0.5 to 0.75 percent. The Fed's previous rate hike was a year ago, and that was the first one in nine years.

The Takeaway: The Fed's plan to raise rates signals that economic growth is accelerating.

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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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The Week in Public Finance: Federal Budget Chaos, a Bankruptcy Win and Pension Portfolios

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BY  | DECEMBER 9, 2016
Chaos on Capitol Hill ... and in Statehouses

As state lawmakers begin preparing for their fiscal 2018 budgets, their biggest challenge is in the unknown. With Donald Trump’s election, the future for key state and local funding is almost anybody’s guess.

With Trump in the White House next year, Stan Collender, author of The Guide to The Federal Budget, predicts that a Republican-controlled Congress will move quickly on making major changes before the 2018 midterm elections. But after this unpredictable election, few are willing to predict what exactly those changes will be. All we know now is what’s on the table.

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The Week in Public Finance: A Run on Pensions in Dallas, Connecticut's Warning and a Threat to Muni Bonds

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BY  | DECEMBER 2, 2016

Dallas' Pension Problem

Dallas Mayor Mike Rawlings is calling on pension officials this week to halt what is amounting to a bank run on the fire and police pension fund. The run, which Rawlings testified has totaled $500 million withdrawn in 2016, is spurred in part by concerns the pension plan’s value is being inflated. Roughly half of the withdrawals have come in a recent six-week span.

Rawlings has asked that pension fund officials suspend so-called DROP payments, which are retirees’ own savings invested in the fund and are separate from their fund-administered pension payments.

For their part, pension fund officials blame the mayor for the run in the first place. Pension Board Chairman Sam Friar noted that Rawlings and other city leaders had refused the fund’s earlier requests to make public statements designed to boost confidence in the fund. “Had they done that, most of this money would not be gone. Simple, simple solution," Friar told the local television station KXAS. “But they refused to do that.”

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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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This Government Bond Insures Against Failure

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The first-ever environmental impact bond gives an agency some of its money back if its idea doesn't pan out.
BY  | NOVEMBER 10, 2016

As the drive for accountability in government spending increases, many are looking for ways to keep from paying the full price for programs that don't work.

In Washington, D.C., that desire has led to the first-ever environmental impact bond, issued this fall by DC Water, the city's water and sewer authority. The $25 million bond will pay for new, green infrastructure like rain gardens and permeable pavement to reduce stormwater runoff.

But if the projects don't work as expected, that's where the new financing structure comes in. Under the terms of the bond, which DC Water sold directly to Goldman Sachs Urban Investment Group and the nonprofit Calvert Foundation, the utility stands to get a multimillion discount on its total borrowing costs if the project doesn't meet a certain threshold.

It's essentially an insurance policy on the project's effectiveness. Here's how it works: After five years, the new infrastructure will be evaluated. If stormwater runoff isn't reduced by at least 18.6 percent, investors will owe DC Water a $3.3 million "risk share" payment. The payment represents a near-full refund of the 3.43 percent interest rate payments DC Water made during the first five years of the bond. After that, the bonds would likely be refinanced into 25-year bonds. DC Water would also drop green infrastructure projects and go back to so-called gray ones (like pumps and water tunnels) to reduce runoff.

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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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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

Privatization May Be Worsening Inequality

A new study suggests outsourcing government services can disproportionately impact low-income users' finances, health and safety.

BY  | OCTOBER 13, 2016

As state and local governments grapple with fewer resources for things like infrastructure or social services, many of them have opted to contract those responsibilities out to the private sector. But a new report warns that doing so may be widening the gap between the haves and the have-nots.

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Houston’s Plan to Cut Pension Costs in Half Overnight

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Mayor Sylvester Turner is garnering praise for his proposal's comprehensiveness and balance.
BY  | SEPTEMBER 29, 2016

Earlier this month, Houston Mayor Sylvester Turner released his outline for fixing the city's underfunded pension system, an issue that earned the city a credit rating downgrade in March.

Observers say the plan is the best effort yet at solving a problem that has eluded past city officials. If approved, the proposal would immediately cut Houston's unfunded liability by $3.5 billion -- or nearly in half -- while putting Houston on a path to pay off the rest of its pension debt over the next generation.

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The Week in Public Finance: Troublesome Sports Arenas, Buying Muni Bonds and California's Tenuous Recovery

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BY  | SEPTEMBER 23, 2016

Nebraska Town Hit With 'Superdowngrade'

The tiny town of Ralston, Neb., was surprised by a seven-notch "superdowngrade" this week when its arena bonds were sent hurdling into junk rating territory. S&P Global Ratings said it moved the rating from A+ to BB because of the financial strain the building is placing on the city of roughly 6,000 people.

The Story Behind San Bernardino’s Long Bankruptcy

Unlike Detroit or Stockton, this California city’s insolvency can’t be blamed on debt or pensions.

BY  | AUGUST 25, 2016

Four years ago this month, San Bernardino, Calif., filed for Chapter 9 protection. Today, it’s still in Chapter 9 -- the longest municipal bankruptcy in recent memory.

Why so long? Many blame it on San Bernardino’s lengthy and convoluted charter, a document that gives so much authority to so many officials that it’s completely ineffective. “It gets everybody in everybody else’s business,” said City Manager Mark Scott. “And it keeps anybody from doing anything.”

As a result, officials have spent the last two years trying to ensure the current charter is not part of the city’s future. A specially appointed committee is proposing to completely overhaul it.

At issue is that unlike many California cities that either have a strong mayor/council form of management or a strong city manager government, San Bernardino’s is a hybrid, doling out authority to both sides. For example, fire and police chiefs are appointed by the mayor and subject to approval by the council, but report to both the mayor and city manager. This confusing structure played a role in the city’s road to insolvency. “You’d have to say,” Scott said, “the charter made it almost impossible to succeed.”

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SEC Censures 71 Governments for Lack of Fiscal Transparency

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Financial timeliness is a problem that's 'widespread and pervasive,' the SEC said.
BY  | AUGUST 25, 2016

More than 70 state and local governments have been censured for failing to disclose certain financial information about bonds they sold to investors, the U.S. Securities and Exchange Commission announced Wednesday.

The SEC reached settlements with 71 governments across 45 states as part of a voluntary self-reporting program called the Municipalities Continuing Disclosure Cooperation Initiative (MCDC). Only five states -- Arizona, Florida, Nevada, Oregon and Rhode Island -- had no governments or government entities censured.

The number of citations show the problem is “widespread and pervasive,” said SEC Enforcement Director Andrew Ceresney in a statement.

MCDC is part of the commission's push for better transparency in the municipal market. Under the program, governments had to review documents associated with bonds they issued over the past five years. If they found anything amiss -- be it that they failed to disclose a previous annual financial report or didn't notify investors of a credit rating downgrade after the sale -- they could voluntarily come forward and obtain favorable settlement terms.

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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.”

The Benefits of Helping Struggling Cities

For financially distressed municipalities, it’s good to be in a state that intervenes, according to a new study.
BY  | AUGUST 11, 2016

Earlier this month, New Jersey stopped Atlantic City from defaulting on its debt with a $74 million bridge loan. While there was plenty of bluster and several hollow threats from legislators that they would not step in to help the financially beleaguered gambling town, it didn’t surprise anyone when they finally did.

That’s because New Jersey has a reputation in the credit market for going to any lengths to prevent one of its municipalities from entering Chapter 9 bankruptcy. In fact, no New Jersey municipality has defaulted on debt since the Great Depression. This extra layer of protection is not only comforting to local officials in struggling cities like Camden or Trenton, it’s viewed as a big plus by those who invest in New Jersey municipal debt.

Now, preliminary research affirms the benefits of being a municipality in a more proactive state. Scholars at the University of Notre Dame and University of Illinois at Chicago have found that creditors tend to give municipalities in these states a slightly lower borrowing rate than they do municipalities in states without any kind of bankruptcy intervention program.

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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.)

The Impact of New Overtime Rules on Government

The federal change won’t just hit state and local personnel costs.
BY  | JULY 28, 2016

A new federal rule that more than doubles the number of employees eligible for overtime pay has state and local governments scrambling. Already, governments are facing tight budgets and slow revenue growth. But the new rule, which goes into effect Dec. 1, threatens not only to increase personnel costs, but operating costs as well.

The rule change, which was issued by the Department of Labor in May, affects the earnings of both public- and private-sector workers. Governments are looking now at how much it will impact payrolls. But nonprofits are warning that the rule could also result in substantially higher rates next year for governments that contract services out.

The change is an update to the Fair Labor Standards Act and doubles the minimum salary that full-time white-collar workers must earn to be exempt from getting overtime pay to $913 a week, or $47,476 per year. The salary level was set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census region, which is currently the South.