Category Archives: State & Local Finance

Local Government Risk Assessment: The Effect of Government Type on Credit Rating Decisions in Texas

Source: Robert A. Greer, Public Budgeting & Finance, Vol. 36, Issue 2, Summer 2016
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From the abstract:
In consideration of increased levels of debt issued by special purpose local governments, this study explores the relationship between local government type and credit rating decisions. Investors use credit ratings as a signal for default risk, and risk level is a function of local economic base including service responsibilities and revenue sources. Governmental functions and economic bases vary across local government types which affect credit rating decisions. Specifically, special purpose governments have more limited responsibilities and revenue sources compared to general purpose governments. To model the decision of agency selection a multivariate probit model is estimated using bond deals from six different types of local governments in Texas. Findings suggest differences among general purpose and special purpose local governments. This supports the hypothesis that economic base affects credit rating decisions. Results indicate that credit rating agencies evaluate and weight information differently, and that local governments chose rating agencies in response.

Medicaid Expansion Can Have Impacts Beyond State Borders

Source: Mattie Quinn, Governing, June 10, 2016

One state’s rejection of Medicaid expansion can hurt health-care systems in another state, according to a new study. ….

….One FQHC reported having an end-of-year loss of $2.5 million before its state expanded Medicaid. The very next year, after expansion, it had a surplus of $2.5 million. This extra money can be the difference between investing in health infrastructure projects or being forced to lay people off, according to Paul Taylor, CEO of Ozarks Community Hospital system, a safety-net provider with clinics in both Arkansas (an expansion state) and Missouri (a nonexpansion state).

In the case of Ozarks Community Hospital systems, Missouri’s rejection of Medicaid expansion hurt Arkansas.

“I had to cut 100 full-time employees in both states because of the losses in Missouri. If I hadn’t done that, the whole system would be endangered,” said Taylor. “Missouri is benefitting from Arkansas’ expansion simply because we’ve been able to continue operations. It’s been a very real, horrific experiment to live through. But at least we are holding on.”

There’s also a medical brain-drain occurring in states that chose not to expand. According to the report, doctors are increasingly worried about layoffs and cuts in nonexpansion states and moving to places with more opportunities.

According to the Georgetown researchers, this is an example of two health-care systems existing in America…..
Beyond the Reduction in Uncompensated Care: Medicaid Expansion Is Having a Positive Impact on Safety Net Hospitals and Clinics
Source: Adam Searing and Jack Hoadley, Georgetown University Center for Children and Families, June 2016

From the summary:
More than two years after the onset of expanded Medicaid coverage, significant differences are emerging between states that opted to expand Medicaid and those that did not. This report contains the findings of telephone interviews with eleven leaders of hospital systems and federally qualified health centers (FQHCs) in seven states. Three of the states where we conducted interviews had not expanded Medicaid (Missouri, Tennessee, and Utah) while the other four states had expanded Medicaid effective in 2014 (Arkansas, Colorado, Kentucky, and Nevada). The authors picked expansion and non-expansion states with common borders in order to better compare state experiences. They found the benefits of Medicaid expansion have been felt beyond the walls of the health care facilities and have had positive ripple effects throughout the community.

Public Pension Funding Practices: How These Practices Can Lead to Significant Underfunding or Significant Contribution Increases When Plans Invest in Risky Assets

Source: Donald J. Boyd, Yimeng Yin, Nelson A. Rockefeller Institute of Government, Pension Simulation Project Policy Brief, June 2016

Public pension funds provide benefits to nearly 10 million people, invest over $3.6 trillion in assets, and are deeply underfunded. A new Rockefeller Institute report and policy brief put a spotlight on how the methods that public retirement systems and governments use to fund pensions are affected by investment return volatility. The analysis concludes that a typical 75-percent funded public pension plan has a one in six chance of falling below 40-percent funded within the next 30 years, a crisis level currently faced by only a few major plans. The research brief and associated report are the beginning of a series from the Rockefeller Institute of Government’s Pension Simulation Project.

State Health Care Costs Vary Significantly – Demographics, provider fees, Medicaid, and the economy can all drive spending

Source: Maria Schiff, Pew Charitable Trusts, State Health Care Spending, June 3, 2016

When it comes to health care spending, states face a complicated set of challenges and financial burdens, with obligations ranging from caring for their most vulnerable populations—the poor, elderly, very young, chronically ill, or incarcerated—to providing coverage for state employees and retirees as part of compensation packages.

All told, states spend hundreds of billions of dollars a year on various kinds of health care. But the amount each state spends doesn’t necessarily reflect either efficiency or waste. And the ability to control costs often falls outside the control of policymakers. For example, certain states must pay a larger portion of Medicaid costs (the program is jointly funded by the federal government), others pay their providers higher fees, and some residents require more care than others. Demographics—including poverty rates, the population’s age and overall health, and the number of prisoners and retirees—can affect a state’s health costs. A state’s economy also plays a major role in determining its health expenses….

Public Education Finances: 2014

Source: U.S. Census Bureau, Educational Finance Branch, Economic Reimbursable Surveys Division Reports, G14-ASPE, June 2016

From the press release:
Elementary and secondary education revenue are up 3.3 percent nationally, from 2013, amounting to $617.6 billion in fiscal year 2014, according to a report released today by the U.S. Census Bureau….

Per pupil spending for the nation was $11,009, a 2.7 percent increase from 2013. This was the largest increase in per pupil spending since 2008 when there was a 6.1 percent increase from the year prior. Among the 50 states and the District of Columbia, New York spent the highest per pupil, at $20,610, while Utah came in the lowest at $6,500.

Per pupil spending includes gross school system expenditure for instruction, support services and noninstructional functions including direct expenditure for salaries, employee benefits, student transportation, building maintenance, purchased property and other services and supplies.

Following New York, the highest spending per pupil in 2014 was in the District of Columbia at $18,485, Alaska at $18,416, New Jersey at $17,907 and Connecticut at $17,745.

After Utah, the states spending the least per pupil were Idaho at $6,621, Arizona at $7,528, Oklahoma at $7,829 and Mississippi at $8,263.

Of the 100 largest school systems by enrollment, Maryland had four of the 10 public school districts with the highest current spending per pupil. This marks the seventh year in a row Maryland has had four schools in the top 10 in this category. The top five school districts for per pupil spending were Boston City Schools at $21,567, New York City School District at $21,154, Anchorage School District in Alaska at $15,596, Baltimore City Schools in Maryland at $15,564 and Howard County Schools in Maryland at $15,358.

The findings come from the Public Education Finances: 2014 report, which provides figures on revenues, expenditures, debt and assets (cash and security holdings) for the nation’s elementary and secondary public school systems. The report and tables, released annually, include detailed statistics on spending – such as instruction, student transportation, salaries and employee benefits – at the national, state and school district levels.

Investing in resilient infrastructure before disaster hits

Source: Shalini Vajjhala and Ellory Monks, Brookings Institution, SERIES: Metropolitan Infrastructure Initiative, Number 188 of 189, June 6, 2016

Tropical Storm Isaac is pictured as it approaches landfall, August 27, 2012. (Reuters/NASA)
As a growing number of natural disasters have hit vulnerable regions across the country in recent years, state and local leaders have explored a range of new investment strategies to better safeguard their infrastructure assets and ultimately provide greater protection for their economies. Many cities, for instance, are already leading in the development of resilient infrastructure projects and exploring non-traditional insurance options, such as resilience bonds. ….
Leveraging Catastrophe Bonds As a Mechanism for Resilient Infrastructure Project Finance
Source: Shalini Vajjhala and James Rhodes, RE.bound Program, December 2015

Corporate Income Tax Expenditures: The State’s Regular Evaluation of Corporate Income Tax Expenditures Would Improve Their Efficiency and Effectiveness

Source: California State Auditor, Report 2015-127, April 2016

From the summary:
Our audit concerning the benefits and cost-effectiveness of state corporate income tax expenditures (tax expenditures) highlighted the following:
– Corporate taxes contributed $7.3 billion to the State’s General Fund in fiscal year 2012-13; however, forgone revenue from tax expenditures totaled more than $5 billion.
– Implementing oversight methods from other states could improve the effectiveness of the State’s current and future tax expenditures.
– Tax expenditure legislation does not consistently include policy goals, performance measures, and sunset provisions.
– The State does not conduct regular, comprehensive reviews of tax expenditures.
Our review of six of the largest tax expenditures revealed the following:
– Insufficient evidence and oversight of the research and development credit and the minimum franchise tax exemption make it unclear if they are fulfilling their purposes.
– The water’s edge election, the low-income housing credit, and the film and television credit appear to be achieving their respective purposes, but improvements would make them more effective.
– The Subchapter S corporation election appears to be achieving its purpose.
Fact Sheet

Puerto Rico and Pensions: the Basics

Source: Tyler Bond, National Public Pension Coalition (NPPC), June 7, 2016

Puerto Rico and its debt crisis remain in the news as Congress considers legislation to help the island territory restructure and manage its debt. Puerto Rico’s pensioners remain trapped in this crisis as well. Just last week, a new audit of the territory’s pension system by KPMG found that the pension system there could run out of money next year. Puerto Rico’s retirees risk being cast into poverty if the pension system is not properly funded- a risk that becomes even greater if the territory is forced to repay vulture hedge funds rather than put needed funds into its depleted pension.

Puerto Rico’s debt crisis, its causes, and its consequences are all complicated and, as a result, there is a lot of confusion about what is happening there. While we’ve written about it before, let’s cover some of the basics:
Puerto Ricans are American citizens ….
The legislation Congress is considering is not a “bailout” ….
What’s happening in Puerto Rico is not going to happen in a state …..
Puerto Rico, Pensions, and Vulture Hedge Funds
Source: Tyler Bond, National Public Pension Coalition (NPPC), March 23, 2016