Category Archives: State & Local Finance

Is Congress’ plan to save Puerto Rico working?

Source: Edwin Meléndez, The Conversation, July 31, 2017

A year ago, Congress cobbled together a plan to try to save Puerto Rico from its US$123 billion debt and pension crisis without costing American taxpayers a penny.

The law, signed by former President Barack Obama on June 30, 2016, effectively steered Puerto Rico into bankruptcy-like proceedings in federal court to prevent a massive default, while saddling the commmonwealth with an oversight board to ensure it put its fiscal house in order. ….

…. [H]as the law – known by the acronym PROMESA – lived up to its promise to “create the necessary foundation for economic growth and to restore opportunity to the people of Puerto Rico”? ….

Pennsylvania’s hybrid plan seen as falling short

Source: James Comtois, Pensions & Investments, July 24, 2017

After many fits and false starts to pension reform, Pennsylvania’s governor has a signed a measure that establishes a hybrid defined benefit/defined contribution plan for new state employees. Although some industry observers believe the new law is a step in the right direction, several others said the switch to a hybrid DB/DC plan does little — if anything — to solve the state’s core underfunding problem…..

…. Both Ms. Childers and Ms. Oakley cited West Virginia and Alaska as two states that decided to switch to a DC plan from a DB plan for state employees — and it didn’t go well for either. In 1991, West Virginia closed its teacher retirement system to new employees to address its underfunding issue, according to a 2016 NIRS survey shared by Ms. Oakley. After 10 years, the replacement DC plan was costing the state twice as much, so it went back to a pension. ….

Infrastructure Default and Recovery Rates, 1983-2016

Source: Moody’s, Data Report, July 27, 2017
(subscription required)

This study is an update to our previous publication, “Infrastructure Default and Recovery Rates, 1983-2015,” published in July 2016, and focuses on the credit and ratings performance of Moody’s-rated infrastructure securities from 1983-2016. We first characterize the infrastructure universe on the basis of its regional and sectoral distributions, overall default and credit loss rates, ratings distribution, and ratings stability. We then compare the ratings performance of the infrastructure universe vis-à-vis non-financial corporate (NFC) issuers by examining migration rates, default and credit loss rates by rating as well as rating accuracy metrics. Appendix 4 examines the performance of the infrastructure universe over the past ten years, i.e., 2007-2016.

Redefining Economic Development Performance Indicators for a Field in Transition

Source: Center for Regional Economic Competitiveness (CREC), July 2017

…State economic development leaders have embraced the need to report program outcomes to demonstrate the impact of their efforts but seek better indicators to measure those outcomes. This paper, Redefining Economic Development Performance Indicators for a Field in Transition, identifies a set of metrics beyond jobs and investment tallies to capture the broader benefits of economic development initiatives. This effort reflects an ongoing transition within economic development as the field moves from a recession-driven emphasis on job creation via business attraction and retention to a focus on wealth generation and asset building, especially among communities that have not enjoyed the benefits of economic recovery. Accordingly, this paper examines metrics that capture a wider approach to economic development by focusing on indicators related to job quality/worker prosperity and business dynamics….

The Better Care Reconciliation Act: Economic and Employment Consequences for States

Source: Leighton Ku, Erika Steinmetz, Erin Brantley, Nikhil Holla, Brian Bruen, Center for Health Policy Research, Department of Health Policy and Management, Milken Institute School of Public Health, George Washington University, July 2017

From the abstract:
Issue: A draft Better Care Reconciliation Act (BCRA) has been introduced in the U.S. Senate as an alternative to the American Health Care Act (AHCA), which was passed by the House of Representatives on May 4, 2017. The Congressional Budget Office estimates the BCRA would raise the number of uninsured by 22 million by 2026.

Goal: To determine the consequences of the draft BCRA on employment and economic activity in every state. This report updates an earlier analysis of the effects of the AHCA.

Methods: We compute changes in federal spending and revenue from 2018 to 2026 for each state and use the PI+ model to project the effects on states’ employment and economies.

Findings and Conclusions: While the draft BCRA and the AHCA would have similar effects on the number of uninsured Americans, the BCRA would lead to significantly larger job losses and deeper reductions in states’ economies by 2026. A brief spurt in employment would add 753,000 more jobs in 2018, but employment would then deteriorate sharply. By 2026, 1.45 million fewer jobs would exist, compared to levels under the current law. Every state except Hawaii would have fewer jobs and a weaker economy. Employment in health care would be especially hard hit with 919,000 fewer health jobs, but other employment sectors lose jobs too. Gross state products would be $162 billion lower in 2026. States that expanded Medicaid would be especially hard hit.

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Federal Share of State Revenue Rises as Medicaid Grants Expand

Source: Phillip Oliff, Justin Theal, and Brakeyshia Samms, The Pew Charitable Trusts, States’ Fiscal Health, July 25, 2017

The share of states’ revenue made up by federal dollars rose in fiscal year 2015, capturing the first full year of expanded Medicaid eligibility in some states. The federal government provided 31.9 percent of 50-state revenue in fiscal 2015—the third-largest share on record—up from 30.7 percent in fiscal 2014.
For a second consecutive year, federal dollars as a share of state revenue increased in a majority of states—29 in fiscal 2015. Health care grants have been the main driver of increases in federal funding to states in recent years.

Federal grants to states rose 10.2 percent in fiscal 2015, outpacing overall revenue growth of 6.3 percent. The $55 billion increase in federal funds boosted the share of state revenue coming from the U.S. government to its third-highest level since at least 1961. The federal share of state revenue, however, was still lower than just after the Great Recession, when an influx of economic stimulus dollars and falling state tax revenue increased the federal share to 35.5 percent in fiscal 2010 and 34.7 percent in fiscal 2011. Declines in the federal share after fiscal 2010 reflected the phasing out of stimulus funds and the recovery of states’ tax collections. Changes in either revenue source affect the ratio of federal to total dollars.

For U.S. State And Local Governments, The Resilient But Shallow Expansion Complicates Budget Management

Source: S&P Global Ratings, Credit Conditions, July 24, 2017
(subscription required)

When it comes to the outlook for economic growth, U.S. state and local governments can expect the now long but shallow expansion to persist, according to S&P Global Ratings’ updated forecast. Considering GDP, the broadest measure, the pace of the expansion is likely to remain subdued, with growth of 2.2% in 2017 and 2.3% in 2018. On a more positive note, the estimated probability of a recession within the next 12 months was lowered in the forecast to 15% to 20% from 20% to 25%. The adjustment reflects that the risk of a federal policy mishap appears to have receded a bit. Putting it all together: the forecast suggests that a relatively benign if somewhat uninspired economic backdrop is taking shape for fiscal year 2018, which began on July 1 for most local governments and 46 states.

Various measures of economic sentiment, such as business confidence, that were decidedly upbeat after the 2016 presidential election, have begun falling into alignment with the “hard” data indicators. And with unemployment at a low 4.4%, state and local governments can expect the monthly pace of job creation to slow. The economic forecast no longer assumes Congress and the administration will enact a public infrastructure-spending bill. Without the potential bump in growth from a federal infrastructure package, the forecast for 2017 GDP growth was lowered to 2.2% from 2.3%. Crucially for the municipal sector, we continue to expect solutions to the problem of deferred maintenance and inadequate capacity in public infrastructure will depend heavily on strategies developed at the state and local government levels.


  • Economic growth, as measured by real GDP, will increase at a subdued 2.2% in 2017 and 2.3% in 2018;
  • The risk of a recession within the next 12 months has fallen to 15% to 20% from 20% to 25%;
  • There will be no federally funded public infrastructure package this year or next;
  • and The Mountain region will have the fastest growing economy while the Mid-Atlantic will be slowest.
  • Public university sector mostly stable, but with pockets of stress

    Source: Moody’s, Sector In-Depth, July 17, 2017
    (subscription required)

    Public colleges and universities continue to demonstrate overall financial stability with steady enrollment, solid cash flow margins and retained financial flexibility, according to our fiscal 2016 sector medians. However, heading into 2018, revenue and expense pressures will emerge, pressuring performance for some. The challenges will mostly affect some moderate and small universities lacking the revenue diversity and brand strength of large research, or comprehensive, universities…..

    Rating changes for the 50 states from 1970

    Source: Moody’s, Sector Comment, July 21, 2017
    (subscription required)

    This report is part of a series that identifies changes in state general obligation (GO) and issuer ratings and outlooks. The report is produced on a quarterly basis with the last publication in April 2017.

    We maintain GO or equivalent issuer ratings for 48 states. Stable outlooks apply to 41 states, one has a positive outlook, and seven states have negative outlooks. Outlooks are maintained on some states that do not have GO or issuer ratings but do have ratings on other types of state debt. The data included in this report reflect rating changes by state by year, a list of all state GO or issuer ratings by category and a list of all state outlooks…..