Category Archives: State & Local Finance

Rating revisions: Upgrades top downgrades in 2017, though downgraded debt is higher

Source: Shelby Schwabauer, Florence Zeman, Kurt Krummenacker, Naomi Richman, Kendra M. Smith, Leonard Jones, Alexandra S. Parker, Timothy Blake, Michael Mulvaney, Gail Sussman, Moody’s, Sector In-Depth, March 12, 2018
(subscription required)

Upgrades topped downgrades for the third year in a row in 2017, indicating continued improvement in credit quality across public finance as a whole. However, there are pockets of weakness, notably the healthcare and higher education sectors, which both saw downgrades widely outpace upgrades in 2017. In total, across the 11,344 public finance obligors, upgrades exceeded downgrades by 68% in 2017. The dollar value of downgraded debt, however, was double that of upgraded debt; the State of New Jersey (A3 stable), State of Illinois (Baa3 negative), State of Connecticut (A1 stable) and Puerto Rico (Ca negative) and its related issuers accounted for almost 70% of the downgraded debt (see page 3 for explanations).

Growing online education is credit positive for US higher education

Source: Pranav Sharma, Edith Behr, Susan I Fitzgerald, Kendra M. Smith, Moody’s, Sector In-Depth, February 12, 2018
(subscription required)

Development of a successful online program is costly, but universities without an online strategy risk losing students who expect an online curriculum to be a part of their learning experience. 

State capitals not immune from fiscal trouble, though ‘next Hartford’ unlikely

Source: Chris Salcedo, Naomi Richman, Alexandra S. Parker, Leonard Jones, Moody’s, Sector In-Depth, February 28, 2018
(subscription required)

The recent financial struggles of Hartford, Connecticut show that a city’s status as a state capital is not a buffer against credit distress. A sizable government sector provides stability, but it is not a reliable growth driver.

Tax Reform and Municipal Finance

Source: Ed Friedman, Regional Financial Review, Vol. 28 no. 4, January 2018
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The cost of municipal financing is likely to be higher following the tax overhaul enacted in January. Various provisions will affect both demand and supply of municipal debt. Further, because of the deficit-increasing effects of the tax changes, interest rates are projected to rise more than they would have without the legislation.

How Does Chicago Make $200 Million A Year On Parking Tickets? By Bankrupting Thousands of Drivers.

Source: Melissa Sanchez and Sandhya Kambhampati, Mother Jones & ProPublica Illinois, February 27, 2018

Ticket debt hits poor, black neighborhoods the hardest. ….

For Chicago’s working poor, and particularly for African Americans, a single unpaid parking or automated traffic camera ticket can quickly spiral out of control and threaten their livelihoods. Bankruptcy offers a temporary reprieve, giving these motorists the chance to resume driving without fear of getting pulled over or losing their vehicles to the city pound.

The problem has gotten worse over the past decade, ProPublica Illinois found in an analysis of bankruptcies filed in the Northern District of Illinois, which includes Chicago and its suburbs. In 2007, an estimated 1,000 Chapter 13 bankruptcies included debts to the city, usually for unpaid tickets, with the median amount claimed around $1,500 per case. By last year, the number of cases surpassed 10,000, with the typical debt to the city around $3,900. Though the numbers of tickets issued did not rise during that time, the city increased the costs of fines, expanded its traffic camera program, and sought more license suspensions.

The result: more debt due to tickets…..

Milliman Analysis: Public pension funded ratio surges to 73.1% in Q4

Source: Rebecca A. Sielman, Milliman, February 2018

From the summary:
In the fourth quarter, there was a $60 billion improvement in the estimated funded status of the 100 largest U.S. public pension plans as measured by the Milliman 100 Public Pension Funding Index. From the end of September through the end of December, the deficit shrank from $1.392 trillion to $1.332 trillion. As of December 31, the funded ratio stood at 73.1%, up significantly from 71.6% at the end of September.

Milliman analysis: Corporate pensions’ $61 billion funding gain in January may cushion early February market slide
Source: Charles J. Clark, Zorast Wadia, Milliman, February 2018

From the summary:
In January, the funded status of the 100 largest corporate defined benefit pension plans improved by $61 billion as measured by the Milliman 100 Pension Funding Index (PFI). As of January 31, the funded status deficit narrowed to $221 billion due to investment and liability gains incurred during January. As of January 31, the funded ratio rose to 87.2%, up from 84.1% at the end of December. January’s impressive funded status improvement was greater than that seen in any of the prior months of 2017.

The market value of assets grew by $13 billion as a result of January’s investment gain of 1.20%. The Milliman 100 PFI asset value increased to $1.505 trillion from $1.492 trillion at the end of December. The projected benefit obligation decreased to $1.725 trillion at the end of January.

Over the last 12 months (February 2017-January 2018), the cumulative asset returns for these pensions has been 11.88% and the Milliman 100 PFI funded status deficit only improved by $50 billion. The funded ratio of the Milliman 100 companies has increased over the past 12 months to 87.2% from 83.8%.

Holding Pattern

Source: Lisa Peet, Library Journal, February 16, 2018

LJ’s 2018 Budget Survey shows overall budgets continuing to increase slightly, but federal funding disputes and new tax laws raise concern Last year, LJ’s budget survey showed libraries nationwide staying above water throughout 2016. In 2017 that trend continued, with libraries of all sizes reporting an overall average increase in funding for operating, materials, and personnel budgets. The trend seems to be leveling out, however. While total operating budgets rose modestly, concerns over a contentious federal budget that originally sought to eliminate federal library funding, as well as new tax laws, leave libraries unsure of what the future may hold.

An initial look at LJ’s 2018 Budgets and Funding survey of U.S. public libraries reveals a 2.8% increase in 2017’s total operating budgets, representing continued improvement since the lows of 2008—although down from last year’s gain of 3.4%. Overall, 77% of the 329 responding libraries reported an increase in total operating budgets from 2016 to 2017. In terms of individual locations, this is an improvement over previous years; 70% reported upticks in 2016, and 74% in 2015. …..