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The Week in Public Finance: What We Don't Know About Sanctuary Cities' Funding, New Reasons to Save and More

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A roundup of money (and other) news governments can use.

BY  | JANUARY 27, 2017

What We Don't Know About Trump's 'Sanctuary City' Order

On Wednesday, President Donald Trump took his first move to defund cities that refuse to cooperate with federal efforts to deport undocumented immigrants. Trump signed an executive order directing the Secretary of Homeland Security to look at federal grant funding to cities “to figure out how we can defund those streams,” said White House Press Secretary Sean Spicer.

Many of the nation’s largest cities -- including Chicago, Los Angeles, New York City and San Francisco -- are immigrant sanctuaries and have said they won’t back down from their policy.

Despite Budget Shortfalls, Some Governors Call for Tax Cuts

In addition to new tax breaks, some states are also considering raising gas and sin taxes.

BY  | JANUARY 25, 2017


Nebraska Gov. Pete Ricketts speaks during a news conference. (AP/Nati Harnik)

About half of the states are facing budget shortfalls this fiscal year, but many governors are still pushing to cut taxes in their proposed 2018 budgets.

The proposals vary in scope but generally fall within two categories: comprehensive and targeted.

Nebraska Gov. Pete Ricketts' proposal is of the comprehensive variety and may be the most aggressive call for tax cuts so far. He is asking for property and personal income tax cuts to be phased in beginning in 2019 -- even as the state faces a $900 million budget gap. Property taxes would be reduced via a new valuation formula and income tax breaks would kick in incrementally and only in years when state revenue grows by more than 3.5 percent.

On the whole, most of the comprehensive proposals are part of ongoing efforts.

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The Week in Public Finance: Hartford in Crisis, Pension Rates Move Down and More

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Bad News for Hartford, Conn.

A report from the Yankee Institute this week warned Connecticut’s capital is careening toward insolvency. “Hartford will likely face bankruptcy unless the state intervenes in the coming months,” wrote Stephen Eide, a senior fellow at the Manhattan Institute who authored the report.

Connecticut has repeatedly struggled with slow growth and state budget deficits, but that economic imbalance is even more exaggerated with its urban centers. The report warns that Bridgeport, Waterbury and New Haven also have declining tax bases and rising pension obligations -- just not to the extent that Hartford does.

More than one-third of Hartford residents live in poverty, the highest rate in the nation in cities larger than 100,000. What's more, the city has increased its debt and structural budget deficit to stay afloat. Between 2016 and 2018, Hartford’s debt service expenses are projected to increase from $23 million to $45 million, and then reach $60 million in fiscal 2021.

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The Week in Public Finance: Trump's Infrastructure Plan, Risky Pensions and NYC's Surprising Fiscal Health

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A roundup of money (and other) news governments can use.
BY  | JANUARY 13, 2017

How Will Trump's Infrastructure Plan Affect the Economy?

Economic impact estimates are all over the map when it comes to how much of an affect President-elect Donald Trump’s 10-year $1 trillion infrastructure proposal will have on the economy. To that end, two reports came out this week that come to completely different conclusions.

The first, by Georgetown University, says that Trump's plan could create as many as 11 million jobs. However, it cautions, the additional spending in combination with proposed tax cuts and other economic policy shifts could “overheat the economy” by increasing inflation and setting the stage for further interest rate hikes.

The Tax Foundation had a much more modest take. This is partly because the report assessed the varying degrees of economic impact the proposal would have depending on what other policy measures are implemented. The foundation looked at the impact of a theoretical $500 billion investment by the federal government through five funding mechanisms: borrowing, cutting government spending, raising excise taxes, raising the top tax rate on individual income and raising the corporate income tax.

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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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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The Week in Public Finance: Repealing Obamacare, How a California Ruling Threatens Pensions and More

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A roundup of money (and other) news governments can use.
BY  | JANUARY 6, 2017

How Much Will Dismantling Obamacare Cost?

As leaders in Congress kick off the 115th session by assuring the public they will repeal the Affordable Care Act (ACA) in full by the end of this year, a newly released estimate puts the cost of a total repeal at roughly $350 billion through 2027.

According to the nonpartisan Committee for a Responsible Federal Budget, repealing the law's Medicare-related cuts and its tax increases -- such as the "Cadillac tax" on high-cost insurance plans -- could cost the government more than if it left the ACA in place.

But the report found that lawmakers could save money if they just repeal parts of the law. For example, if Congress only does away with the ACA's coverage provisions (mainly the Medicaid expansion), it could save $1.55 trillion through 2027.

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The Income Gap Between Black and White Men Is Getting Worse

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Contrary to popular belief, a new study shows there's been almost no progress over the last 70 years.
BY  | JANUARY 4, 2017

A new study has found that the income gap between black and white men has worsened in recent decades, a finding contrary to the popular belief that it has been steadily narrowing.

In fact, by some measures, the research showed there has been no change in the income gap between African-American and white males over the last 70 years.

The study is authored by University of Chicago economist Kerwin Kofi Charles and Duke University economist Patrick Bayer, and is the first to look at income inequality while incorporating data from men who aren’t working. The method, said Charles, is a more accurate picture of labor market dynamics because it addresses access -- or lack thereof -- to jobs. While some men might not be working by choice, many simply can’t find a job or are kept out of the workforce by jail or their criminal record.

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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.

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.