Category Archives: State & Local Finance

Property Tax Exemptions for Nonprofit Hospitals: What Are They Worth? Do They Earn Them? Evidence From New York City

Source: Geoffrey Propheter, Public Budgeting and Finance, Early View, First published: March 25, 2019
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From the abstract:
This study estimates the property tax expenditure for nonprofit hospitals (NPHs) in New York City using Medicare and IRS data from 2011 through 2013. After comparing the estimates to various definitions of community benefits, it is concluded that NPHs generally earn their property tax break. Evidence is also presented that using book values is a reasonably accurate method for estimating the property tax expenditure nationwide. Finally, econometric analyses reveals that net income is negatively associated with community benefits, suggesting justification for taxing higher net income hospitals and reallocating the funds to similarly sized but lower net income hospitals.

The Impact of the Amazon Tax on Local Sales Tax Revenue in Urban and Rural Jurisdictions

Source: Whitney B. Afonso, Public Budgeting and Finance, Early View, First published: April 5, 2019
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From the abstract:
E‐commerce has become an integral part of Americans’ lives and while it offers many benefits, it also represents forgone sales tax revenue for governments. Using a difference‐in‐differences model, this analysis examines how the Amazon tax affected local sales tax collections in North Carolina and whether that impact has been greater for urban, rural, or tourism‐rich counties. The results suggest that the Amazon tax increased revenues and urban jurisdictions benefit most. This finding is important for practitioners and policymakers as they consider the impact of policy changes, such as the South Dakota v. Wayfair ruling, on revenue capacity and financial management.

Local Government Fiscal Health: Comparing Self‐Assessments to Conventional Measures

Source: Stephanie Leiser, Sarah Mills, Public Budgeting and Finance, Early View, First published: April 23, 2019
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From the abstract:
Municipal fiscal condition is typically assessed using objective financial indicators, but little is understood about how local officials subjectively evaluate their own fiscal health. Using both qualitative and quantitative approaches to analyze survey data from Michigan, we explore how local officials conceptualize fiscal health and compare self‐assessments with conventional financial indicators. The results reveal that local officials emphasize long‐run issues and external stressors, but the relative importance of different factors varies depending on whether they report high or low fiscal stress. We suggest that self‐assessments may be a useful supplement to conventional objective measures in capturing “true” fiscal health.

Puerto Rico ruling highlights importance of parent government credit quality

Source: Genevieve Nolan, Gregory W. Lipitz, Naomi Richman, Timothy Blake, Leonard Jones, Alexandra S. Parker, Moody’s, Sector In-Depth, May 2019
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A court decision that Puerto Rico is not required to pay debt service on bonds backed by special revenues during its bankruptcy-like proceedings underscores how such debt is not immune from default, and that the credit qualities of a general government and its related enterprises are closely related…..

Moody’s – Forecast Accuracy

Source: Regional Financial Review, April 2019
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Articles include:

Forecast Accuracy: U.S. Macro
Ryan Sweet
Forecasting the economy for 2018 had its fair share of challenges, as all the details of the fiscal stimulus were not available at the time of the December 2017 forecast. Therefore, a number of assumptions needed to be incorporated. All told, 2018’s forecast accuracy was mixed, and the ultimate grade depends on whether more emphasis is placed on GDP or on labor market indicators. GDP growth was in line with what Moody’s Analytics expected, but job growth was stronger.

Forecast Accuracy: U.S. Regional Economies
Christopher Velarides
The March 2018 forecast accurately predicted the relative strength of the four regions in 2018. The West was the strongest region thanks to the robust tech sector and the rebound in energy. Despite falling short of its forecast, the South is closing the gap with the West. The Northeast and Midwest fell short of expectations.

Forecast Accuracy: U.S. Housing
Shannon Brobst
Overall, 2018 forecasts of house price indexes underestimated the actual house price growth nationally and across U.S. regions. The house price forecasts in 2018 were slightly less accurate than the 2017 forecasts.

General Obligation Medians For Counties: Update As Of April 3, 2019

Source: S&P Global Ratings, April 25, 2019
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S&P Global Ratings derives the general obligation (GO) county medians from rating reviews completed under its GO criteria (“Local Government GO Ratings Methodology And Assumptions,” published Sept. 12, 2013). We derive the county medians from the 1,054 counties we rated as of April 3, 2019.

We present the medians by rating category. Because we rate only three counties ‘BB’ and lower, the results are not statistically significant and so not shown.

These medians exclude municipalities and special districts such as school districts. We are publishing a separate GO municipality median report concurrently with this article….

General Obligation Medians For Municipalities: Update As Of April 3, 2019
Source: S&P Global Ratings, April 25, 2019
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S&P Global Ratings derives the general obligation (GO) municipal medians from rating reviews completed under its GO criteria (Local Government GO Ratings Methodology And Assumptions, published Sept. 12, 2013). S&P Global Ratings derives the municipal medians from the 3,877 municipalities it rated as of April 3, 2019.

We present the medians by rating category. These medians do not pertain to counties and special districts such as school districts. We are publishing a separate GO county median report concurrently with this article.

Not-for-profit and public healthcare – US – Preliminary medians – Profitability holds steady as revenues and expenses converge

Source: Rita Sverdlik, Nansis Hayek, Lisa Goldstein, Kendra M. Smith, Moody’s, Not-for-profit and public healthcare – US, Sector Profile, April 25, 2019
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Not-for-profit and public hospitals are showing signs of stability with profitability margins holding relatively steady and leverage metrics slightly improving, per our preliminary 2018 medians. The revenue growth rate edged ahead of expenses for the first time since 2015,driven by M&A, steady patient volumes and revenue cycle improvements. Cost-cutting initiatives and lower increases in drug prices contributed to a slower expense growth rate. A weak equity market in 2018 contributed to a slowdown in absolute cash growth while days cash on hand declined.

U.S. Not-For-Profit Health Care Rating And Outlook Change Drivers, First-Quarter 2019
Source: S&P Global Ratings, April 30, 2019
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S&P Global Ratings performed a review of factors and how they influenced, positively or negatively, the credit profile of the U.S. not-for-profit health care providers it reviewed in the first quarter of 2019. From Jan. 1 to March 31, operating performance was a driver in 57% of the total 35 rating actions, followed by affiliations or deepened integration of already-affiliated organizations (23%), business position and utilization trends (17%), and balance sheet metrics (17%).

Growing school pension burdens will require more state support

Source: Matthew Butler, Joshua Grundleger, Emily RaimesMoody’s, Sector In-Depth, State government – US, April 9, 2019
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Recent actions by states signal growing recognition that as pension burdens — unfunded liabilities and annual costs — escalate for K-12 school districts, state assistance will likely need to increase. California (Aa3 positive), Indiana (Aaa stable) and Oregon (Aa1 stable) all recently proposed budget legislation that would boost school funding by making increased payments to teacher pension plans on behalf of districts. The proposals call for one-time contributions to the pension plans rather than recurring pension contribution support on behalf of local districts like Colorado (Aa1 stable) and Michigan (Aa1 stable) have recently committed to provide. Additional states are likely to increase funding for teacher pensions,reflecting the growing credit risks underfunded plans present.

Migration driven by jobs and demographic trends more than SALT deduction cap

Source: Marcia Van Wagner, Timothy Blake, Nicholas Samuels, Emily Raimes, Moody’s, Sector In-Depth, April 8, 2019
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Domestic migration patterns offer no discernible signs yet that the federal cap on state and local tax (SALT) deductions is causing residents to flee high-tax states, resulting in population loss (a social risk) and hurting states’ credit quality. Migration from high-tax states is lower than a decade ago and generally following the US as a whole, while many people are moving from one high-tax state to another. The impact of the SALT cap enacted in 2017 will be felt widely for the first time this tax season and possibly spur some out-migration, but jobs and demographic trends will continue to influence relocation patterns more than tax burdens….

Pensions and retiree healthcare challenge some of the largest mass transit enterprises

Source: Thomas Aaron, Timothy Blake, Moody’s, Sector In-Depth, April 11, 2019
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Pensions and retiree healthcare pose a credit risk for some of the largest mass transit enterprises. Transit enterprises with material unfunded liabilities face budget challenges that can limit capital reinvestment, contribute to rising debt loads and/or lead to lower service levels.