Startups Seek to Democratize the Muni Market

They're bringing in new investors, big and small, to disperse the power and lower interest rates. It's already paying off for some governments.
BY  | DECEMBER 15, 2016

For all the post-recession financial market reforms, few ultimately made their way to the municipal bond market. For the most part, the muni market remains a low-tech place by Wall Street standards, and one that's still largely controlled by the same group of big investors.

"The muni market has a lot to do with relationships, power and influence," said Rob Novembre, a former trader who has spearheaded a new alternative bond trading system. "The bigger you are as an account, the more attention you get from sellers. If you buy bigger blocks [of bonds], that gets you more power."

Thanks to Novembre's new startup and another in San Francisco, though, that's starting to change. The two companies are not only set to give the market a tech update but also to bring it more buyers. The idea is that more buyers will increase demand for municipal bonds and, in turn, will net governments lower interest rates on their debt.

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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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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What We Don't Know About Trump's Carrier Deal (and Most States' Business Deals)

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BY  | DECEMBER 8, 2016

Critics and supporters of Donald Trump’s deal that kept Carrier Corp. from exporting hundreds of jobs from Indiana to Mexico have spent much of the past week arguing about how many jobs the deal actually saved.

But what the public will likely never know is how much the deal helps the air conditioning company’s annual state tax bill. It's information that's typically not released but can reveal whether a tax incentive has the potential to bring a business' state tax burden down to zero.

Last week, President-elect Trump and Vice President-elect Mike Pence, who is still serving as governor of Indiana, announced a deal with Carrier that they say will keep 1,100 jobs in the state in exchange for $7 million in tax breaks over a decade. Since the announcement, unions have refuted the jobs number and said it’s closer to 800 since Carrier still plans to export 500 jobs to Mexico.

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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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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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The Week in Public Finance: What a Trump Presidency Could Mean for State and Local Finances and More

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BY  | NOVEMBER 11, 2016

What a Trump Presidency Could Mean for State and Local Finances

An early review of Donald Trump's health-care and trade policies reveals some potentially bad news for state and local governments. According to Fitch Ratings, Trump's proposals would "significantly lower federal transfers to state budgets and could negatively affect economic growth and revenues."

Specifically, Trump has proposed converting Medicaid funding into a block grant program, which Fitch says would lead to much lower federal funding for the states. A Congressional Budget Office (CBO) assessment of earlier Medicaid block grant proposals projected declines of between 4 and 23 percent in federal funding over 10 years.

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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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Missouri Passes Nation's First-Ever Ban on Services Sales Taxes

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As states increasingly try to tax services like Netflix and yoga, Missouri voters have decided to keep that from ever happening. How that will impact consumers is unclear.
BY  | NOVEMBER 9, 2016

As more governments look to expand their sales tax to services like Netflix and yoga, Missouri has become the first state to pass a ban on doing so.

With nearly all precincts reporting, voters approved the ban Tuesday 58 percent to 42 percent, persuaded by the argument that the measure was designed to protect the state's middle class and lower income earners.

The sales tax is generally seen by economists as regressive, meaning it places a bigger burden on low-income families because it takes a bigger chunk of change from their income.

“The time was right to make a stand," said Scott Charton, a spokesperson for the ballot measure's backers. "This is a victory for Missouri’s hard-working taxpayers and their families."

Arkansas, California Voters Approve Spending on Mega Projects

In an anti-debt climate, voters in the two states cleared the way for spending on major economic development projects.
BY  | NOVEMBER 9, 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 Arkansas and California have cleared the way for more spending on mega projects that could be economic development boons in those states.

In Arkansas, voters overwhelmingly passed a ballot initiative that eliminates the state's current 5 percent cap on debt related to economic development projects. Proponents of Arkansas’ Issue 3, who included Gov. Asa Hutchinson, want the cap lifted so the state can be more competitive in attracting new corporations by helping fund mega projects. Voters easily approved the measure, 65-35.

In California, which has one of the highest taxpayer debt burdens in the country, the results were much closer. Voters narrowly rejected a proposal, 51-49, that could have derailed two of Gov. Jerry Brown's legacy projects. Prop. 53 would have limited the state's ability to issue debt for major projects by requiring voter approval to issue more than $2 billion in revenue bonds.

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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."

Bilingual Education Will Make a Comeback in California

The state, which has more English-language learners than any other, restricted bilingual education in the '90s. Voters are bringing it back.
BY  | NOVEMBER 9, 2016

Nearly two decades after voters made California one of the most restrictive states for bilingual education in public schools, residents on Tuesday reversed that decision.

In California -- which has the nation's highest rate of students who speak a non-English language at home -- fewer than 5 percent of public schools now offer multilingual programs. But by approving Proposition 58, school districts can now offer regular dual-language programs.

In 1998, voters approved Prop. 227, a law passed amid anti-immigrant fervor that said students whose first language isn't English can only take one year of intensive English instruction before transitioning to English-only classes. Parents who wanted bilingual classes for their kids beyond that had to sign a waiver each year.

Prop. 58 essentially repeals the waiver system but keeps intact the part of the law requiring proficiency in English. It cruised to victory Tuesday night by a nearly three-to-one margin.

Facing 652% Interest Rates, South Dakota Voters Regulate Payday Lending

They joined the growing number of states that regulate the industry that critics say traps poor people in a cycle of debt.
BY  | NOVEMBER 9, 2016

In South Dakota, where payday loan interest rates average a whopping 652 percent and are among the highest in the nation, voters have struck back by approving a 36 percent rate cap.

With more than half of precincts reporting Tuesday night, results showed voters approved the move to regulate the industry by a margin of three to one. More than a dozen other states have enacted a similar cap on loan interest rates.

Critics of the payday industry say lenders prey upon low-income borrowers who are unable to access financing from mainstream banks. These borrowers, they claim, easily get trapped in a cycle of debt. Payday lenders, however, argue that they fill a critical hole in the economy by allowing people with poor credit to get emergency loans.

The push for the rate cap was led by South Dakotans for Responsible Lending, which also fended off a rival measure placed on the ballot more recently and backed by the payday lending industry. That measure proposed an 18 percent cap -- unless the borrower agreed to a higher rate. Opponents said the measure was intentionally misleading and would have essentially legalized sky-high interest rates for payday borrowers in South Dakota.

Voters Give Georgia's Plan to Take Over Failing Schools an "F"

As other states launch similar plans to improve education, Georgia is back to the drawing board.
BY  | NOVEMBER 9, 2016

Georgians have rejected Gov. Nathan Deal's plan to take over chronically failing schools amid concerns that the proposal was too vague and alienated local officials.

The ballot measure, which would have led to a new state agency with its own state school superintendent appointed by the governor, failed by a 3-to-2 margin.

The result was largely expected as polling showed public opinion moving against the idea in recent months.

Lisa-Marie Haygood, president of the Georgia PTA, celebrated with other opponents of the measure on Tuesday night. Opponents also included teachers, school boards and former Atlanta Mayor Andrew Young.

“We did it,” Young told the Atlanta Journal-Constitution. “We all wanted to stop a bad law from taking effect.”

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New Jersey Voters Refuse to Build Casinos Outside Atlantic City

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With Atlantic City in financial crisis because of casino closures, the state's voters aren't willing to take any more gambles.
BY  | NOVEMBER 8, 2016

Atlantic City will keep its monopoly on New Jersey's gambling industry. Voters overwhelmingly rejected a ballot measure that would have added two new casino sites in the northern part of the state.

The results are a rare win for the struggling seaside resort town, which has met repeated disappointment in recent years as casinos have closed and pushed the city into a fiscal crisis.

In the weeks leading up to the vote, polling showed the measure headed for defeat. With about half of precincts reporting on Tuesday night, results showed the referendum failing 78 percent to 22 percent.

Although the measure said about one-third of any new casino revenue would have gone to Atlantic City for 15 years for economic revitalization, opponents said they doubted the revenue-sharing proposal would generate enough money to make a difference. Opponents included casino worker unions and Atlantic City-area stakeholders.

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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.

Georgia's Plan to Take Over Failing Schools Faces Long Odds

Opposition to the proposal has swelled in recent weeks as the state tries to imitate Tennessee's Achievement School District.
BY  | NOVEMBER 4, 2016

Georgia Gov. Nathan Deal wants to join a burgeoning movement that would allow a state takeover of chronically failing schools. But with less than a week left before Georgians vote on the proposal, he faces an uphill battle as the track record of takeovers elsewhere has yielded inconsistent results and public opinion appears solidly against the idea.

The ballot proposal asks whether the state should be allowed to “intervene” to improve “chronically failing” schools. If approved, it would trigger legislation passed last year by lawmakers that creates a new state agency with its own state school superintendent appointed by the governor.

This superintendent would oversee the so-called Opportunity School District, which could take over up to 20 new schools per year and govern no more than 100 schools at any one time. The schools eligible are those that have earned an “F” on the state’s accountability system three years in a row

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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.