Category Archives: State & Local Finance

Back From the Brink

Source: Savannah Gilmore and Erica MacKellar, State Legislatures, April/May 2019

Revenue Performance Is Rock Solid as States Climb Out of the Great Recession’s Abyss….

Fiscal on the brink Just 10 years ago state revenues were dismal, continually falling below estimates. Lawmakers were scrambling to plug budget gaps as best they could. Across-the-board cuts, employee furloughs and targeted program reductions were the topics of countless state budget conversations. Fast forward to today, and the state fiscal scene looks very different. Revenue performance is strong, even exceeding estimates in many states.

Buying Smarter: Insights and best practices from the 2019 Governing Procurement Survey

Source: Governing, Special Report, 2019

States are becoming more data-driven and value-focused in their purchasing. Those are several take-aways from Governing’s 2019 Procurement Survey, which examined purchasing policies and practices in 29 states. This report analyzes the survey’s extensive findings to identify key purchasing trends, such as growing use of data analytics to drive efficiency, broad movement toward more responsive contracting solutions and the forging of closer relationships with vendors. It also presents real-world examples of how states are putting these ideas into practice.

Buying Better
Source: Liz Farmer, Governing, June 2019

The CHIP Dip

Source: Federal Funds Information for States, Issue Brief 19-20, July 1, 2019
(subscription required)

From the summary:
Beginning in fiscal year (FY) 2020, states will face increased costs for the Children’s Health Insurance Program (CHIP). The 23-percentage point increase in the federal CHIP matching rate—included in the Affordable Care Act (ACA)—will be reduced in FY 2020 and fully phased out in FY 2021. FFIS estimates that state costs could increase by approximately $4.3 billion (302%) to maintain total spending, although several factors remain uncertain.

Supreme Court census citizenship decision leaves open credit risk for some states; others stand to benefit

Source: Marcia Van Wagner, Nicholas Samuels, Emily Ralmes, Timothy Blake, Moody’s, Sector Comment, June 27, 2019
(subscription required)

The court’s ruling that fails to resolve whether a citizenship question will be included on the 2020 census form leaves open the possibility of population undercounts, a credit negative for some states. Nine states stand to lose federal Medicaid matching funds because of undercounts.

US Public Pension Landscape Series

Source: Thomas Aaron, Timothy Blake, Moody’s, Sector In-Depth, June 14, 2019
(subscription required)

Many US states and local governments, though certainly not all, face heightened credit challenges stemming from exposure to pension obligations, resulting in a highly varied and complex landscape. The severity of public pension challenges can differ substantially between, and even within, states.

Unfunded liabilities in many cases have reached historic highs, rising costs increasingly pressure some budgets, and aging demographics leave government finances increasingly susceptible to pension asset volatility. Yet in some cases, low or declining levels of pension risk bolster the credit profile of a given state or local government.

Governments grappling with pension challenges must often navigate legal protections for employee benefits that can limit reform options. However, litigation on a variety of pension reforms continues to work its way through courts across the country, offering the potential for precedent-setting decisions.

This series provides a state-by-state, in-depth review of the key issues related to pensions facing state and local governments…..

State Listings:
New York

Local government – New York – Credit profiles will remain stable overall, though vary by municipality type, region

Source: Robert Weber, Thomas Jacobs, Moody’s, Sector In-Depth, Local government – New York, June 28, 2019
(subscription required)

Credit profiles among New York local governments will remain stable over the next two years, though their strength will vary by type of municipality. Cities will remain more stressed than villages and towns because of their below-average socioeconomic profiles and small tax bases relative to liabilities. Towns and villages will enjoy greater stability because of stronger wealth and income profiles and financial reserves…..

See Where Teachers Got Pay Raises This Year – Protests across the country swayed governors to push for salary bumps

Source: Daarel Burnette II & Madeline Will, Education Week, Vol. 38 Issue 36, Published in Print: June 19, 2019

More than a year after teachers across the country began walking out of their classrooms en masse to demand higher salaries, at least 15 states have given their teachers a raise.

And lawmakers in several more states are putting the final touches on plans to raise teacher salaries, according to an Education Week analysis…..

….Here’s what you need to know about each state’s plan (as of June 17) to raise teacher pay. (The average teacher salary for each state reflects the National Education Association’s estimate for the 2018-19 school year, which would not include these raises.)

Click a state in the dropdown to jump to that section: ….

A Huge Tax Break Went to a Politically Connected Company in New Jersey Despite Red Flags

Source: Jeff Pillets and Nancy Solomon, WNYC, and Alex Mierjeski, ProPublica June 26, 2019

….Generous tax breaks from New Jersey’s new economic development program, he argued, could place Camden “on a level playing field” with Holtec’s other suitors. In return, the firm pledged the retention of 160 jobs and the creation of an additional 235 positions. Six months later, the EDA awarded the company $260 million in taxpayer assistance — the second-largest tax break in state history.

What Holtec didn’t reveal, though, was that just weeks before filing its application in New Jersey, Ohio had stripped the company of tax credits there for failing to create the jobs it had promised as part of a similar program. According to records obtained by WNYC and ProPublica, none of the 200 positions it had pledged in 2009 to bring to Orrville, a small town about 20 miles outside Akron, ever materialized….

Fiscal Survey of the States – Spring 2019

Source: National Association of State Budget Officers, June 2019

From the overview:
With data gathered from all 50 state budget offices, this semi-annual report provides a narrative analysis of the fiscal condition of the states and data summaries of state general fund revenues, expenditures, and balances. The spring edition details governors’ proposed budgets; the fall edition details enacted budgets.

Governors’ recommended budgets for fiscal 2020 reflect stable state fiscal conditions, calling for investments in key priorities while saving for future challenges. Proposed spending plans would increase general fund expenditures by 3.7 percent in fiscal 2020, with 47 states proposing spending increases and governors directing the majority of new money to education.
Other key findings from the report:
– Governors proposed appropriation increases totaling $30.8 billion in fiscal 2020, including $14.1 billion in new money for K-12 education and $3.6 billion for higher education.
– States estimate general fund spending grew 5.8 percent in fiscal 2019, the fastest annual growth rate since fiscal 2007.
– No states made mid-year budget cuts in fiscal 2019 due to a revenue shortfall, and only 3 states made small mid-year reductions for other reasons.
– 28 states reported fiscal 2019 general fund revenue collections exceeding projections, with this number expected to grow after accounting for April receipts.
– Governors’ budgets are based on forecasted general fund revenue growth of 4.0 percent in fiscal 2020.
– Governors proposed a series of revenue actions consisting mostly of tax increases, including a number of proposals directed towards transportation, with a net revenue impact of $8.1 billion in fiscal 2020.
– The median rainy day fund balance as a share of general fund spending reached 7.5 percent in fiscal 2019, a new all-time high.
– Medicaid spending from all funds is expected to grow 4.0 percent in fiscal 2020, with state funds increasing 3.1 percent and federal funds growing 4.5 percent.

Kansas (State of) – Retained pension funding, vetoed tax relief are credit positive

Source: Matthew Butler, Moody’s, Issuer Comment, June 6, 2019
(subscription required)

On May 29, the Kansas legislature voted to override several spending vetoes that Governor Laura Kelly made when she authorized the state’s fiscal 2020 budget. One of the vetoes was of a supplemental payment to the Kansas Public Employees Retirement System (KPERS). The lawmakers’ action preserves a $51 million supplemental contribution to KPERS, a credit positive for the state. At the same time, the legislature failed to override a veto of an income tax relief bill that would have cost the state an estimated $240 million over three years. This is also credit positive, because it reduces the amount of budget reserves Kansas will use to make the supplemental pension payment, increase school funding and more quickly retire an internal loan.