Category Archives: State & Local Finance

Understanding Decisions in State Pension Systems: A System Framework

Source: Gang Chen, The American Review of Public Administration, Vol. 48 no. 3, April 2018
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From the abstract:
State governments establish pension systems to provide retirement benefits to public employees. State governments as sponsors, state legislatures as policy makers, and public-sector unions as representatives of public employees may exert considerable influence over the decisions made in pension systems. This study applies a system framework to examine these influences. It focuses on four decisions in pension systems: benefits, employer contributions, employee contributions, and the asset smoothing period. The findings show that changes in the short- and long-term financial conditions of a state government have different influences on pension decisions, and that legislatures and public employee unions play important roles that affect these decisions.

Should State and Local Government Bidding for Big Businesses Be More Like eBay?

Source: Linda McCarthy, Growth and Change: A Journal of Urban and Regional Policy, Early View, April 1, 2018
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From the abstract:
During recent decades, and especially after the economic downturn that began in the late 2000s, many U.S. state and local governments have intensified their pro‐growth efforts to promote corporate investment and jobs, including ever higher incentives (such as tax breaks and grants) in their bidding wars for big businesses. This paper draws an analogy—between bidding for big businesses and bidding on eBay—to highlight the drawbacks of high‐profile bidding wars among governments given that the large corporations establish the bidding rules in their favor. The main consideration raised is whether state and local government bidding for big businesses, which operates analogously to an auction, should be more like eBay, whose rules are fair not only for sellers but also for bidders.

The Funded Status of Local Pensions Inches Closer to States

Source: Jean-Pierre Aubry, Caroline V. Crawford and Alicia H. Munnell, Center for Retirement Research at Boston College, SLP#58, January 2018

The brief’s key findings are:
– Since 2001, the aggregate funded status of local pension plans has lagged behind that of state plans, but the gap has been closing recently for two reasons.
– First, local plans continue to receive more of their required contributions than state plans and are a bit more likely to use stringent funding methods.
-Second, in recent years, local plans have earned stronger investment returns than state plans, perhaps partly due to a lower allocation to alternative investments.
– Despite this progress, many local plans – like their state counterparts – still face significant funding challenges.

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Increased federal financial aid and research, funding is credit positive for universities

Source: Jared Brewster, Susan I Fitzgerald, Edith Behr, Kendra M. Smith, Moody’s, Sector Comment, March 28, 2018
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The recently enacted federal spending bill provides funding increases for key financial aid programs and federal agencies that provide research grants. Financial aid programs receiving a funding bump include Pell Grants, the Federal Supplemental Education Opportunity Grant (FSEOG) Program and the Federal Work-Study (FWS) Program. Significant providers of research and development (R&D) grants with a funding boost include the National Institutes of Health (NIH) and the National Science Foundation (NSF). These funding increases are better than we expected in our 2018 outlook for higher education and are credit positive for the sector overall.

Federal capital programs provide credit positive financing for some universities
Source: Jared Brewster, Susan I Fitzgerald, Edith Behr, Kendra M. Smith, Moody’s, Sector Comment, March 29, 2018
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Medians – Property values key to stability, but pension burdens remain a challenge

Source: Shannon Bibby, Daniel Simpson, Natalie Claes, Leonard Jones, Alexandra S. Parker, Moody’s, Sector In-Depth, March 30, 2018
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The 2016 medians data shows cities, counties and school districts continue to demonstrate stability underpinned by steady property tax growth, healthy reserves and solid liquidity, but credit pressure surrounding growing pension burdens remains.

State, local infrastructure borrowing boom unlikely without greater federal funding

Source: Marcia Van Wagner, Coley J Anderson, Rachel Cortez, Baye Larsen, Timothy Blake, Alexandra S. Parker, Moody’s, Sector In-Depth, March 30, 2018
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US states, local governments and transit authorities’ funding constraints add a layer of difficulty to the Trump administration’s infrastructure plan. The proposal relies on municipalities’ ability to increase leverage, identify new revenue streams and attract private sector partners.

Credit FAQ: New GASB Statements 74 And 75 Provide Transparency For Assessing Budgetary Stress On U.S. State & Local Government OPEBs

Source: S&P Global Ratings, March 14, 2018
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This report answers frequently asked questions investors might have on how S&P Global Ratings will determine its ratings on state and local governments based on these new accounting standards as well as the implications the changes will have on how OPEB liabilities are reported.

State & Local Government Snapshot

Source: U.S. Census Bureau, February 15, 2018

Use this tool to explore aggregated Revenue, Expenditure and Employment data for State and Local Governments. Customize the view by using the drop-down menus, and selectable category buttons. Receive additional information by hovering over each data element. Please note, all Revenue and Expenditure data are annual while Employment data have been annualized from each year’s March statistics.  Dollar amounts are displayed in whole dollars.

Detroit’s bond redemption a credit positive step toward addressing rising fixed costs

Source: David Levett, Rachel Cortez, Alexandra S. Parker, Moody’s, Issuer Comment, March 21, 2018
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The retirement of $52 million of principal and $2 million of interest on its financial recovery bonds is the latest example of the city’s effort to strengthen its financial position as it prepares for a $140 million increase in pension contributions in fiscal 2024.

Connecticut’s fiscal, demographic and economic hurdles pose risk for municipalities

Source: Joseph Manoleas, Lauren Von Bargen, Thomas Jacobs, Leonard Jones, Moody’s, Sector In-depth, March 22, 2018
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Many of Connecticut’s cities and towns will continue to come under varying degrees of credit stress from fiscal challenges at the state level, as well as overall adverse economic and demographic trends.