Category Archives: State & Local Finance

Illinois Pension Consolidation: A Path Forward Or A Road To Nowhere?

Source: S&P Global Ratings, May 14, 2019
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– Illinois is considering consolidating numerous single-employer public safety plans as a possible remedy to its pension woes;
– While consolidation will likely lower long-term costs through the pooling of resources, we view these as benefits as marginal, and the current proposals leave major pension funding issues largely unaddressed;
– A proposal to reduce statutorily mandated funding to 80% from 90% and allow an additional 10 years to reach this goal would exacerbate existing pension funding weakness among these types of public safety pension plans.

Flat debt total signals cautious borrowing, despite infrastructure needs

Source: Ted Hampton, Chandra Ghosal, Emily Raimes, Nicholas Samuels, Timothy Blake, Moody’s, Sector Profile, State government – US Medians, June 3, 2019
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Total net tax-supported debt (NTSD) for the 50 states was virtually unchanged in 2018, as governments maintained a cautious approach to bond issuance and increased their reliance on operating revenue for transportation infrastructure. The $523 billion in NTSD marked the eighth straight year with minimal change, putting average annual growth at 0.6% since 2011.

What it Costs to Die

Source: Liz Farmer, Mattie Quinn, Governing, June 2019

Funerals have become a luxury that many Americans can’t afford. Cities and counties are paying the price….

…..What’s happening in Henry County is playing out in places across the country. Rising funeral costs and a lagging economy have made it increasingly hard for many low-income Americans to pay the necessary expenses to dispose of a body. The average cost of a funeral today is $7,400, a price tag that’s risen nearly twice as fast as inflation since the 1980s. (That cost doesn’t include flowers, obituaries and gravesite fees that can tack on another couple thousand dollars.) At a time when 40 percent of Americans can’t even afford an unexpected expense of just $400, according to the Federal Reserve, the notion of a proper funeral and burial has become, for many people, an unattainable luxury.

When family members can’t afford to claim a body, the burden falls on local governments to handle the remains. There’s no comprehensive data on the number of unclaimed bodies in morgues across the country, but everyone agrees it’s a problem that’s getting worse. The St. Louis Medical Examiner’s Office had to add mobile refrigerated trailers in 2017 to hold all its bodies. The Connecticut Office of the Chief Medical Examiner briefly lost accreditation in 2017 because it ran out of storage space. In Mobile County, Ala., annual spending on indigent burials has increased 300 percent over the last decade. In Kentucky, Pollard estimates that indigent burials have jumped 50 percent in just the past 18 months…..

As Airbnb grows, this is exactly how much it’s bringing down hotel prices and occupancy

Source: Tarik Dogru, The Conversation, May 24, 2019

…. Research I recently conducted with colleagues Makarand Mody and Courtney C. Suess studied Airbnb’s impact on hotels’ performance in 10 major U.S. cities to determine how the fast-growing company has influenced three key metrics: room prices, hotel revenues and occupancy rates. Our research included data from 2008 to 2017 in Boston, Chicago, Denver, Houston, Los Angeles, Miami, Nashville, New York, San Francisco and Seattle.

In those cities, the number of properties on Airbnb – from room shares to entire houses – surged from just 51 in its first year of operation to more to 50,000 five years later and to over half a million in 2017. ….

….[A]nother important factor is the lack of regulation Airbnb faced during its first decades, which gave it more flexibility and made it easier to add new properties to its inventory.

While this is now changing as cities clamp down, this provided Airbnb with a significant competitive advantage against the hotel industry. Indeed, the typical regulatory framework in cities across America means it can take several years to add a new hotel to the market and requires permits, adherence to safety codes and more tax collection…..

See also:
York County gets small revenue boost thanks to new Airbnb tax regulations
Source: Lindsey O’Laughlin, York Dispatch, May 29, 2019

Municipalities and state eye regulation for Airbnb, growing home-sharing industry
Source: Joe Cooper, Hartford Business, May 27, 2019

City exploring Airbnb zoning, tax questions
Source: Rosalind Essig, Journal Courier, May 20, 2019

Airbnb guests would pay sales tax under proposed bill
Source: Diane Rey, Maryland Reporter, March 3, 2019

Water and sewer utilities – Medians – Financial performance signals continued stability

Source: Steven Goodman-Leibof, Matt Jaffe, Orlie Prince, Leonard Jones, Moody’s, Sector Profile, Water and sewer utilities – US, May 29, 2019
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Municipal water and sewer utilities continue to demonstrate a stable to modestly improving financial performance, according to our fiscal 2017 medians data. Operating results are primarily driven by utility systems’ (water, sewer and combined enterprises) willingness and ability to raise rates to support debt service coverage and liquidity. Declining asset conditions across the sector, however, indicate an underinvestment in capital infrastructure. These trends are reflected in our stable outlook for the water and sewer utilities sector…..

New GASB rules enhance transparency on conduit debt issuers’ commitment to pay

Source: Dan Seymour, Alexandra S. Parker, Moody’s, Sector Comment, Public finance – US, May 31, 2019
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On 29 May, the Governmental Accounting Standards Board (GASB) released Statement No. 91, establishing criteria for recognizing certain kinds of conduit debt that an issuer may pay but does not have to. The new accounting rule will require public finance issuers to declare annually whether they are likely to pay debt service on conduit debt, i.e., debt issued on behalf of a third-party borrower. The added transparency will benefit bondholders by clarifying what conduit debt is likely to be supported by the issuer and what debt is not, providing better insight into the credit quality of a large swath of municipal debt, including moral obligation bonds and certain appropriation-backed financings…..

Most states have the financial flexibility and reserves to manage a recession

Source: Emily Raimes, Timothy Blake, Daniel Ortega, Nicholas Samuels, Moody’s, Sector In-Depth, State government – US, May 20, 2019
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Economic conditions in the US are strong, and the probability of a recession beginning within the next year appears to be low. States are aware that a downturn will come eventually, however, and are building reserves to prepare. According to our scenario analysis, most states will be able to weather a moderate recession without significant adverse credit impact, in large part because of healthy reserves and inherently strong fiscal flexibility. Recession preparedness is stronger for 22 states, moderate for 26 and weaker for two…..

Oregon: Legislation increases school funding via new corporate tax, credit positive for state and school districts

Source: Patrick Liberatore, Baye Larsen, Eva Bogaty, Nicholas Samuels, Emily Raimes, Timothy Blake, Leonard Jones, Moody’s, Sector Comment, State government and public K-12 schools districts, May 23, 2019
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On May 16, Oregon Governor Kate Brown signed legislation that increases preK-12 education spending by a projected $1.2 billion for the state’s 2019-21 biennium starting July 1, 2019. Growth in state support is credit positive for Oregon school districts because it will increase resources as education costs continue to rise. The added funding comes from a dedicated state corporate activity tax established by the legislation. Besides generating more school funding, the tax is credit positive for the state because it will diversify its revenue sources, which are heavily reliant on volatile personal income taxes….

California: Revised budget increases funding for school districts and community colleges, a credit positive

Source: Helen Cregger, Eric Hoffmann, Leonard Jones, Moody’s, Sector Comment, Public K-12 school districts and community colleges, May 22, 2019
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On May 9, California Governor Gavin Newsom released a revised version of the state’s fiscal 2020 budget, which includes a substantial increase in minimum funding levels for K-12 public schools and community college districts, a credit positive. The new budget also benefits K-12 schools with the state agreeing to kick in added funds to help school districts with pension payments to the California State Teachers’ Retirement System….

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.