Category Archives: State & Local Finance

Milliman Analysis: Public pension funded ratio surges to 73.1% in Q4

Source: Rebecca A. Sielman, Milliman, February 2018

From the summary:
In the fourth quarter, there was a $60 billion improvement in the estimated funded status of the 100 largest U.S. public pension plans as measured by the Milliman 100 Public Pension Funding Index. From the end of September through the end of December, the deficit shrank from $1.392 trillion to $1.332 trillion. As of December 31, the funded ratio stood at 73.1%, up significantly from 71.6% at the end of September.

Related:
Milliman analysis: Corporate pensions’ $61 billion funding gain in January may cushion early February market slide
Source: Charles J. Clark, Zorast Wadia, Milliman, February 2018

From the summary:
In January, the funded status of the 100 largest corporate defined benefit pension plans improved by $61 billion as measured by the Milliman 100 Pension Funding Index (PFI). As of January 31, the funded status deficit narrowed to $221 billion due to investment and liability gains incurred during January. As of January 31, the funded ratio rose to 87.2%, up from 84.1% at the end of December. January’s impressive funded status improvement was greater than that seen in any of the prior months of 2017.

The market value of assets grew by $13 billion as a result of January’s investment gain of 1.20%. The Milliman 100 PFI asset value increased to $1.505 trillion from $1.492 trillion at the end of December. The projected benefit obligation decreased to $1.725 trillion at the end of January.

Over the last 12 months (February 2017-January 2018), the cumulative asset returns for these pensions has been 11.88% and the Milliman 100 PFI funded status deficit only improved by $50 billion. The funded ratio of the Milliman 100 companies has increased over the past 12 months to 87.2% from 83.8%.

Holding Pattern

Source: Lisa Peet, Library Journal, February 16, 2018

LJ’s 2018 Budget Survey shows overall budgets continuing to increase slightly, but federal funding disputes and new tax laws raise concern Last year, LJ’s budget survey showed libraries nationwide staying above water throughout 2016. In 2017 that trend continued, with libraries of all sizes reporting an overall average increase in funding for operating, materials, and personnel budgets. The trend seems to be leveling out, however. While total operating budgets rose modestly, concerns over a contentious federal budget that originally sought to eliminate federal library funding, as well as new tax laws, leave libraries unsure of what the future may hold.

An initial look at LJ’s 2018 Budgets and Funding survey of U.S. public libraries reveals a 2.8% increase in 2017’s total operating budgets, representing continued improvement since the lows of 2008—although down from last year’s gain of 3.4%. Overall, 77% of the 329 responding libraries reported an increase in total operating budgets from 2016 to 2017. In terms of individual locations, this is an improvement over previous years; 70% reported upticks in 2016, and 74% in 2015. …..

State and Local Government Finance and Employment Data Visualization

Source: U.S. Census Bureau, Press release, CB18-TPS.10, February 15, 2018

The U.S. Census Bureau today released the State and Local Government Snapshot, a new data visualization that allows users to explore the revenues, expenditures and employment of state and local governments. It combines several years of data from multiple government surveys in one place. Despite the robust amount of data, the format makes it clear and easy to understand. The visualization is customizable to allow users to access exactly the topics they are most interested in.

What’s the matter with Oklahoma?

Source: The Economist, January 30, 2018

Low teacher pay and severe budget cuts are driving schools to the brink. ….

Forty miles from Tulsa, sometimes along unpaved roads, sits Wagoner High School, with its 650 pupils, championship-calibre football team and show barn—a seemingly ordinary small-town school. But unlike most high schools, Wagoner is closed on Mondays. The reason, a severe reduction in state funds, has pushed 90 other school districts in Oklahoma to do the same. Teacher pay is the third-lowest in the country and has triggered a statewide shortage, as teachers flee to neighbouring states like Arkansas and Texas or to private schools. “Most of our teachers work second jobs,” says Darlene Adair, Wagoner’s principal. “A lot of them work at Walmart on nights and weekends, or in local restaurants.” Ms Adair hopes that Walmart does not offer her teachers a full-time job, which would be a pay rise for many.

The roots of the fiasco are not hard to determine. As in Oklahoma’s northern neighbour, Kansas, deep tax cuts have wrecked the state’s finances. During the shale boom, lawmakers gave a sweetheart deal to its oilmen, costing $470m in a single year, by slashing the gross production tax on horizontal drilling from 7% to 1%. North Dakota, by contrast, taxes production at 11.5%. The crash in global oil prices in 2014 did not help state coffers either. Oklahoma has also cut income taxes, first under Democrats desperate to maintain control over a state that was trending Republican, and then under Republicans, who swept to power anyway. Mary Fallin, the Republican governor, came to office pledging to eliminate the income tax altogether. Since 2008 general state funds for K-12 education in Oklahoma have been slashed by 28.2%—the biggest cut in the country. Property taxes, which might have made up the difference, are constitutionally limited….

….No fact embarrasses Oklahomans more, or repels prospective businesses more, than the number of cash-strapped districts that have gone to four-day weeks……

U.S. State and Local Outlook: Under Pressure – The prospects for spending are dour despite good underlying economic conditions

Source: Sarah Crane, Economy.com, January 30, 2018
(subscription required)

• Economic output from state and local governments is falling.
• Some provisions of the tax law increase the cost of borrowing and could alter the supply of and demand for municipal bonds.
• Federal proposals floated so far would put a greater onus on state and local governments to fund infrastructure spending…..

Grapevine, Fiscal Year 2017-18

Source: Center for the Study of Education Policy at Illinois State University and the State Higher Education Executive Officers, January 2018

From the summary:
Data reported by the states in the latest Grapevine survey indicate that initially approved state fiscal support for higher education nationwide increased by a modest 1.6 percent from fiscal 2016–2017 (fiscal 2017) to fiscal year 2017–2018 (fiscal 2018). This is the lowest annual percent increase in the past five years. Almost all of the increase between fiscal 2017 and fiscal 2018 was accounted for by appropriations in only three relatively large states: California, Florida, and Georgia. Total funding across the remaining 47 states rose by only 0.2 percent.

How Should States Respond to Recent Federal Tax Changes?

Source: Michael Leachman and Michael Mazerov, January 23, 2018

From the summary:
Many states expect to see a change in revenues due to the major federal tax legislation enacted last December. States should respond with substantial caution to the possibility of a revenue boost and focus their response on preparing for potential cuts in federal funding for states, as well as the next recession. They also should strongly consider raising revenue from corporations and other wealthy interests that just received a large federal tax break in order to invest in stronger education systems, more efficient transportation networks, and other public services that undergird broadly shared prosperity.

Some have called for states to cut taxes, claiming that most states will see revenue “windfalls” thanks to the federal changes. That’s overstated. Roughly 29 states will lose revenue, see no impact, or see modest revenue gains totaling less than 1 percent of general fund revenue, according to early estimates.  And in many of those states that could see larger revenue boosts, the added revenue would come disproportionately from lower-income families (due to the elimination of the states’ personal exemptions), which would partially reverse states’ substantial progress in recent decades in eliminating income taxes for families in poverty.  At least some of these states are unlikely to allow this to occur.

The real windfall from the federal changes will go to corporations and the highest-income households, whose annual tax cuts will vastly exceed any revenue gain for states. States’ revenue gains — in the aggregate — will also be much smaller as a share of their revenue than what they received from the last major federal tax overhaul, in 1986…..

Kansas Provides Compelling Evidence of Failure of “Supply-Side” Tax Cuts

Source: Michael Mazerov, Center on Budget and Policy Priorities, January 22, 2018

from the summary:
The deep income cuts that Kansas enacted in 2012 and 2013 for many business owners and other high-income Kansans failed to achieve their goal of boosting business formation and job creation, and lawmakers substantially repealed the tax cuts earlier this year. Former supporters have offered explanations for this failure to prevent the Kansas experience from discrediting “supply-side” economic strategies more broadly.  But the evidence does not support these explanations.  Rather, the Kansas experience adds to the already compelling evidence that cutting taxes does not improve state economic performance…..