Category Archives: State & Local Finance

Governance Reform and the Judicial Role in Municipal Bankruptcy

Source: Clayton P. Gillette, David A. Skeel Jr., New York University School of Law, Public Law Research Paper No. 15-28, July 27, 2015

From the abstract:
Recent proceedings involving large municipalities such as Detroit, Stockton, and Vallejo illustrate both the utility and the limitations of using the Bankruptcy Code to adjust municipal debt. In this article, we contend that, to truly resolve the distress of a substantial city, municipal bankruptcy needs to do more than simply provide immediate debt relief. Debt adjustment alone does nothing to remedy the fragmented decision-making and incentives for expanding municipal budgets that underlie municipal distress. Unless bankruptcy also addresses governance dysfunction, the city may slide right back into financial crisis. Governance restructuring has long been an essential element of corporate bankruptcy. Given the monopoly position of local governments as providers of local public goods, governance reform is even more important in the municipal bankruptcy context.

Some might argue that reducing a city’s debt is the best bankruptcy courts can do, because a more comprehensive approach would, among other things, interfere with state sovereignty. In our view, these concerns do not withstand inspection. Based on a careful analysis of the historical origins of the current municipal bankruptcy provisions, as well as an assessment of recent Supreme Court jurisprudence, we argue that governance reform is permitted even under existing law. To be sure, the states themselves, rather than a bankruptcy court, ideally should be the ones to effect municipal governance reform. But political factors and the salience of the fiscal crisis make state intervention unlikely, thus underscoring the need for a more comprehensive approach to municipal bankruptcy.

The Interplay of Public Pensions and the Broad Economy

Source: Dennis Lockhart, Federal Reserve Bank of Atlanta, Speech to the Public Pension Funding Forum Speech – Berkeley CA, August 24, 2015

Atlanta Fed President and CEO Dennis Lockhart, discusses ways that public pensions and the broad economy interact.

• Lockhart says that state and local government spending cuts can become a headwind in a downturn and subsequent recovery, and pension funding gaps can exacerbate this tendency. But he doesn’t see the underfunding of public pension funds as a systemic risk.
• Lockhart believes the time to address funding gaps is before the next downturn arrives.
• Lockhart says that since the recession ended, the U.S. economy has grown at an average annual rate of 2.1 percent. His baseline forecast is for moderate growth with continuing employment gains and a gradually rising rate of inflation.
• Consistent with the picture of moderate growth, Lockhart expects the normalization of monetary policy—that is, interest rates—to begin sometime this year, and to proceed gradually, in an environment of low rates for quite some time. ….

On Track: How States Fund and Support Public Transportation

Source: Kevin Pula, Douglas Shinkle, Jaime Rall, National Conference of State Legislatures, August 2015

From the summary:
The role states and particularly state legislatures play in supporting and funding public transportation typically is not a well-understood dynamic. This report highlights the many successful state efforts to provide high-quality transit options, with an emphasis on state legislative actions. Many states use common funding sources to support transit: motor fuel taxes, state transportation funds, general funds and automobile-related fees or taxes. Many states are taking further steps to create alternative funding and finance mechanisms for public transportation. While the most common state-level support for public transportation comes in the form of funding, other types of program support exist.

State actions are organized into five categories in this report:
• Organizational/Structural
• Funding
• Finance
• Polices
• State/Local Nexus’

Throughout the report, specific state programs and initiatives are examined in detail to explore traditional, innovative and emerging methods of state support for public transportation.

Assessing the Credit Quality of America’s Cities

Source: Richard A. Ciccarone, MuniNet Guide, August 25, 2015

Part Five: The Bottom Line

The first four parts of this series on credit quality have concentrated on the several specific areas of financial condition, such as bond ratings, pensions, debt, OPEB, infrastructure and general fund operational cushions and liquidity. In this final installment of the series, we put it all together to evaluate the overall fiscal health of today’s U.S. cities. ….
Part One: Focusing on Bond Ratings?
Part Two: The Achilles Heel to the Fiscal Condition of Cities – Public Pensions
Part Three: Long-Term Liabilities beyond Pensions
Part Four: FY 2014 Financial Condition

Hospital Costs And Quality

Source: Alan R. Weil , Health Affairs, Vol. 34 No. 8, August 2015
(subscription required)

Based on the Centers for Medicare and Medicaid Services Office of the Actuary projections we published late last year, spending on hospital care will surpass $1 trillion in 2015. This is about what the United Kingdom, Germany, and France will spend on their entire health care systems for a combined population of more than 200 million people. With their dominant role in the health care system, hospitals are at the center of myriad quality improvement and cost containment efforts, some of which are discussed in this month’s Health Affairs variety issue. …

Articles include:
Assessing Medicare’s Hospital Pay-For-Performance Programs And Whether They Are Achieving Their Goals
by Charles N. Kahn III, Thomas Ault, Lisa Potetz, Thomas Walke, Jayne Hart Chambers and Samantha Burch

From the abstract:
Three separate pay-for-performance programs affect the amount of Medicare payment for inpatient services to about 3,400 US hospitals. These payments are based on hospital performance on specified measures of quality of care. A growing share of Medicare hospital payments (6 percent by 2017) are dependent upon how hospitals perform under the Hospital Readmissions Reduction Program, the Value-Based Purchasing Program, and the Hospital-Acquired Condition Reduction Program. In 2015 four of five hospitals subject to these programs will be penalized under one or more of them, and more than one in three major teaching hospitals will be penalized under all three. Interactions among these programs should be considered going forward, including overlap among measures and differences in scoring performance.

States With Stronger Health Insurance Rate Review Authority Experienced Lower Premiums In The Individual Market In 2010–13
by Pinar Karaca-Mandic1, Brent D. Fulton, Ann Hollingshead and Richard M. Scheffler

From the abstract:
States have varying degrees of review authority over health insurance carriers’ rates, including prior approval authority over proposed rates and requirements for loss ratios, the proportion of premium revenues spent on medical claims. The Affordable Care Act (ACA) requires carriers in certain categories of health insurance to provide public justification for rate increases of 10 percent or more. We collected data on how states changed their rate review authority and requirements during 2010–13, the years immediately after enactment of the ACA, and we combined these data with carrier filings. We found that adjusted premiums in the individual market in states that had prior-approval authority combined with loss ratio requirements were lower in 2010–13 ($3,489) than premiums in states with no rate review authority or that had only file-and-use regulations, which gave the states no authority to block rate increases ($3,617). Adjusted premiums declined modestly in prior-approval states with loss ratio requirements, from $3,526 in 2010 to $3,452 in 2013, while premiums increased from $3,422 to $3,683 in states with no rate review authority or file-and-use regulations only. Our findings suggest that states with prior approval authority and loss ratio requirements constrained health insurance premium increases.

National Health Expenditure Projections, 2014–24: Spending Growth Faster Than Recent Trends
by Sean P. Keehan, Gigi A. Cuckler, Andrea M. Sisko, Andrew J. Madison, Sheila D. Smith, Devin A. Stone, John A. Poisal, Christian J. Wolfe and Joseph M. Lizonitz

From the abstract:
Health spending growth in the United States is projected to average 5.8 percent for 2014–24, reflecting the Affordable Care Act’s coverage expansions, faster economic growth, and population aging. Recent historically low growth rates in the use of medical goods and services, as well as medical prices, are expected to gradually increase. However, in part because of the impact of continued cost-sharing increases that are anticipated among health plans, the acceleration of these growth rates is expected to be modest. The health share of US gross domestic product is projected to rise from 17.4 percent in 2013 to 19.6 percent in 2024.

Municipal Bonds and Infrastructure Development – Past, Present, and Future

Source: Justin Marlowe, International City/County Management Association (ICMA) and Government Finance Officers Association (GFOA), White Paper, August 2015

From the summary:
State and local governments would have paid $714 billion in additional interest expenses from 2000 to 2014 without tax-exempt municipal bonds, according to a new report issued by ICMA and the Government Finance Officers Association.

Other key findings from ICMA’s new public policy white paper “Municipal Bonds and Infrastructure Development – Past Present and Future,” prepared by Justin Marlowe of the University of Washington on behalf of the Government Affairs and Policy Committee, include:
– Virtually all state and local government capital investment is financed through municipal bonds.
– In 2014, state and local governments invested nearly $400 billion in capital projects, a significant slowdown in spending. Total state and local capital spending has not yet returned to pre-Great Recession totals.
– Approximately 90 percent of state and local capital spending is financed by debt.
– Alternative financing methods, such as pay-as-you-go and public-private partnerships, are effective for some types of capital projects, but are not a robust alternative to traditional, tax-exempt municipal bonds
– There are more than one million municipal bonds in the market today, issued by more than 50,000 units of government, and their total par value is just over $3.6 trillion.
– If the federal tax exemption for municipal bonds were repealed, state and local governments would have paid $714 billion in additional interest expenses from 2000 to 2014. For a typical bond issue, this would mean $80-$210 in additional interest expenses per $1,000 of borrowed money….