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  #531  
Old 03-23-2018, 10:49 AM
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Mary Pat Campbell
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yes, I know I have a Puerto Rico watch thread, but this is about how rulings in what is essentially a government bankruptcy are affecting the muni market in general

https://fixedincome.fidelity.com/ftg..._110.1#new_tab

Quote:
How Puerto Rico's bankruptcy is roiling the municipal bond world

Puerto Rico’s debt crisis is taking a toll on the mainland municipal bond market.


Spoiler:
Municipal participants say the ripple effects from the biggest municipal bankruptcy have shaken investor confidence in lower-rated states and cities, legal promises, and credit ratings in general. Of particular concern is a ruling by Title III judge Laura Taylor Swain that upset expectations regarding special revenue bonds, which had continued to generate payments in previous bankruptcies.


In her ruling on Jan. 30 in a case involving the bonds of the Puerto Rico Highways and Transportation Authority, Convention Center District Authority, and Infrastructure Finance Authority, Swain said the fact the bonds were special revenue bonds didn’t require the issuers to continue paying in a Chapter 9 bankruptcy. Puerto Rico is in a Puerto Rico Oversight, Management, and Economic Stability Act Title III bankruptcy that incorporates the Chapter 9 bankruptcy provisions on these bonds.

“The fact that an automatic stay does not apply to special revenues and that payments should continue to bondholders has been accepted as common knowledge by the investing public,” said Wells Fargo Securities managing director Natalie Cohen. Swain's decision has "cast doubt" on that.

Cohen pointed out that a federal website of the Administrative Office of the U.S. Courts summarizes a part of Chapter 9 saying, “Holders of special revenue bonds can expect to receive payment on such bonds during the Chapter 9 case if special revenues are available.”

Bond insurers Assured Guaranty (AGO) and National Public Finance Guarantee are preparing an appeal of the Swain ruling and Cohen said this may clarify its impact. For the time being, the “decision has caused concern about the safety of special revenues of distressed borrowers.”

Peter Block, head of municipal credit strategy at Ramirez, said if Swain’s decision is upheld, market participants may not respect special revenue bonds in the future.

Fitch Ratings thought Swain’s decision was important enough to put out a six-page “special report” on the topic, “What Investors Want to Know: The Impact of the Puerto Rico Ruling on Special Revenue Debt.”

On March 9 Fitch said it would include a warning in its commentaries on credits that might be affected by a final court ruling on Swain’s decision. Among other things, the warning comment says about special revenue bonds, “The outcome of the litigation could result in modifications to Fitch’s approach.”

Municipal bond participants have responded to Puerto Rico’s bond meltdown in their U.S. dealings not just since Swain’s January decision but also over the last several years. Some have become more cautious about purchasing bonds from distressed issuers.

On Feb. 13 one of the historically biggest holders of Puerto Rico debt, Franklin Templeton Investments, said it had learned its lessons from its experience of the islands’ slide into multiple defaults. “As a result of lessons recently learned, the Franklin municipal bond group generally does not purchase general fund appropriation debt from cities, counties or states that in our view are facing unsustainable structural budget situations,” two co-directors of the group wrote in “Fundamental Changes That No Muni Investor Should Ignore.”

“As real examples, the Franklin municipal bond group has divested from – and currently won’t invest in – obligations of the State of Illinois, the City of Chicago and Chicago Public Schools, no matter what they offer in terms of security,” Co-Directors Sheila Amoroso and Rafael Costas wrote.

Franklin Templeton managed 24 municipal bond bonds as of November 2016 that held more than $1.5 billion of Puerto Rico bonds.

“As the financial picture there deteriorated, we began to reduce our exposure," the authors wrote. "Unfortunately, by the time Puerto Rico made known its intentions to default on its debts we had not completely exited our position.”

The U.S. Virgin Islands, which has its own financial problems, has struggled with the shadow of Puerto Rico’s default. The latter’s default played a role in the Virgin Islands’ inability to sell bonds in the late summer of 2016 and January 2017 for operating expenses.

In August 2017 the Virgin Islands’ Water and Power Authority, also in extreme financial difficulties, had to offer 11% annual interest on a 35 month duration bond to gain a buyer.

In Detroit’s bankruptcy the judge treated general obligation bonds as unsecured debt, Block noted. In Puerto Rico the island has defaulted on its GO debt and now Swain is saying the special revenue bonds don’t have to be paid in bankruptcy either. “People have learned to look more carefully at what they own,” Block said.

On Feb. 5 S&P Global Ratings agreed, titling a commentary, “Puerto Rico Court Ruling Supports Our View That Credit Fundamentals Remain Key To Ratings.” The piece commented on recent Swain rulings on both GO and special revenue bonds.

“The continuing uncertainty surrounding outcomes for Puerto Rico bondholders reinforces that credit fundamentals matter even where legal protections appear strong,” S&P Analyst David Hitchcock wrote. “We have incorporated this approach into all of our GO and revenue bond ratings.”

The Puerto Rico crisis also undercut the market's faith in credit ratings.

Block said that the market and institutional investors in particular have lost some confidence in ratings over the past 10 years and have bolstered credit staffs to monitor underlying credit quality of holdings. The confidence was shaken by ratings that eroded very quickly on some mortgage-backed bonds prior to the 2008 financial crisis and some ratings that went bad more recently, namely those for Detroit and Puerto Rico.

Block said in hindsight the agencies probably should have rated Puerto Rico speculative grade shortly after the island began to deficit finance the general fund (via COFINA) following the onset of the Puerto Rican recession in 2006.

Prior to the 2008 financial crisis, ratings had a 90% influence on where bonds traded, Block said. Now the influence is closer to 40% to 60%.-
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  #532  
Old 03-23-2018, 06:02 PM
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HARTFORD, CONNECTICUT

http://www.courant.com/community/har...322-story.html

Quote:
Under New Deal, State Will Pay Off Hartford's Debt
Spoiler:

The state has agreed to pay off Hartford’s general obligation debt – about $550 million over the next two decades or so – as part of the bailout promised to the city under the most recent state budget.

The deal between Hartford leaders and the state calls for Connecticut officials to pick up the city’s annual debt payments, which are expected to top $56 million by 2021. Hartford will continue to make payments on its new minor league ballpark, about $5 million per year.

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The state will also look to refinance Hartford’s debt – reducing annual contributions by stretching payments further into the future. The deal runs over the life of the bonds.

“This is the kind of long-term partnership we’ve been working for and I’m proud that we got it done,” Mayor Luke Bronin said Thursday.

The city council still must approve the contract. The panel is scheduled to vote on it Monday.

Bronin is pressing to have the agreement signed before April 1 – the city’s deadline for its next debt payment. If executed by then, the state would pay the $12 million that Hartford owes.

This debt transaction does not leave us with big surpluses.
— Mayor Luke Bronin
When lawmakers adopted a state budget in October, they pledged to give tens of millions in additional aid to the city, which had threatened to file for bankruptcy. Bronin has pointed to Hartford’s rising debt and pension obligations and the lack of taxable property as key factors that pushed the city to the brink of financial collapse.

In exchange for the extra funds, Hartford was placed under state oversight in January.

During the current fiscal year, which ends June 30, the state would cover Hartford’s remaining debt – $12 million – and give the city another $24 million to help close a budget deficit. In future years, it will assume the city’s full debt payment and it may give Hartford an additional subsidy.

Bronin has asked for about $40 million in extra aid each year, on top of the $270 million the city already receives. So if the state pays $36 million to cover Hartford’s annual debt, the city would request another $4 million for its general fund.

The oversight board has restricted how the city can spend its money. Budgets, contracts and other documents must be run by the panel, and the board has final say over new labor agreements. Hartford can’t issue new debt without the group’s permission.

Under the city’s new deal with the state, even if the oversight board disbands, Hartford’s spending practices would still be scrutinized. For example, if city leaders fail to make their required payment to the pension fund, they would have to answer to the state treasurer and secretary of Connecticut’s Office of Policy and Management.

“Connecticut cannot allow a city to default on its bond obligations or financially imperil itself for the foreseeable future,” said Chris McClure, a spokesman for OPM. “This action will ultimately best position Hartford to move into a better financial future.”

While the state assistance would help offset Hartford’s escalating deficits – projected to reach $94 million in 2023 – Bronin said it won’t make the city rich.

“This debt transaction does not leave us with big surpluses,” he said. “We’re looking to achieve sufficient stability over the next five years, and we can use that period to focus on growth.”

Council President Glendowlyn Thames said Thursday that she felt optimistic about the contract, but more work needed to be done.

“This plan is really tight, and it’s just surviving,” she said. “We have to focus on an economic development strategy that gets us to the point where we’re thriving.”
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  #533  
Old 03-23-2018, 06:52 PM
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http://www.governing.com/topics/fina...m_medium=email

Quote:
Despite New Rules to Disclose Corporate Tax Breaks, Just Half of Local Governments Are
The regulations that took effect this year let governments decide what's worth reporting, leading many to not report anything at all.

Spoiler:
Transparency advocates predicted that new rules for governments would result in a treasure trove of data on tax breaks for corporations. But so far, just half of reporting municipalities have disclosed that information.

Of the local government data collected by the tax break transparency group Good Jobs First and analyzed by Governing, a little more than 600 of 1,222 governments did not disclose any revenue lost to tax incentives on their annual financial report. Many of them made no mention of the new accounting rule at all. And while others did, they said their losses were "immaterial" and therefore were not reported. (States are subject to the new rule, too. While most have followed disclosures, their data was not included in the analysis.)

Many of these non-reporting governments are major jurisdictions with populations above 1 million, such as Los Angeles County, Calif.; Montgomery County, Md.; and Pima County, Ariz.

RELATED
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The new requirement, called the Governmental Accounting Standards Board (GASB) Statement 77, mandates that governments report their annual lost revenue due to tax abatement agreements. However, the rule allows governments to decide what's "material" to their bottom lines. That, says Good Jobs First's Scott Klinger, is a problem because it's led to a wide variance in what governments report.

For example, Pima County's total tax abatements amounted to $340,000, or less than 0.1 percent of the county's $450 million in revenue, according to Finance Director Keith Dommer. Nearly all of it is due to economic development incentive deals struck by the city of Tucson.

"Pima County doesn't abate taxes as part of economic development or any other programs," he says. "And that's really what the [rule] is about -- a lot of governments are using tax abatements as an economic development program, and GASB felt that if you're impairing your ability to generate revenues, someone should know about that."

Unlike Pima, Montgomery County makes its own tax incentive deals, including some well-known ones to keep the headquarters of the hotel giant Marriott International and television company Discovery Inc. Still, its financial report says tax abatement didn't have a "significant impact" on the county's more than $5 billion operating budget.

To be fair, the county does release that information -- just not in its annual financial report. It separately produces a tax expenditures report that addresses business enterprise zones -- geographic areas in which companies can qualify for a variety of subsidies -- and other programs that promote economic development, as well as tax breaks for residents. According to its most recent expenditure report, the county gave up more than $2 million in tax revenue in 2015 as a result of its enterprise zones and job tax credit programs.

The Government Finance Officers Association suggests the enterprise zones are subject to reporting requirements, and indeed other governments have reported them. But Montgomery County spokesman Patrick Lacefield says county officials conducted an internal analysis and consulted with the state and determined that those types of tax incentives don't meet the criteria for financial reporting.

Other governments have a much lower disclosure threshold. The smallest reported loss for any locality -- other than the 79 so far reporting zero lostes -- was from Austin, Nev. Thanks in large part to the state controller's effort to promote tax abatement disclosures, Austin reported it lost $4 last year from a state renewable energy program.

Meanwhile, some governments cherry pick what they'll report. Washington state, for instance, disclosed more than $333 million in abated tax revenue last year. But those figures are only for incentive programs that topped $10 million in lost revenue. That, says Good Jobs First's Klinger, means a lot of abatements in that state did not get reported.

All this variance in reporting isn't unexpected. After all, it's a new requirement. For its part, GASB has issued guidance clarifying the approach for governments since the new rule went into effect. The guidance includes what types of expenditures -- such as certain kinds of tax increment finance districts -- count as abatements. But it has been silent on what is material for reporting.

In Klinger's opinion, though, more governments should be like Nevada's Austin. "This is public money," he says. "All of it should be accounted for."
http://www.governing.com/week-in-fin...m_medium=email

Quote:
The Week in Public Finance: 3 Things State and Local Governments Should Know About the Banking Deregulation Bill
The first major bipartisan banking bill since Dodd-Frank has some potential pluses and minuses for states and localities.

Spoiler:
This week, the U.S. Senate passed the first major banking bill since the Dodd-Frank financial overhaul in 2010. If successful, it would roll back and loosen regulations on banking institutions prompted by the 2008 financial market meltdown.

The new bill is the result of a bipartisan effort. More than a dozen Democrats joined the Republicans to pass it. But passage in the House, where it heads next, is not guaranteed as Republican lawmakers there want an even bigger rollback of regulations.

The measure, supporters say, will provide regulatory relief for small banks. Meanwhile, critics argue that it benefits larger institutions more by loosening important consumer protection requirements for lending.

RELATED
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If it ultimately passes the House and is signed by President Trump, the bill contains three provisions that state and local governments should keep tabs on.


The Regulation Threshold
Called the Economic Growth, Regulatory Relief and Consumer Protection Act, the bill would change the size of banks that are subject to federal regulatory scrutiny. It does this by raising the threshold for so-called systematically important financial institutions from banks with at least $50 billion in assets to banks with at least $250 billion on the books. These financial institutions are subject to higher regulatory standards than small banks.

The idea is to free up smaller, regional banks from the strict scrutiny they say hinders their ability to make small business and other loans. The stingy small business lending market has made it difficult for business owners to expand and grow. This stagnation is something that concerns state and local politicians.


Mortgage Lending Concerns
Supporters claim the bill would keep consumer protections intact, but some critics contend it would do the opposite. They point to the $50 billion threshold mentioned above, which many have said was too low. Some are concerned, however, that the bill would raise the threshold too high. For example, Countrywide Financial, a major subprime mortgage lender at the center of the foreclosure crisis in 2008, had assets of roughly $210 billion before it failed. Under the proposed bill, it would be exempt from the kind of regulatory scrutiny from the Federal Reserve that it’s subject to today.

There's another mortgage-related provision in the bill that has consumer groups like the Center for Responsible Lending railing against it: the proposal to loosen mortgage lending standards for small banks and credit unions.

The looser standards would apply to institutions with $10 billion in assets or less and would expand the types of mortgages they offer, ease appraisal requirements for some types of loans and exempt small banks from certain disclosure rules. “Not only would this bring back toxic loan products and elevated foreclosure rates,” says the Center for Responsible Lending, “it would also provide legal safe harbor for predatory lenders.”


More Flexibility for Munis
The bill contains a big plus for municipal debt: It would expand a federal rule outlining the kind of liquid assets that banks must hold in case of an emergency to include all investment-grade -- that is, anything above junk status -- municipal bonds.

The current rule limits the kinds of municipal bonds that qualify. Many were concerned that the limitation for munis would make it more expensive for states and localities to issue debt during the next economic downturn because demand for them would be lower from banks.

The proposed expansion isn’t perfect. The new classification for munis would make them similar in credit quality to mortgage-backed securities rather than on par with debt from foreign countries, which is typically more stable and what finance officials wanted.

Still, notes the Brookings Institution’s Aaron Kline, the fix in the bill strikes a better balance than what exists today.
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  #534  
Old 04-06-2018, 05:54 PM
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HARTFORD, CONNECTICUT

https://www.bloomberg.com/news/artic...uy-real-estate

Quote:
Connecticut and Hartford Get $2 Billion Offer for Properties - Bloomberg

Spoiler:
Desperate times call for desperate measures. But are Connecticut and its capital, Hartford, desperate enough to sell and lease back their properties and guarantee the buyer a hefty return?
A Chicago-based private equity real estate firm is offering as much as $2 billion to purchase office buildings, health-care facilities, transit-related properties and whatever the governments think they can sell, so long as the buyer gets a 7.25 percent initial return, plus annual rent hikes of 1.5 percent. The offer by Oak Street Real Estate Capital LLC, detailed in letters of intent delivered Wednesday, leaves the choice of what properties to include up to the governments.
Connecticut and its distressed capital city surely could use the money. The state’s government has been wrestling with an underfunded pension system and chronic budget deficits, in part because the national economic recovery has passed much of Connecticut by, leaving it with fewer jobs than it had a decade ago. Hartford is even worse: The capital avoided bankruptcy last year only because of a bailout by the state.
“I just want to see our state make a smart decision,” said Gregory Kraut, a managing partner of K Property Group who is also an elected member of Westport’s town government. “And with my real estate and financial background, I have some options for them.”
Kraut, who put together the offer, said he’s acting as a concerned citizen and isn’t taking a commission or a fee from Oak Street. He suggested the state might use the money from real estate sales to reduce its unfunded pension obligations, and Hartford could reduce its debt load.
Better Yield
Terms of the deal as it’s proposed may favor the buyer, according to Jim Costello, a senior vice president for property-research firm Real Capital Analytics Inc. Capitalization rates -- net operating income as a share of the purchase price -- are in the mid-6 percent range now for single-tenant sale-and-leaseback office deals, he said.
“Obviously, the details of every deal are different, but buying in at 7.25 percent, the buyer is getting a better initial yield than the market on average,” Costello said.
The rate is also more than what it cost Connecticut to borrow money on its own earlier this year. When the state sold $800 million of debt in January, it paid yields of 3.43 percent on 20-year bonds.
Kelly Donnelly, director of communications for Governor Dannel Malloy, said the office is “in receipt of the letter and will take it under advisement.” Vasishth Srivastava, a representative for Hartford Mayor Luke A. Bronin, and Marc Zahr, Oak Street managing partner, declined to comment.
Coming Due
Connecticut has the highest net tax-supported debt per capita of any U.S. state
Source: Moody's Investors Service's 2017 State Debt Medians Report
Such a transaction isn’t unheard of. In the aftermath of the last recession, Arizona sold a slew of properties -- including its Capitol building -- to bondholders to help close budget deficits left by the real estate crash. As California governor, Arnold Schwarzenegger proposed taking similar steps, though the plan was scuttled by his successor, Jerry Brown.
And Oak Street is no stranger to Connecticut. Last year, the firm proposed buying Hartford XL Center, where the National Hockey League’s Hartford Whalers played before they moved in 1997, for $50 million. Oak Street also offered to spend as much as $250 million to update the arena to current NHL standards. On Wednesday, the firm reiterated that proposal.
The $2 billion sale-leaseback deal -- as much as $1 billion each for the state and Hartford -- would make Oak Street responsible for property management as well as renovations. The initial lease term would be 25 years, and both governments would have the right of first offer, and first refusal, should they want to buy back the properties.

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  #535  
Old 04-08-2018, 04:21 PM
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CALIFORNIA

https://medium.com/@DavidGCrane/cali...n-5197013e61bc

Quote:
California’s Great Diversion

Spoiler:
General Fund tax revenues in Governor Jerry Brown’s proposed budget for 2018–19 are expected to be 32 percent higher than ten years ago yet the same budget proposes only 9 percent more spending for California State University than ten years ago.

The principal reason is the “Great Diversion” of tax revenue to greater spending on enterprises funded by the state’s single-payer insurer (Medi-Cal) and to increased spending on pension and other retirement obligations. Because of the “waterfall” nature of California’s General Fund, the Great Diversion disproportionately hurts courts, parks, social services, UC and CSU.

The Great Diversion is happening despite a long bull market and income tax increase. Only 29 percent of San Francisco Unified School District’s budget will go to active teacher salaries this year because spending on unfunded retirement obligations jumped more than 100 percent in five years. It’s the same in Pasadena, Oakland and across the state. Meanwhile, profiteering and inefficiency by Medi-Cal providers is crushing funding for UC, CSU and other state services.

In the absence of reform the Great Diversion will get worse. That’s because the state has added >$100 billion in unfunded retirement obligations and delivered seven million more customers to Medi-Cal providers since 2010 and state revenues are correlated with the stock market, which will not always be in a bull mode. Despite the establishment of a rainy day fund, state and school budgets are as susceptible to a fall off in revenues as in 2001 and 2009.

Governor Brown acknowledges these facts in his budget but cannot enact reforms without his equal partner in governing the state — the California Legislature. All it takes is 41 votes in the State Assembly and 21 votes in the State Senate to reform retirement spending and to make Medi-Cal work for customers instead of profiteering providers.

This is not a debate about big government versus small government. It’s about tax dollars actually being used for public services. Surely all legislators can agree on that imperative.

Govern For California supports legislators who govern in the general interest.


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Old 04-08-2018, 09:14 PM
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https://twitter.com/cate_long/status/983132166778507264

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Not looking good over in #muniland ETF land
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Old 04-09-2018, 08:20 AM
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https://www.washingtonpost.com/opini...=.39814d5609a3

Quote:
The deeper cause behind the school strikes: Teachers are competing with the elderly
Spoiler:
To those paying attention, the recent strikes for higher teachers’ pay in West Virginia and Oklahoma are a harbinger of things to come. You can attribute the strikes to the stinginess of the states’ political leaders. After all, average annual teachers’ salaries in these states ranked, respectively, 49th-lowest (Oklahoma at $45,276) and 48th-lowest (West Virginia, $45,622) in 2016, reports the National Education Association. But that’s the superficial explanation. The deeper cause is that teachers — and schools — are competing with the elderly for scarce funds.

The struggle will intensify.

We all know — or should — that the United States is an aging society (the 65-and-over population was 12 percent of the total in 2000 and is projected to be 20 percent in 2040). It’s also common knowledge that spending on the elderly, mainly Social Security and Medicare, has squeezed other federal programs, inflated budget deficits and created pressures for higher taxes. What’s less well known is that similar forces now assail states and localities.

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Spending on the elderly is squeezing K-12 schools, police, parks, libraries, roads and other infrastructure (water projects, sewers), mainly through two programs: (a) Medicaid, a joint state-federal program of health insurance for the poor, which pays about half of nursing-home and long-term-care costs for the aged and disabled (on average, states pay about 37 percent of Medicaid’s costs); and (b) contributions to underfunded pensions for state and local workers.

Here’s how the Rockefeller Institute of Government, a nonprofit think tank, assessed the situation in a 2016 report:

“In 37 states, pension contributions plus state-funded Medicaid grew by more than state and local government tax revenues between 2007 and 2014, in real per-capita terms. In response . . . state and local governments have cut infrastructure investment, slashed support for higher education, cut social benefits other than Medicaid, cut spending on K-12 education . . . and reduced most other areas of the budget.”

No doubt some legitimate savings can be achieved; and conditions vary across states and localities. Still, state and local tax revenues are growing slowly, Rockefeller reports, and virtually all the increase from 2008 to 2015 (88 percent, to be precise) was absorbed by higher pension contributions and Medicaid costs. Meanwhile, tuition at state colleges and universities rose from 29 percent of total educational revenue in 2000 to 47 percent in 2014; and per-pupil K-12 spending, adjusted for inflation, fell 5 percent from 2008 to 2014.

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The squeeze will worsen. As baby boomers age, more of them will end up in nursing homes. Similarly, the Affordable Care Act included an expansion of Medicaid benefits that, so far, 33 states (including D.C.) have adopted, according to the Kaiser Family Foundation. The federal government initially covered all of the expansion’s cost, but this share is scheduled to fall to 90 percent in 2020. There will likely be proposals for states to pick up even more of the tab. Congressional Republicans have suggested converting the federal share to a block grant, which would probably raise states’ costs.

What should be done?

I have long advocated that Medicaid’s coverage of long-term care — the costliest part of the program — be moved into Medicare, which is fully paid by the federal government. This would break the automatic link between an aging population and the pressure on states and localities to cut non-health-care spending. It would be easier for them to set their own priorities, rather than being bound by the trajectory of health spending.


Under this proposal, the states and localities would take full responsibility for Medicaid’s coverage of children and poor adults, who represent about three-quarters of beneficiaries but only one-third of costs. This would reinforce states’ and localities’ existing responsibilities to educate and protect children through K-12 schools and traditional welfare.

To make the transfer of responsibilities budget-neutral, some federal aid programs for states and localities — transportation and K-12 education pop to mind — could be ended. The truth is that we can no longer afford overlapping bureaucracies, which are often expensive and ineffective.

Of course, this proposal stands virtually no chance of passage. Hard choices couldn’t be avoided. The underlying issue is genuinely difficult. It’s children vs. grandparents.

A sensible society would direct its governmental programs and investments toward preparing for the future. Instead, our emphasis is backward-looking, with more and more support going to the aged. On the other hand, a compassionate and caring society — a civilized society — doesn’t discard its older members just because their self-reliance and social utility have declined.


Teachers and others will continue to battle the demographics. Until we muster the courage to be candid about the choices, we will be stuck in a place we don’t want to be.

Read more from Robert Samuelson’s archive.
I could put this in the aging society thread, or the pensions thread... or any number of things. But I think it goes here.
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Old 04-18-2018, 06:47 PM
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CONNECTICUT

http://www.pionline.com/article/2018...18#cci_r=73393

Quote:
Connecticut’s high unfunded pension liabilities leads to credit downgrade
Spoiler:
S&P Global Ratings lowered its rating on Connecticut's approximately $18.5 billion of general obligation debt outstanding to A from A+ in part because of its high unfunded pension liabilities.

The ratings agency said in a report that "above-average debt, high unfunded pension liabilities and large unfunded other postemployment benefit liabilities," have created "significant and growing fixed-cost pressures that restrain Connecticut's budgetary flexibility."a report from S&P Global said.

The report added: "Should state tax revenue decline, or grow more slowly than currently projected, these large fixed costs will remain an impediment to solving future potential budget gaps."

RELATED COVERAGE
Connecticut treasurer weighs in on proposals for funding state pension plansMoody's downgrades Connecticut's general obligation debt rating, citing pension expensesConnecticut governor, unions agree to modify pension funding calculationConnecticut Legislature approves plan to restructure state pension obligations
Connecticut expects to have $5.4 billion of combined costs for debt service, and pension and OPEB contributions in fiscal 2018, totaling 29% of budgeted general fund expenditures, up slightly from 28% in 2017, the report said.

A pension reform agreement made with the state employees' union has helped control fixed-cost growth in the near term by smoothing out a potential spike in pension payments over the next few years and pushing amortization of some unfunded pension liabilities payments into later years, the report said.

Also, the State Employees' Retirement Fund's assumed rate of return was lowered to 6.9% from 8%. The lower return assumption, as well as a drop in the Teachers' Retirement Fund assumed rate of return to 8% from 8.5%, raised actuarial liabilities, which were offset by both plans returning about 16% in 2017.

The two plans are the main components of the $34.2 billion Connecticut Retirement Plans & Trust Funds, Hartford, which is about 45% funded.

Still, the ratings agency's outlook on the state is stable, reflecting an "anticipation that state debt, pension and OPEB ratios will remain high, but near current levels, during our two-year outlook horizon, while at the same time Connecticut's budget will likely remain near structural balance absent an economic downturn," the report said.

S&P Global Ratings also noted in its report that, despite its high unfunded pension liabilities, the state is currently funding its full annual actuarially determined pension contribution and has used limited one-time budget items in its current budget. However, the agency believes Connecticut still faces challenges in achieving long-term structural balance, based on the four-month delay in enacting a fiscal 2018-2019 biennium budget and pushback from lawmakers to additional budget cuts or tax increases.


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Old 04-24-2018, 06:00 PM
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https://www.bloomberg.com/amp/news/a...mpression=true

Quote:
U.S. States Remain Debt Averse Despite Low Rates
By Amanda Albright
April 24, 2018, 1:30 PM EDT
Their debt grows at slow pace for a fifth straight year
Connecticut has highest debt, Nebraska the least, Moody’s says
Spoiler:
U.S. states still have plenty of room to run up their debts. Or at least most of them do.

States’ tax-supported debt rose just 1.2 percent to $522 billion in 2017, the fifth straight year of growth below 2 percent, according to a report by Moody’s Investors Service. The reticence to borrow persisted despite anticipation that the Federal Reserve would continue to raise interest rates, giving them a strong incentive to capture low interest rates while they still could to finance roads, bridges and other public works.


The average net-tax supported debt among states was $1,477 per capita, with 31 states under that figure, according to the report. Connecticut had the highest in net tax-supported debt per capita at $6,544. Nebraska had the lowest -- just $20.


While most states exercised fiscal restraint, Illinois, the lowest rated U.S. state, bucked the trend last year by increasing its debt 16 percent, Moody’s said. That wasn’t because it was investing in infrastructure, though: Illinois sold $6 billion in bonds to pay off a backlog of bills left from a long-running standoff over the budget. That boosted Illinois’ net tax-supported debt per-capita to $2,919, the sixth highest in the country.

Moody’s analysts led by Joshua Grundleger said they don’t expect much of a change in the penny-pinching posture anytime soon.


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Old 04-24-2018, 06:01 PM
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I really don't like the color scheme they used for that
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