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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.

How Libraries Are Fighting Fake News

Fake news is as old as Bigfoot. But social media and the president have fueled its recent proliferation.
BY  | FEBRUARY 28, 2017

Less than seven miles from the White House, where President Trump has popularized the term "fake news," residents in a suburban Maryland library gathered recently to learn how to not be duped themselves.

“Social media is a common theme here because you see things being shared over and over again,” Ryan O’Grady, media producer and director of the Maryland State Library Resource Center, told the audience. “Just because something is popular doesn’t make it true.”

The program, which O’Grady is running at several libraries in Maryland’s Montgomery County, is in response to the recent explosion of unverified, unsourced and sometimes untrue information that purports itself as news. The program aims to educate residents about how to spot fake news.

While it's not a recent phenomenon -- the Bigfoot myth goes back centuries, and fabricated stories abounded when emailing was new, for example -- fake news played a prominent role in the 2016 presidential election and continues to do so in the new administration. Sites like Facebook and Twitter give fake news outlets a platform to reach more people than they would otherwise be able to. Once the misinformation is out there, it can spread quickly, often before users even read or verify a story

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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.

The Real Price of College

Most states don't keep track of how much they give to students and their families in tax breaks. That could be hurting their ability to make college affordable for all.
BY  | FEBRUARY 23, 2017

How much does higher education cost? Surprisingly, that's a question most states can't answer.

Every state, of course, knows what it plans to spend on higher ed each year, which generally accounts for about 10 percent of a state's budget. But few places track what they give up in tax breaks to help defray the cost of college for taxpayers, according to a new Pew Charitable Trusts report. Since many states default to the federal government's qualifications for these tax breaks, most don't know how vulnerable they are to changes at the federal level.

Phillip Oliff, one of the report's authors, says states should be regularly looking at both sides of the equation -- tax breaks and direct spending -- when considering how they pay for and promote education policy. "Then they can think about whether the full package of support is being used as effectively as possible to promote their policy goals," he says.

In a review of the 41 states and the District of Columbia that tax personal income, just nine states and the district assess their higher education-related tax expenditures. These expenditures include special deductions, tax credits and exemptions that allow tax filers to reduce their declared taxable income. California, for instance, spent $10.8 billion on higher education in 2014, the year for which Pew has comprehensive data. But its estimated foregone revenue from higher education tax expenditures nudges the state's total cost up to $11.2 billion.

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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.

From $37 to $339,000: Why the Price of Public Records Requests Varies So Much

The laws about public records differ from one government to the next and are further complicated by some technologies, like police body cameras.
BY  | FEBRUARY 14, 2017

 

In 2015, the editor of a newspaper in Florida filed a public records request with the Broward County Sheriff's Office asking for the email of every employee during a five-month period to be searched for specific gay slurs.

In response, the South Florida Gay News received a $339,000 bill.

The office said fulfilling the request would take four years and require hiring a dedicated staffer. The exorbitant charge set off a year-long legal battle that attracted the Associated Press and its lofty resources. To show how arbitrary the number was, the AP and South Florida Gay News filed a similar request to the sheriff's office in other Florida counties. They were quoted fees ranging from as little as $37 to more than $44,000.

Why then is there such a big range of costs for similar information?

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The Week in Public Finance: Battling Over Retirement, Gorsuch on Online Sales Taxes and Fiscal Irresponsiblity

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BY  | FEBRUARY 10, 2017

A Curious Battle Over Retirement Security

Congressional Republicans this week made a move to block states’ efforts to expand access to retirement savings to all citizens. Michigan Rep. Tim Walberg and Florida Rep. Francis Rooney have introduced a resolution that would overturn a Department of Labor (DOL) rule last year that reaffirmed states’ legal right to help support private-sector savings programs for small businesses.

Walberg, chairman of the Subcommittee on Health, Employment, Labor, and Pensions, said the DOL rule created a “loophole” that undermined the retirement security of working families because it could discourage small businesses from setting up their own retirement program. “Our nation faces difficult retirement challenges," he said, "but more government isn’t the solution."

The resolution comes as seven states are in the midst of and more than a dozen states -- and even some cities -- are considering establishing such programs. Called Secure Choice, the programs require most employers that don’t currently offer a pre-tax retirement savings program to automatically enroll employees into one. The programs are run independently from the state and employees can opt out at any time.

The AARP issued a swift and harsh rebuke of the resolution, noting that 529 college savings programs give states precedent for creating independently managed, pre-tax savings accounts. Overturning “this rulemaking will have a significant chilling effect on states, sending the political message that state flexibility is not a priority,” wrote AARP Executive Vice President Nancy A. LeaMond.

The Takeaway: The facts upon which this political gamesmanship are based are, well, weak.

No 401(k)? No Problem. States Have You Covered.

Several states are preparing to offer a retirement plan that helps private-sector workers -- and taxpayers -- save money.
BY  | FEBRUARY 8, 2017

This July, Oregon will become the first state to offer a retirement plan to part- and full-time private-sector workers who don't have access to one through their employer. The program is ultimately expected to cover nearly one million workers in the state.

Six other states -- California, Connecticut, Illinois, Maryland, New Jersey and Washington -- are also planning to roll out similar programs within the next five years. When that happens, the seven states will cover nearly one-quarter of the nation's private-sector workers without an employer-sponsored retirement plan.

Called Secure Choice, these programs have been catching on since California in 2012 decided to study the feasibility of creating one. They aren't pensions but instead independently managed and pooled retirement accounts. The programs pay for themselves through fees, so states aren't liable for the cost. In addition to the seven states that have approved a program, at least eight other states -- including populous New York -- have or are considering legislation to launch their own.

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The Week in Public Finance: States Vulnerable to NAFTA Changes, New Amazon Taxes and a Credit Ratings Spat

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BY  | FEBRUARY 3, 2017

 

Where a Change to NAFTA Could Hurt the Most

When it comes to trade, a handful of states rely heavily on Canada. That relationship could significantly change if President Trump follows through on his intention to renegotiate the North American Free Trade Agreement (NAFTA).

In an analysis, RBC Capital Markets’ Chris Mauro looks at which states are the most exposed to changes. As it turns out, half of Canada’s exports wind up in the U.S., and 35 states have Canada as their top export destination. Michigan and Illinois are the top destinations, absorbing 16 percent and 11 percent, respectively. Meanwhile, more than two-thirds of North Dakota’s goods land in Canada and nearly half of Maine, Michigan and Ohio’s exports are sent there.

The Takeaway: Trump has called NAFTA a bad deal for the U.S. Although no specifics have been outlined, it’s safe to assume that he would promote more protectionist policies. In his analysis, Mauro warns that “the risk that Canada implements countervailing duties or that the U.S dollar appreciates significantly would severely affect the competitiveness of these U.S. states.”

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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.