Category Archives: State & Local Finance

Late budgets reflect governance weakness

Source: Genevieve Nolan, Joshua Grundleger, Pisei Chea, Baye Larsen, Marcia Van Wagner, Nicholas Samuels, Emily Raimes, Timothy Blake, Moody’s, Sector Comment, State government – US, July 3, 2019
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Five states lack an adopted budget more than a week after their new fiscal years began on July 1. While it is unlikely that the delays will pose any risk of missed debt payments, late budgets expose local governments to missed state aid…..

In divided Alaska, the choice is between paying for government or giving residents bigger oil wealth check

Source: Paola Banchero, The Conversation, July 15, 2019

The Alaska legislature was unable to get enough support to block the cuts through a veto override late last week.

The budget cuts will be immediate, affecting most Alaskans. ….

….. How did Alaska, one of the country’s richest states with a $65 billion savings account fueled by oil royalties and leasing revenues, get into this position?

The troubles have been a long time coming.

As the state prepared to reap the benefits of its oil reserves in the 1970s as the trans-Alaska oil pipeline neared completion, voters approved in 1976 an amendment to the Alaska Constitution establishing the Alaska Permanent Fund.

The idea was to save a slice of the current oil windfall in a special fund for future generations when the oil ran out. Meanwhile, the rest of the massive oil royalties – $391.5 million in 1976, more than four times the amount collected the previous year – flowed into state coffers. That meant less need to rely on the traditional way government raises money: taxes. So the legislature repealed a state income tax and the Alaska school tax in 1980.

Now, most Alaska communities have no sales tax and property taxes are low. The total state and local tax burden on Alaskans is the lowest in the country.

In addition to repealing state taxes, Alaska legislators in 1980 approved a payout from mineral royalties to state residents called the Alaska Permanent Fund Dividend, or “PFD.” ….

Economic incentives with risky structures hurt government credit quality

Source: Joshua Grundleger, Frank A Mamo, Emily Raimes, Rachel Cortez, Nicholas Samuels, Gregory W. Lipitz, Naomi Richman, Timothy Blake, Alexandra S. Parker, Leonard Jones, Moody’s, State and local government – US, Sector In-Depth, July 10, 2019
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Many state and local governments competing with each other for new jobs offer economic development incentives to lure businesses. The use of incentives, however, often heightens credit risk, which is particularly true in cases where a government issues substantial debtor assumes responsibility for a risky enterprise. A risky incentive structure is likely to have negative credit implications, regardless of the ultimate economic outcome….

Adjustments to US State and Local Government Reported Pension Data: Proposed Methodology Update

Source: Thomas Aaron, Marcia Van Wagner, Timothy Blake, Moody’s, Request for Comment, July 10, 2019
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In this Request for Comment, we propose a number of changes to the Adjustments to US State and Local Government Reported Pension Data cross-sector rating methodology published in December 2017. Under our proposed changes, we would add descriptions of how we calculate the pension asset shock indicator and how we adjust other post-employment benefits (OPEB). The OPEB adjustment relies on information now required to be reported by issuers under Governmental Accounting Standards Board (GASB) Statements 74 and 75. We also propose to make some editorial changes to enhance readability.

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.

Related:
Buying Better
Source: Liz Farmer, Governing, June 2019

The CHIP Dip

Source: Federal Funds Information for States, Issue Brief 19-20, July 1, 2019
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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
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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
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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:
California
Colorado
Florida
Illinois
Louisiana
Minnesota
New York
Ohio
Oregon
Pennsylvania
Tennessee
Texas
Wisconsin