Pension Brief: Are Asset Transfers A Gimmick Or A Sound Fiscal Strategy?

Source: S&P Global Ratings, February 19, 2019
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(Editor’s note: This publication marks the start of a series of short comments on credit matters of interest in the municipal retirement space. This first “Pension Brief” follows up on our publication one year ago surveying pension reform initiatives across the states (“Recent U.S. State Pension Reform: Balancing Long-Term Strategy And Budget Reality,” Feb. 9, 2018). ….)

…. To face persistent and growing pension challenges, some U.S. state and local governments have looked to develop creative solutions to help mitigate expanding liabilities and bolster wanting asset levels. ….

Illinois Budget Proposal Places Risky Bets On Asset Transfers and Graduated Income Tax

Source: S&P Global Ratings, February 22, 2019
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S&P Global Ratings believes that Illinois’ (BBB-/Stable) executive budget proposal precariously balances the current budget, but punts measures to address fiscal progress to future years. It prioritizes service solvency at the expense of lower pension contributions and does not make meaningful progress toward tackling the $7.9 billion bill backlog or projected out-year deficits….

The soaring cost of US child care, in 5 charts

Source: Heidi Steinour, The Conversation, February 22, 2019

The cost of having children in the U.S. has climbed exponentially since the 1960s. So it’s no wonder the growing crop of Democratic presidential candidates have been proposing ways to address or bring down the costs tied to raising a family.

Most recently, Massachusetts Sen. Elizabeth Warren said she wants to provide universal access to child care. According to her proposal, the U.S. would partner with local governments and other organizations to provide various child care options, paying for it with revenue from her wealth tax.

Whether or not Warren’s proposal becomes law, the data show a worsening problem. In 2015, American parents spent, on average, US$233,610 on child costs from birth until the age of 17, not including college. This number covers everything from housing and food to child care and transportation costs. This is up 8 percent from 1990.

As a mother myself, as well as a sociologist who studies families, I have experienced firsthand the unexpected costs associated with having a child. And this spike in costs has broad implications, including leading fewer families to have children…..

How electric cars could make America’s crumbling roads even worse

Source: Jay L. Zagorsky, The Conversation, February 25, 2019

…. To fix the potholes and crumbling roads, federal, state and local governments rely on fuel taxes, which raise more than US$80 billion a year and pay for around three-quarters of what the U.S. spends on building new roads and maintaining them. ….

….If sales continue at this breakneck pace, electric cars will become mainstream in no time. In addition, governments in Europe and China are actively steering consumers away from fossil fuels and toward their electric counterparts.

In other words, the time will come very soon when the U.S. and individual states will no longer be able to rely on fuel taxes to mend American roads…..

The Union That Roars

Source: Graham Vyse, Governing, February 2019

In an anti-union era, nurses are proving that organized labor can still be powerful. ….

…. NNU isn’t new to this fight. Breaking up the for-profit health-care system has been a defining mission of the union since its founding a decade ago. But now the group faces a new challenge. NNU is embarking on a revamped Medicare for All campaign not only at the federal level — where the prospects of success are bleak, at least in the short term — but in states across the country, especially those with Democratic governors, most notably California, Minnesota and New York. ….

Amid Strikes and Shortages, Governors Prioritize State Workers’ Plight

Source: Katherine Barrett and Richard Greene, Governing, February 25, 2019

Protesting teachers likely won’t be the only public employees who see pay raises and workplace improvements this year. ….

– In their State of the State addresses and executive orders this year, many governors are making public workforce issues a priority.
– They are particularly targeting teachers and corrections staff for pay raises.
– Several governors are focused on fighting sexual harassment and LGBT discrimination in state government…..

Denver City & County S.D. 1, CO: Terms of teacher strike settlement to have minimal credit impact on Denver Public Schools

Source: Denise Rappmund, Gera M. McGuire, Alexandra S. Parker, Moody’s, Issuer Comment, February 20, 2019
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The agreement, which ended a three-day strike, calls for a $23 million bump in teacher compensation, which equates to 2% of the district’s fiscal 2018 budget. Despite lackluster growth in state aid, the district’s credit profile continues to improve with in-migration, a highly educated workforce and a rapidly expanding tax base….

State and local government — US: Market volatility underscores risk of high pension investment return targets

Source: Thomas Aaron, Timothy Blake, Moody’s, Sector In-Depth, February 20, 2019
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Equity market losses in late 2018 will translate into larger than expected pension cost hikes in 2021 for many governments because of equity-heavy investment allocations within their pension systems’ assets. Despite the long-term investment focus of US public pension systems and favorable returns in the past two fiscal years, recent market losses highlight the uphill credit challenge facing governments that rely on high-return/high-risk pension assets to cover a large portion of their pension benefit promises.