Revenue

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The Week in Public Finance: Broke Puerto Rico, Slow Financial Disclosures and Trouble in Kansas

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A roundup of money (and other) news governments can use.
BY  | APRIL 29, 2016

Broke in Puerto Rico

Congress stalled this week on legislation that could help Puerto Rico restructure its debts. That leaves the financially strapped U.S. territory continuing to try and piece together agreements with its creditors.

The commonwealth’s next debt payment, which is nearly a half-billion dollars in securities, is due Monday, and it's expected to default. There are reports that Puerto Rico’s main financing arm is negotiating a deal with creditors to pay slightly less than half of what is owed. But even so, credit rating agencies still view such negotiated cuts as a default on debt.

Puerto Rico, however, won't get out of its jam with a series of deals. In total, the territory owes about $70 billion in debt that it can’t pay.

Congress is considering installing a federal oversight board, among other financial reforms, but lawmakers this week said they don’t expect to move on that legislation until July. Absent a federal oversight board, Puerto Rico is vulnerable to lawsuits from creditors. If that happens, that would likely drag down any restructuring process even further, according to an analysis this week by Moody’s Investors Service.

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Q&A With Gov. Bill Walker on Fixing Alaska’s Finances

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The former businessman talks about betting his political career on fixing the Last Frontier’s finances.
BY  | MARCH 10, 2016

Alaska Gov. Jay Hammond and others knew all the way back in the ‘70s the dangers of relying financially on a finite resource. So when oil money began flowing into state coffers, Hammond and the legislature created in 1976 the Permanent Fund, which gets a share of the state’s oil revenues every year. The fund was seen as a source of income for when the oil ran out. Lawmakers can’t touch the initial investments -- just the earnings, which get divvied up and distributed annually to every resident who receives about $2,000.

“You have to remove the money,” Hammond said in 1980. “Put it behind a rope where you cannot utilize it for flamboyant expenditures.

Today Alaska still relies on oil revenues to fund most of its day-to-day operations, but nearly two years ago, oil prices began steadily declining. Since then, the state has withdrawn more than $6 billion from its substantial reserves and cut $1 billion in spending to close budget gaps. Last week, Moody’s Investors Service became the second ratings agency this year to strip Alaska of its AAA rating.

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Louisiana's Budget Has More Than Just an Oil Problem

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Unlike other oil-dependent states, Louisiana has deeper financial issues that began nearly a decade ago after Hurricane Katrina. The legislature is meeting in special session to deal with them.
BY  | MARCH 2, 2016

The global oil surplus is forcing some energy-dependent states to rethink their financial arrangements. Already, Alaska, North Dakota, West Virginia and Wyoming have hit the official recession marker of sustained job loss, according to Moody’s Analytics. These and other states are slashing spending to right-size their budgets.

But in Louisiana, the financial turmoil runs deeper than fallout from the last 20 months of declining oil prices.

Last week, Moody’s Investors Service slapped Louisiana with its first credit rating downgrade in more than a decade. It’s the only energy state other than Alaska to be downgraded since the oil price slump began, yet Louisiana is far less dependent on oil than the Last Frontier. Severance taxes -- the taxes imposed on the production of oil and minerals -- made up nearly three-quarters of Alaska’s tax collections in 2014, compared to about 9 percent in Louisiana, according to an analysis by the Rockefeller Institute for Government.

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The Week in Public Finance: A Muni Bond Victory in Congress and a Ukraine-Inspired Idea to Restructure Puerto Rico

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A roundup of money (and other) news governments can use.
BY  | FEBRUARY 5, 2016

Preparing -- or Not -- for a Slowdown

The financial outlook for states and localities over the next few years, simply put, isn’t as rosy as it’s been for the past couple of years. (If you even want to call the last couple of years rosy.)

Last week, we reported that states other than oil-dependent ones are dealing with mid-year spending cuts. Looking ahead, state budget forecasters are expecting tepid sales and income tax revenue growth for both 2016 and 2017. If spending continues to grow faster than revenues, the next few years could be challenging for government budgets.

“States still haven’t made up for a lot of the cutting that got done in the last six to eight years,” said Bill Pound, the executive director of the National Conference of State Legislatures. In particular, states are still trying to restore education funding while implementing higher standards, he said.

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How Oil States Are Dealing With Sinking Prices and Revenue

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The states most dependent on oil tax revenues have different ways of dealing with the industry slowdown.
BY  | FEBRUARY 4, 2016

Oil prices are now at their lowest level in 12 years -- below $30 a barrel. That's great news for consumers, but not for the states that depend on oil tax revenues.

The falling price of oil, which has declined more than 60 percent since June 2014, has some states scrambling. With no end in sight, states that are more dependent on the industry simply can't replace the revenue by withdrawing from their substantial rainy day funds.

Oil, natural gas and mining account for about 10 percent or more of gross domestic product in eight states: Alaska, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, West Virginia and Wyoming. Last year, total tax revenues in the eight states declined by 3.2 percent, according to a new analysis by the Nelson A. Rockefeller Institute of Government. In contrast, the remaining 42 states reported a 6.5 percent increase in total tax revenues.

Although most of these states tend to budget conservatively, the good years for oil had an impact on their finances.