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  #561  
Old 08-20-2018, 05:53 PM
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Mary Pat Campbell
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CONNECTICUT

http://www.yankeeinstitute.org/2018/...-the-money-go/

Quote:
Connecticut’s Income Tax: Where Did the Money Go?
Spoiler:
Connecticut’s income tax is on everyone’s mind. Some gubernatorial candidates are calling for its abolition in order to spur economic growth, while others say some taxes -- although, not necessarily the income tax -- must be raised to solve Connecticut's continuing budget problems.

Whatever may happen with Connecticut’s income tax, it is clear that something went wrong.

Although the income tax brought in $126 billion between 1991 and 2014, Connecticut's government spending grew 71 percent faster than inflation, leading to budget deficits and, naturally, tax increases.

According to Pew Charitable Trusts, between 2002 and 2016 Connecticut consistently spent more money than it took in, averaging only 97 percent of revenue needed to meet expense demands.

No other state in the country has instituted a state income tax since Connecticut took the leap in 1991. Connecticut’s budget grew from $7.7 billion in 1991 to roughly $20 billion per year.

So where did all the income tax money go?

According to Yankee Institute’s study on the income tax entitled Where Has All the Money Gone? The 25th Anniversary of Connecticut’s Income Tax, the money largely went to three areas: non-functional government spending, welfare, and the Department of Correction.

“Non-functional” spending by state government saw the biggest increase since passage of the income tax, growing 174 percent over inflation between 1991 and 2014. This spending category includes pension costs, retiree benefits, debt service, and some payments to municipalities. Debt payments make up a large share of the non-functional spending increase, according to the study. In 1991, Connecticut had $11 billion in outstanding debt. By 2014, it had increased to $22 billion. As of 2017, Connecticut had $25.5 billion in long-term bonded debt, according to the state’s financial report, with an additional $48.9 billion in unfunded liabilities for pensions, OPEB, and other worker benefits. Nonfunctional spending was 17 percent of the state budget in 1991, according to the 1991-92 budget. As of 2018, nonfunctional state spending is 31 percent of the state budget, according to the Office of Fiscal Analysis.




Welfare was the fastest area of spending growth after Connecticut passed the income tax. State spending on human services like Medicaid, the Department of Social Services and Temporary Assistance for Needy Families grew $1 billion, or 30 percent, in the three years following the income tax, according to the study. Medicaid spending alone grew 25 percent between 1991 and 1994, which amounts to $539 million in today’s dollars. During the years of state spending growth after the income tax, however, poverty in Connecticut actually increased from 6.8 percent in 1990 to 10.8 percent in 1994. Connecticut’s poverty level has hovered around 10 percent ever since. Connecticut currently spends $2.5 billion on Medicaid, which is 27 percent of the state’s “fixed costs.” Human services in general, makes up 20 percent of the state budget, which is markedly lower than the nearly 30 percent spent on human services in 1991.


Lastly, Connecticut saw a significant increase in spending for the Department of Correction. Spending on Corrections grew quickly during the 1980s. In 1991, it occupied 5.6 percent of total state government spending. DOC costs increased to 9 percent of the budget by 2009 but has since declined along with Connecticut’s prison population. Spending on Corrections is now 6.5 percent of the budget, totaling $1.3 billion. Gov. Dannel Malloy has shut down some prison facilities to cut costs, but DOC overtime compensation for employees remains the largest source of overtime compensation for the state. In 2018, overtime at DOC cost $71.9 million. Overtime compensation is factored into employees’ pension calculations.


Oddly enough, with the increase in state spending from the income tax, Connecticut’s spending on education has actually declined. Before the income tax, education funding accounted for 31 percent of the state budget. Following the income tax, education spending dropped to 24 percent, where it has remained ever since.

Prior to the income tax, Connecticut relied on its state sales tax and the capital gains tax to fund all state government spending. Now, the income tax makes up 42 percent of state tax revenue, according to the OFA.

Although it has proven less volatile than the capital gains tax, Connecticut’s income tax is still subject to fluctuation, largely because it relies heavily on a small percentage of wealthy residents and is closely tied to gains and losses on Wall Street. Those fluctuations can lead to larger deficits or better-than-expected revenue, depending on larger, national market forces.
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  #562  
Old 08-28-2018, 10:52 AM
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https://www.chapman.com/insights-pub...e_15c2-12.html

Quote:
SEC Adopts Amendments to Rule 15c2-12
Spoiler:
August 27, 2018
Client Alert
On August 20, 2018, the Securities and Exchange Commission (the “SEC”) issued Release No. 34-83885 (the “Release”) adopting amendments (the “Amendments”) to Rule 15c2-12 (the “Rule”) under the Securities Exchange Act of 1934, as amended. The Amendments add two new events to the list of reportable events for which an issuer or obligated person* must provide notice to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (EMMA) website. Under the Amendments, reportable event disclosures under the Rule will be required for:

(a) the incurrence of a financial obligation of the obligated person, if material, or

(b) an agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the obligated person, any of which affect security holders, if material; and
a default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a financial obligation of an obligated person, any of which reflect financial difficulties.
The Amendments also add a definition of “financial obligation” to the Rule. The Amendments do not amend any of the existing provisions of the Rule and total approximately eleven lines of new text.

While the text of the Amendments is short, the Amendments have significant implications for obligated persons and underwriters of publicly-offered municipal securities as well as financial institutions that enter into direct purchases, private placements, bank loans, municipal leases, derivatives and other types of financial obligations with obligated persons. The SEC has stated it believes the Amendments will provide investors access to important information relating to obligated persons and enhance transparency in the municipal securities market by increasing the amount of information that is publicly disclosed about material financial obligations incurred by obligated persons.

The Amendments as adopted are substantially the same as proposed by the SEC in March, 2017, with some modifications to address issues raised during the required comment period. See our March 27, 2017 Client Alert for a summary of the amendments as originally proposed.

The compliance date for the Amendments is 180 days after the Release is published in the Federal Register.

Background
In the Release, the SEC reiterated that since 2009 the volume of direct purchases of municipal securities and direct loans (“Direct Placements”) has grown as an alternative to publicly‑offered municipal securities. However, prior to the Amendments, Direct Placements have been disclosed on the MSRB’s EMMA system by obligated persons only on a voluntary basis. Therefore, the SEC indicated that investors may not have had any access or timely access to disclosure about the incurrence of certain financial obligations, such as Direct Placements, and, to the extent disclosure was available, that disclosure may have lacked material information about the obligations. The SEC further indicated that investors may not have had “any access or timely access” to disclosure of the occurrence of events under Direct Placements that reflect financial difficulties. The SEC adopted the Amendments to address this perceived lack of investor access to material information.

The Amendments
Under the Amendments, underwriters are required to reasonably determine that an obligated person has agreed in a written undertaking to provide prompt notice of new financial obligations and their terms, and certain events, if material, under new or pre-existing financial obligations as described above. The Release provides that event disclosures are required for:

a new financial obligation, if it is “material” (see below for a discussion of materiality considerations),
any covenants, events of default, remedies, priority rights or similar terms under a new financial obligation which affect the holders of outstanding municipal securities of the obligated person, if material, and
a default, acceleration, termination, modification of terms or similar event under a new or pre-existing financial obligation which reflects financial difficulties of the obligated person.
Under the Amendments, the term “financial obligation” means:

a debt obligation,
a derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation, and
a guarantee of a debt obligation or a derivative.
The terms “debt obligation,” “derivative instrument” and “guarantee” are broadly construed under the Amendments. Consistent with the stated purpose of the Amendments, a “financial obligation” does not include a municipal security that is issued under an official statement that has been posted on EMMA.

In the Release, the SEC provided guidance on the meaning of “financial obligation”:

a “debt obligation” includes both short-term and long-term debt obligations of an obligated person under the terms of an indenture, loan agreement, lease, or similar contract regardless of the length of the repayment period of the debt obligation,
leases that “operate as vehicles to borrow money” (e. financing leases) are debt obligations, but operating leases are not,
a “derivative instrument” includes a swap, a security‑based swap, a futures contract, a forward contract, an option or similar instrument (or combination) to which an obligated person is a counterparty,
a “guarantee” includes any guarantee provided by an obligated person (as a guarantor) for the benefit of itself or a third party, which guarantees payment of a financial obligation,
the materiality of a financial obligation or its terms is determined under general securities law standards (e., would the information be important to a reasonable investor in making an investment decision?), particularly with regard to any rights given to the holder of the financial obligation that are prior to the rights of the holders of the obligated persons outstanding municipal securities,
the material terms of a financial obligation that should be disclosed include the following:
date incurred,
principal amount,
maturity dates and amortization,
interest rate, if fixed, or method of computation, if variable, and default rates, and
such other terms as are appropriate under the circumstances,
a default, acceleration, termination, modification or similar event under a financial obligation “reflects financial difficulties” of an obligated person and should be reported if the information is relevant to investors in making an assessment of the current financial condition of the obligated person, and
the term “default” includes both payment and non-payment defaults, but distinguishes between those that do not reflect financial difficulties (such as failure to provide timely notice of a change in address) and those that do (such as a failure to replenish a debt service reserve fund).
Considerations for Market Participants
As described above, the additional events provided in the Amendments will now be added to the continuing disclosure undertaking delivered by the obligated person in a primary offering of municipal securities in order for an underwriter to meet its obligations under the Rule. As with the fourteen existing reportable events, notice of the new reportable events must be given promptly and not later than ten business days of the occurrence of the event.

Disclosure of New Financial Obligations
The Amendments could apply to any number of documents and agreements which could potentially be considered financial obligations requiring disclosure, if material. Accordingly, an obligated person will first have to determine if a new contract or agreement is a financial obligation for purposes of the Amendments and, if so, will then have to determine whether that financial obligation is material. While numerous comment letters requested guidance on the materiality standards that should be applied under the Amendments, the SEC declined to provide any new guidance, reiterating its previous statements that “materiality determinations should be based on whether the information would be important to the total mix of information made available to the reasonable investor.”

If a particular contract or agreement is determined to be a financial obligation that is material to investors, an obligated person is then required to make a separate materiality determination regarding which terms and conditions of the financial obligation require disclosure. The Release and the text of the Amendments make it clear that the SEC views any terms of a financial obligation that give its holder preferential or priority rights over the obligated person’s publicly-held bonds as material information that must be disclosed. The final determination an obligated person will need to make with respect to the disclosure of a new financial obligation is whether to disclose its material terms in summary form or by posting the entire contract or agreement to EMMA. In this regard, the SEC stated that an agreement that is posted to EMMA may be redacted to exclude confidential information such as contact information, account numbers and other personally-identifiable information, but did not indicate that commercially-sensitive information (such as the interest rate or interest rate spread under a Direct Placement) could be redacted if that information is material to investors.

When entering into a financial obligation, the obligated person and, in some circumstances, the other party (e.g., a lender, lessor, swap provider, vendor, counterparty or other financial institution) will need to consider whether the material terms of a material financial obligation should be summarized in the reportable event filing or whether copies of the transaction documents (with permitted redactions) should be posted to EMMA. If the material terms of the transaction are to be summarized, the obligated person will need to ensure that the summaries are accurate and complete.

Disclosure of Defaults and Other Events
Under the Amendments, obligated persons are further required to disclose defaults, accelerations, terminations and other adverse events under both new and pre-existing financial obligations, if the event “reflects financial difficulties” of the obligated person. The SEC stated in the Release that whether a particular event constitutes a “default” or an “event of default” under a financial obligation is not determinative as to whether disclosure is required, and stated its belief that “there are defaults that may reflect financial difficulties even if they do not qualify as ‘events of default’ under transaction documents.”

The “reflecting financial difficulties” concept is embedded in the existing reportable events under the Rule for unscheduled draws on debt service reserves and credit enhancement facilities. The SEC stated in the Release that this concept is intended to “target the disclosure of information relevant to investors in making an assessment of the current financial condition of the issuer or obligated person.” Accordingly, obligated persons will need to make a further determination as to whether a default or other adverse event under, or a modification of the terms of, a financial obligation reflect financial difficulties such that disclosure is required in a reportable event notice.

Modifications and waivers of terms of a financial obligation provided by lenders to obligated persons raise particular concerns and questions. For example, if an obligated person is unable to meet a particularly strict financial covenant and the lender agrees to waive the covenant because other financial ratios and covenants meet their lending guidelines, the obligated person will need to make a determination as to whether this type of waiver should be disclosed. Under these circumstances or similar situations, it is possible that a lender will hesitate to accommodate obligated persons (whether the obligated person is financially sound or in financial distress) if the obligated person is required or advised to disclose the full details of the waiver or accommodation.

Considerations for Obligated Persons
The multiple determinations required to be made by an obligated person under the Amendments discussed above will present a range of challenges. Whether a particular financial obligation, its terms or an event under a financial obligation is “material” is a mixed question of law and fact. The obligated person will need to determine the personnel who are authorized and qualified to make these determinations, and consultation with legal counsel or a municipal advisor may be necessary. Obligated persons with municipal securities disclosure policies and procedures should review them for updating in light of the Amendments, and obligated persons without disclosure policies and procedures should give consideration to developing and implementing them. Additional training of the personnel that will make disclosure determinations and formulate the actual text of the required disclosures for an obligated person should also be considered, particularly with regard to materiality considerations. Some obligated persons may have agreed in existing continuing disclosure undertakings to comply with the Rule as it may be amended from time to time. In these cases, the existing undertakings should be reviewed to determine if amendments are required to include the Amendments or if the Amendments are automatically included by the terms of the existing undertakings.

Considerations for Underwriters
The Amendments require underwriters to perform additional due diligence with respect to an obligated person’s compliance with the Amendments. An underwriter will need to make a determination as to the universe of instruments that could constitute financial obligations that it will request from the obligated person when performing its due diligence. Among other things, an underwriter will need to make its own determinations with respect to whether a particular instrument is a financial obligation, whether it is a material obligation and which of its terms are material to investors. Further, an underwriter will need to make determinations as to whether the occurrence of certain events under the terms of a financial obligation of an obligated person reflect financial difficulties. These determinations will require additional time, and underwriters will need to ensure that they begin their financial obligation review early in the due diligence process.

Given the lack of any bright-line standards regarding materiality, it is entirely possible that an underwriter’s determinations with respect to financial obligation disclosure may be different from those previously made by an obligated person. In these circumstances, the parties may need to also determine whether a remedial reportable event filing needs to be posted on EMMA, and whether disclosure needs to be made in the official statement with respect to the obligated person’s failure to timely file a reportable event notice when the financial obligation was incurred.

Timing of Application of Amendments
Compliance with the Amendments is required for continuing disclosure undertakings that are entered into in connection with primary offerings of municipal securities that close on or after 180 days after the Amendments are published in the Federal Register.

The SEC press release dated August 20, 2018, is available here and Release NO. 34-83885 is available here.
https://www.sec.gov/news/press-release/2018-158
Quote:
SEC Adopts Rule Amendments to Improve Municipal Securities Disclosure

Spoiler:
Washington D.C., Aug. 20, 2018 —
The Securities and Exchange Commission adopted amendments to enhance transparency in the municipal securities market. The adopted amendments to Rule 15c2-12 of the Securities Exchange Act will focus on material financial obligations that could impact an issuer’s liquidity, overall creditworthiness, or an existing security holder’s rights.

“Our municipal securities market is a $3.844 trillion dollar market, with new issuances of approximately $448.1 billion in 2017. Our Main Street investors are exposed to this market through many channels, including through mutual funds, money market funds, closed-end funds, and exchange-traded funds,” said Chairman Jay Clayton. “Disclosures required by these rule amendments will better equip investors and intermediaries to make informed investment decisions about municipal securities.”

Rule 15c2-12 of the Securities Exchange Act requires brokers, dealers, and municipal securities dealers that are acting as underwriters in primary offerings of municipal securities to reasonably determine that the issuer or obligated person has agreed to provide to the Municipal Securities Rulemaking Board (MSRB) timely notice of certain events. Today’s amendments add two new events to the list included in the rule:

Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material; and

Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties.
The compliance date for the amendments is 180 days after they are published in the Federal Register.

* * *

FACT SHEET

Amendments to Exchange Act Rule 15c2-12
SEC Seriatim Approval
August 15, 2018


Action

The Commission adopted amendments to Exchange Act Rule 15c2-12 designed to better inform investors and other market participants about the current financial condition of issuers of municipal securities and obligated persons. Specifically, the amendments facilitate timely access to important information regarding certain financial obligations incurred by issuers and obligated persons, which could impact an issuer’s or obligated person’s liquidity and overall creditworthiness and create risks for existing security holders.

Background

Direct placements by issuers and obligated persons as financing alternatives to public offerings of municipal securities have increased since 2009, demonstrating the need for more timely disclosure. According to the FDIC Consolidated Reports of Condition and Income filed by financial institutions, the dollar amount of commercial bank loans to state and local governments has tripled since the financial crisis, increasing from $66.5 billion as of the end of 2010 to $190.5 billion by the end of the first quarter 2018.

Individuals held, either directly or indirectly through mutual funds, money market funds, closed-end funds, and exchange-traded funds, approximately $2.567 trillion of outstanding municipal securities at the end of first quarter 2018.

Highlights

The amendments to Exchange Act Rule 15c2-12 amend the list of event notices that a broker, dealer, or municipal securities dealer acting as an underwriter in a primary offering of municipal securities subject to Rule 15c2-12 must reasonably determine that an issuer or obligated person has undertaken, in a written agreement for the benefit of holders of municipal securities, to provide to the Municipal Securities Rulemaking Board within 10 business days of the event’s occurrence.

Specifically, the amendments add two new events to the list included in the rule:

Incurrence of a financial obligation of the issuer or obligated person, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer or obligated person, any of which affect security holders, if material; and

Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of the financial obligation of the issuer or obligated person, any of which reflect financial difficulties.
Under the amendments, the term “financial obligation” means a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term financial obligation shall not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with Rule 15c2-12.

What’s Next

The compliance date for the amendments is 180 days after they are published in the Federal Register.
https://www.sec.gov/rules/final/2018/34-83885.pdf
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  #563  
Old 08-30-2018, 02:28 PM
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Mary Pat Campbell
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STOCKTON, CALIFORNIA

http://www.aptmags.com/blog/7113/for...to-others.html

Quote:
Formerly Bankrupt Stockton is Fiscally Healthy Again, but Offers Warning to Others | Apartment Management Magazine
Spoiler:
Two mid-sized California cities, Irvine and Stockton, have topped a national list of financially healthy governments compiled by an influential watchdog group. Irvine’s top ranking shouldn’t surprise anyone, given that the affluent Orange County city has long been a model for prudence, despite some high-profile spending miscues over the years. But the second-place ranking for the formally bankrupt and chronically mismanaged Stockton is an eye-opener.

Is the poor San Joaquin Valley city really a model for the nation?



“Unlike most cities, Stockton’s elected officials have only promised the amount of benefits they can afford to pay,” according to a report from Chicago-based Truth In Accounting. “Because of this, Stockton has enough money to pay all of its bills.” The group finds that after bills are paid, the city has an impressive surplus of $3,000 for each taxpayer.

This is noteworthy, but something requiring a more skeptical take. If a city overspends its income for decades and then finds itself unable to pay its bills, it can declare bankruptcy, stiff its creditors, slash health benefits for public employees and impose a new “public safety” sales tax and a library/parks tax on city residents. After starting fresh, so to speak, it can be on the way to fiscal health.

Indeed, the report notes that Stockton is in a far better financial position “since a judge ruled the city was eligible for Chapter 9 bankruptcy protection in 2013” as a way to get out from under its “staggering debt burden.” The good news is the city now has plenty of assets to pay its bills and is enjoying the fruits of a recovering economy. The bad news is Stockton still has $390 million in unfunded pension liabilities.

It’s also far from certain that city officials, led by a progressive mayor who has been touting a “universal basic income” plan (that’s privately funded, for now), has the discipline necessary to keep tight control on its spending. Stockton previously embraced a variety of profligate policies that brought it to federal bankruptcy court. Can it control itself in the future?

The city had lavished generous pensions on its employees and embraced what one councilmember called a “Lamborghini” healthcare plan that provided lifetime medical benefits after a relatively short period of work. The city also provided public subsidies for a variety of downtown projects. Meanwhile, the aging city’s infrastructure was – and still is – crumbling. Stockton residents used to joke that one should never call the police unless there was blood in the streets, given cutbacks in safety spending. The city’s inadequate public services are widely known.

Nevertheless, the city now is in a solid financial position. Truth in Accounting’s Director of Research Bill Bergman told me that the bankruptcy enabled Stockton to clear the decks – and it shows that municipal bankruptcy is “not necessarily bad for you.” That’s true even though it was most definitely bad for the creditors who took a haircut.

At the time of its crisis, Stockton, with a population of around 300,000 people, was the nation’s most populous city to head for bankruptcy court. Shortly thereafter, 700,000-population Detroit, Mich., gained top honors when it filed Chapter 9 in July 2013. The Stockton bankruptcy proceedings were closely watched nationwide, because the largest state pension fund in the nation, the California Public Employees’ Retirement System (CalPERS) had argued that cities could not abrogate their pension obligations even if they became insolvent.

In the end, federal Judge Christopher Klein wrote that “CalPERS has bullied its way about in this case with an iron fist insisting that it and the municipal pensions it services are inviolable. The bully may have an iron fist, but it also turns out to have a glass jaw.” He ruled that pensions could indeed be reduced if a city declares bankruptcy, but nevertheless approved Stockton tax-raising work-out plan that did not reduce pensions because the city showed that it could pay its bills going forward.

The latest report confirms that Stockton is now solvent, although critics note that the city was able to get its fiscal house in order with tax hikes and thanks to an improving economy. Some complain that the city hasn’t provided the number of new police officers that it had promised under one of its tax measures, but has saved the money instead. That has helped assure that it can pay its bills, but not that it can provide a good level of service.

For instance, the report doesn’t look at what’s known as “crowd out.” That’s the common phenomenon where cities have enough cash to stay solvent – but not enough to provide an adequate level of public services as pension costs crowd out other forms of spending. “We have much higher taxes and much lower service levels than before the bankruptcy,” said former Assemblyman Dean Andal, a Republican from Stockton. “We get to pay more for less and the tax revenue goes to pensions.” He questioned the purpose of a city. Is it to pay for retired public employees or to provide services to the citizenry?

Stockton’s fiscal crisis came to a head, whereas many other cities’ similar problems did not, because of the housing crash around 2008. The crash sent shockwaves throughout the country, but it was particularly severe in California’s Central Valley. Stockton is located in an agricultural region 80 miles northeast of San Jose, the heart of the booming Silicon Valley. As home values in the Bay Area soared, people flocked over the Altamont Pass. New subdivisions flourished. Home values increased dramatically throughout the Stockton area. After the crash, prices plummeted there by 60 percent and more. Stockton’s streets were lined with foreclosures.

But, as the report indicated, the Stockton economy is booming again. Home prices are up again and neighborhoods are fixing up. People are moving to the area, especially from the Bay Area. So many people commute from the Stockton area to parts of the Bay Area that San Joaquin County now is considered by the Census Bureau to be part of the Bay Area. That’s not necessarily a problem, but it is a warning to Stockton officials of the importance of keeping spending in line given that an economic slump always is a possibility.

The Truth In Accounting report does offer some sobering news – and some useful warnings – for municipalities across the country. Note that Irvine and Stockton, though topping the list for fiscal health, only received a “B” ranking. The group looked at a total of 75 cities, but found that 64 of them “did not have enough money to pay all of their bills. This means that to balance the budget, elected officials have not included the true costs of the government in their budget calculations and have pushed costs onto future taxpayers.” Forty-one of those cities received a “D” or “F” grade and only nine others received the middling “C” grade.

Furthermore, the report from earlier this year found that U.S. cities in general don’t have enough money to pay all of their bills, leading to an astounding $335 billion in combined unfunded liabilities for pensions, healthcare and other promises. And there’s a disturbing deficit of public information, also. “The lack of accuracy and transparency in government accounting prevents even an experienced user of government financial documents from understanding and evaluating a public-sector entity’s financial health,” the report explained.

So Stockton’s fiscal recovery is encouraging, but the path it took to get there is problematic. Let’s hope more cities learn the right lessons about spending, especially on long-term benefits for public employees and on the importance of fiscal transparency. They can do all the wrong things, end up in bankruptcy court and start with a fresh slate – or they can try to get control of their costs without all that drama.

Steven Greenhut is contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.
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Old 08-31-2018, 12:43 PM
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CALIFORNIA

https://californiapolicycenter.org/c...-for-pensions/
Quote:
California is not creating jobs fast enough to support tax increases for pensions
Spoiler:
On a superficial level, things look pretty good in California. Sure, we have big problems with wildfires and other periodic disasters, but the state’s finances have made a strong recovery since the depths of the recession. Indeed, Gov. Brown has repeatedly touted the multi-billion-dollar surplus and the state’s balanced budget.

But objective assessments from government experts and academicians have warned of troubling aspects of the state’s financial condition. These include mega projects we can’t pay for, business flight out of California, unfunded pension obligations in the hundreds of billions of dollars, a state government that is growing much faster than population and inflation combined and a dysfunctional political system.

Close analysis reveals that California is like a home with a fresh coat of paint but a crumbling foundation. It may look pretty, but there are serious problems that are not readily apparent.

One area where there is a gulf between superficial appearance and reality is in California labor statistics. Here again, on the surface, the state’s 4.2 percent unemployment rate looks very good — and it is. During the depths of the recession, the state hit a high of 12.2 percent unemployment and tens of thousands of Californians were suffering. There’s no denying that we’ve seen a vast improvement.

But there are metrics beyond the simple unemployment rate that must be taken into consideration to fully comprehend the health of California’s labor force. A recent report from the California Center for Jobs and the Economy has troubling news: “California’s labor force grew only 16,922 over the 12 months ending July 2018, or 0.1 percent growth. The U.S. as a whole grew 1.8 million — a 1.1 percent expansion.” In other words, California’s labor force has seemingly hit a plateau — an unusual occurrence given the strength of the national economy.

When it was coming out of the recession, California was a job-creation machine. Indeed, for many quarters it was producing more jobs than economic powerhouses like Texas. But some context is necessary here. Because California was harder hit in the recession, we basically had nowhere to go but up. That gave the appearance that California was outperforming other states in job growth when, in truth, we had more ground to make up.

Some other figures from the California Center are equally disturbing, such as the fact that we are not creating jobs as fast as we were when coming out of the recession: “Between July 2017 and July 2018, Bureau of Labor Statistics (BLS) data shows the total number of employed in California increased by 120,600 (seasonally adjusted), or 4.9 percent of the total net employment gains in this period for the U.S. Based on the total numbers, California dropped to 5th place behind Texas (which has a civilian working-age population only 69 percent as large as California’s), Florida (55 percent as large), Massachusetts, and Georgia. Measured by percentage change in employment over the year, California dropped to 36th highest. Adjusted for working-age population, California dropped to 36th as well.”

Moreover, there is significant concern over the types of jobs being created: “Nearly half (48 percent) of net jobs growth since the recession has been in the lower-wage industries. For the 12 months ending July 2018, lower-wage industries accounted for over a quarter (28 percent) of new jobs, while middle-class blue-collar jobs produced over a quarter (30 percent) as construction levels remained higher compared to prior years.”

Diving into employment numbers isn’t that exciting for the average voter, but this is important because California will need a growing –— not stagnant — workforce that will share the burden of paying down the state’s prodigious level of debt — particularly all the pension obligations our politicians have committed us to. As explained by the California Center’s report, “While workers elsewhere continue to return to the workforce, California’s continued low rate has implications for future growth in the state, including the ability to sustain jobs expansion as fewer workers are available and continued effects on state and local budgets for higher social program spending compared to other states.”

Translated, this simply means we need more people working in well-paying jobs if California hopes to avoid insolvency.
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Old 08-31-2018, 12:47 PM
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https://www.alec.org/app/uploads/201...-final-web.pdf

Quote:
State Bonded Obligations, 2018
A snapshot of outstanding state bonded obligations
States issue a diverse array of bonded obligations, with a range of obligation strength, revenue
sources, debt service schedules, and other factors. This study collects and analyzes the bonded
obligations reported by each state in their respective Comprehensive Annual Financial Report.
States and their component units issued $863 and $260 billion of bonds as of 2015, $1.1 trillion in
total. The differences between states offer important insights into the ways that states manage
these obligations.
https://burypensions.wordpress.com/2...-1-1-trillion/
Quote:
Bond Debt of the States – $1.1 Trillion
Spoiler:
The American Legislative Exchange Council (ALEC) released a study this month where they looked over Comprehensive Annual Financial Reports (CAFRs) of the states to get a sense of the level of their bonded debt. Each state has their own page and there were several useful charts, recommendations, and explanations of terms and methodology. Excerpts follow and all I can add is: “Yep, that’s the New Jersey I know.”


Two states—Florida and New Jersey—prepared annual debt reports in lieu of long-term obligation notes in their state CAFRs and had less than descriptive official bond financial disclosures. These reports are detailed breakdowns of the state and component unit liabilities. In both cases, the ALEC Center for State Fiscal Reform research team reached out to the treasurer’s office. Florida referred the team to the Division of Bond Finance where staff quickly compiled a spreadsheet of the state liabilities and provided information about the type of bonds and obligations of each issuer. New Jersey’s various budget, finance, and treasurer’s offices were unable to decide between them who should respond to the team’s request. Eventually, the treasurer’s office responded, claiming that “the State cannot provide you with the underlying data from the visualizations as it would be providing asymmetric information to you that is not publicly available to the rest of the financial community.” For this reason, New Jersey’s debt service requirement to maturity table is less descriptive than any other state. (pages 32-33)

Unfortunately, states sometimes issue bonds for fiscally irresponsible purposes, such as papering over structural deficits. Others gamble by transferring borrowed funds into underfunded pension plans, hoping to generate investment returns greater than the interest on their bonded obligation, arbitrage. These actions are akin to a family carrying debt for living expenses such as rent or groceries on a credit card or investing proceeds from a cash advance in the stock market. Individual states borrow for a multitude of purposes and via a spectrum of debt instruments….In total, states and their component units have issued $1.1 trillion of bonded obligations, the equivalent of 62 percent of total state government expenditures in 2016. (page 3)

Component unit revenue bonds are similar to state business-type activity bonds, in that they are usually funded by fees, fines, leases, and other service fees but differ in that component units can file for bankruptcy. (page 5)

Total “assets” held by the Federal Reserve—mostly consisting of government bonds purchased from banks—soared from under $900 billion in 2008 to more $4.4 trillion by the end of 2013. (page 24)
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Old 09-04-2018, 04:26 PM
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CONNECTICUT

http://www.yankeeinstitute.org/2018/...ts-too-costly/

Quote:
Moody’s Warns Connecticut’s Fixed Costs too Costly

Spoiler:
Moody’s Investment Services warned that Connecticut’s debt service, pension liabilities and retiree healthcare liabilities – known as the state’s fixed costs – “will continue to weigh” on the state, even with healthy revenue growth in a report on surging pension liabilities.

Moody’s lists Connecticut with an A1 (stable) rating, after the agency downgraded Connecticut’s General Obligation bonds and revenue bonds in 2017, citing the state’s hefty debt burden.

In Moody’s analysis of pension debt across the country, the agency wrote that Connecticut’s “fixed costs for debt service, retiree health, and pensions on a tread-water basis exceeded 30 percent of own-source revenue.”

State pension plans across the country experienced low investment returns in 2015 and 2016, according to the ratings agency. Recent market gains have begun to reverse previous years’ losses, and the agency predicts higher investment gains for 2017 and 2018 will lead to lower pension debt.

Pension plans assume a rate of return from investments. The rate of return -- or “discount rate” -- allows a state to lower the amount of money it contributes to the pension fund, but when investment earnings miss the mark it can increase unfunded liabilities and drive up costs, putting more pressure on state budgets.

Gov. Dannel Malloy and the State Employee Retirement Board lowered the discount rate for state employee pensions from 8 percent to 6.9 percent in 2017. The discount rate for Connecticut’s Teachers Retirement System was lowered from 8.5 to 8 percent in 2016, although that rate is still considered by some as too high.

Investment returns for SERS is a history of riches and ruin, depending on Wall Street. In 2017, the state employee pension fund returned 14.32 percent, but in only 2.84 percent and .26 percent in 2015 and 2016 respectively.

The 2008 recession hit Connecticut’s pension investments especially hard with a 4.83 percent loss in 2008 and a massive 18.25 percent loss in 2009. The Teachers Retirement System had similar gains and losses.

A 2015 report by the Center for Retirement Studies at Boston College warned that failing to meet the discount rate for the Teachers Retirement System could drive teacher pension costs up to $6 billion per year, although State Treasurer Denise Nappier says such an increase is unlikely.

Even if Connecticut meets its discount rates, the cost for pensions and retiree healthcare is projected to grow significantly.

A number of groups recommend using a safe discount rate equal to the interest on a bond – typically around 2 percent.

But lowering the discount rate means the state must contribute more to the fund to meet its annually required contribution, something Connecticut probably can’t afford as the state faces massive budget deficits for the foreseeable future, due in large part to the growth of fixed costs, like unfunded pension liabilities.

Connecticut’s fortunes are tied tightly to Wall Street, with investment gains and losses not only affecting tax revenue, but also affecting the state’s pension funds.

Connecticut suffered bond rating downgrades from the major ratings agencies in 2017 due to its high debt and fixed costs, which raises the cost of borrowing for the state.


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Old 09-04-2018, 05:09 PM
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http://www.governing.com/columns/pub...m_medium=email

Quote:
For Muni Bond Sales, Brand Matters
Marketing is especially important for smaller local governments, and states have a role to play.

Spoiler:
Earlier this year, Georgia sold $1.2 billion in new bonds. No news there. Like most big states, Georgia goes to the bond market at least once a year with a large new offering. And as in most big states, especially those with strong financial and economic fundamentals, investors snapped up those bonds at competitive prices.

But this time, Georgia’s debt managers tried something different. Before they went to market, they put on a series of presentations and conference calls designed to convince investors that Georgia bonds are a great deal. In other words, they ran an investor road show. Such events are common in the corporate world, but are mostly new to states and localities.

Georgia has a strong credit rating and a stellar fiscal reputation. So why did it take the extra time and resources to burnish that reputation? There are three main reasons, and they collectively remind us of the policy challenges that surround brand recognition in the municipal bond market.

One big reason is December’s federal tax overhaul, which lowered tax rates for corporations and individuals, meaning investors have less to gain from tax-exempt investments such as munis. A strong investor relations program can help governments attract new investors and encourage longtime investors to stay in the game.

Meanwhile, interest rates are normalizing. They’ve sat at record low levels for almost a decade, and during that run, municipal bonds offered a bit more yield than U.S. treasuries with effectively no additional risk. That stoked record investor demand for munis and gave governments easy access to cheap money. Now with rates back on the rise, muni borrowers need to offer up more yield to draw the same investor interest. Again, strong investor relations can help highlight the bargain that munis offer.

Finally, there is the lingering threat of severe fiscal stress. Detroit, Stockton, Calif., and other fiscally strapped cities have worked out their most pressing issues, but investors remain understandably weary of fiscal problems just beneath the surface. Better investor outreach can help investors draw their own conclusions about an issuer’s actual strengths and weaknesses.

For these and other reasons, investor relations programs are becoming part of the government chief financial officer’s toolkit. If you have a great brand to sell, and the resources to sell it, then why not sell it?

But what about the tens of thousands of smaller issuers who don’t have that same brand recognition? Tax reform, normalizing interest rates and fiscal stress also present them with some unique challenges.

For instance, a recent paper from Kate Yang at George Washington University shows that in Alabama, in the aftermath of the Jefferson County bankruptcy, interest rates on bonds from smaller, lesser-known cities in the state increased. That’s consistent with the “contagion” effect we’d expect after a major financial catastrophe. Investors unsure about Alabama governments saw them as a bit riskier. But at the same time, larger Alabama borrowers with better credit ratings actually experienced a “reverse contagion” effect. They saw their interest rates decline.

How could one of the biggest local fiscal catastrophes in history actually benefit nearby governments? To repurpose the old Tip O’Neill saying, “All muni markets are local.” Alabama investors enjoy unique tax benefits from investing in Alabama governments. That pool of investor money is more or less locked into the state. So as money flowed away from Jefferson County, the other Alabama bonds it flowed to saw higher prices and lower yields. Tax policy changes and normalizing interest rates can also animate this intrastate zero sum game.

All this suggests that states ought to consider how they can facilitate better muni investor relations for all the governments within their borders. Without strong state policy frameworks, and robust private-sector investor relations solutions, many small governments could be left behind in the rapidly changing municipal bond market.
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Old 09-05-2018, 01:51 PM
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https://www.wsj.com/articles/moodys-...ion-1536092303
Quote:
Moody’s Says Federal Tax-Deduction Cap Hurts Tri-State Region
Treasury proposal blocking states’ charitable-donation workarounds is ‘credit negative’ for New York, New Jersey and Connecticut, report says

Spoiler:
The Treasury Department's recent proposal barring New York, New Jersey and Connecticut from letting taxpayers avoid a new cap on state and local tax deductions is a "credit negative" for the states, according to Moody's Investors Service.

Blocking workarounds to the new $10,000 cap on state and local tax deductions would increase the burden on people in high-tax jurisdictions, the credit-ratings firm said in a report released Tuesday. The cap is part of President Trump's new tax law enacted in late 2017.

A "credit negative" means Moody's believes the Treasury proposal, if finalized, would hurt the credit of the three states. But that is only one of many credit factors the firm takes into consideration, and it doesn't mean Moody's is weighing a rating or outlook change for any of the states.

"Voters in some municipalities will be more likely to reject tax increases because they will not be partially offset by a federal tax benefit," the report said.

New York, New Jersey, Connecticut and California all passed legislation this year allowing taxpayers to make payments to charitable organizations controlled by local governments in exchange for credits against their state or local taxes. The workaround aimed to allow taxpayers to deduct these payments as charitable contributions for federal income-tax purposes, while using the same payments to satisfy local tax liabilities.

The $10,000 annual cap on state and local tax deductions has big implications for the tri-state region. In New Jersey and Connecticut, four out of 10 tax filers claimed more than $10,000 in state and local tax deductions in 2015, according to the Moody's report. In New York, it was more than one-third of tax filers.

Most tri-state residents, however, will pay less in taxes overall this year, according to the Tax Policy Center, a research group run by a former Obama administration official. About 8.3% of New York households will pay more in 2018 than they would have under the old law, compared with 6.3% nationally. In New Jersey it is 10.2%, and in Connecticut, 8.4%.


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Old 09-05-2018, 02:35 PM
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CONNECTICUT

https://www.ctpost.com/local/article...d-13204160.php

Quote:
State budget on way to being balanced, comptroller says

Spoiler:
HARTFORD — Connecticut’s next governor may assume office with a balanced budget, but it’s not predicted to stay that way.

The state budget is on track to end fiscal year 2019 approximately in balance, state Comptroller Kevin Lembo said Tuesday in his first report on the year’s outlook. That’s a change from this spring when the Office of Policy and Management predicted a $717.5 million deficit.

State revenue is up $162.9 million compared to what the state planned for, an OPM report last month said. The state took in more from the sales tax and the withholding portion of the income tax than expected. Hospital tax revenue and revisions to the fiscal year 2019 budget made by lawmakers in May also helped close the deficit.

“Strong revenue collections may be promising signs for Fiscal Year 2019 - but fiscal responsibility demands that we monitor these indicators longer before accepting them as sustainable trends,” Lembo said. “My office is currently projecting that the General Fund remains approximately in balance at this early stage of the fiscal year.”

While these changes mean a sunnier short-term outlook for state finances, they do nothing to reduce what is the legislature’s nonpartisan Office of Fiscal Analysis predicts will be a $2 billion deficit in the first new fiscal year after the November election.
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Old 09-07-2018, 11:56 AM
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https://www.strongtowns.org/journal/...be-going-broke

Quote:
But Rich People Live Here, So We Can't Be Going Broke!
Spoiler:
One of the most pernicious things about easy credit is not simply that it allows us to live beyond our means, but that it readily tricks us into believing we're not doing so.

You can max out your credit cards filling your home and your life with nice things—a big-screen TV, a remodeled kitchen, a brand new car. And then you get to live day after day surrounded by those things. And a funny thing happens: you start to feel wealthy because you're surrounded by trappings of wealth. A sort of circular reasoning sets in, at the gut level if not the cognitive level:

"I have all this nice stuff, so obviously I was able to afford it. And because I was able to afford it, it's not a problem that I have it. Nothing to worry about."
This is the Illusion of Wealth. Communities that have maxed out their proverbial credit cards experience a similar illusion. And it manifests itself routinely in the illogic with which some civic officials and boosters respond to our observations about the fiscal hole they're in.

Some common objections to the observation that a place has built an unsustainable amount of public infrastructure are:

"Well, it might be unsustainable for a poorer community, but we're doing well over here, so we can afford a little extravagance."
"We're a growing, desirable community, so the debt is an investment in our future."
"We need to spend this money to keep up with our population growth."
It may be true that you'll be able to pay it all back. But the mere fact of growth isn't evidence that you will be fine. That's a circular argument, just like the fact that you just bought a big-screen TV is not actually proof that your personal finances are ship-shape.

Relying on the fact that you've been able to build some shiny new stuff and attract some rich taxpayers to live in your city is a bad bet to stake your future solvency on. Here's why:

1. Many rich neighborhoods don't stay rich forever.
If you're going to talk about private wealth as the reason you can splurge on public infrastructure and amenities, you need to remember that private wealth can up and move. From a municipal government's perspective, wealthy residents are not so much like the indebted homeowner in the analogy that led off this essay—he knows he's fine putting that BMW on credit because he just got a promotion at work. Wealthy residents are more like the bling—the car, the TV, the kitchen—because cities can, in a sense, "buy" them, and cities can also lose them.

High-income individuals who have a choice of where to live may flock to a community with good schools, nice new modern houses, roads with no potholes, attractive landscaping: the trappings of the illusion of wealth. They can just as easily flock elsewhere a generation down the line.

Our friends at City Observatory released an interactive report called Lost in Place that tracks neighborhood change from 1970 to 2010. Pick a region you're familiar with and pull up the map of it here. Look at the "fallen star" neighborhoods. Those are places that have gone from low poverty to high poverty in a generation and a half. Here's a slideshow of three example metros (you can find a lot more by visiting the link above)—Indianapolis, Atlanta, and Houston:

Screen Shot 2018-09-05 at 9.22.jpeg
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Screen Shot 2018-09-05 at 9.24.jpeg
Screen Shot 2018-09-05 at 9.22.jpegScreen Shot 2018-09-05 at 9.23.jpegScreen Shot 2018-09-05 at 9.24.jpeg
Your local tax base is most likely dominated by property taxes, and although real estate can't up and move, it can lose value. Sometimes a lot. Property values are a prediction, an expectation about the future of a place. See how they fare when the school system declines, the roads start to crumble, and people of means move out of the community. This fate is, if anything, even more likely for suburban communities whose primary selling point is precisely their shiny newness.

This analysis is limited by the fact that the comparison is only to 1970. If you really wanted to see some dramatic reversals of fortune, you'd look at the places that were clusters of concentrated affluence even earlier. Many, maybe most, of them are no longer their respective regions' prestige ZIP codes. How many poor neighborhoods are dotted with quite literally the luxury housing of, say, the 1880s?

If your path to long-term solvency relies on being a prestige ZIP code forever, I might suggest you develop a plan B.

Detroit, MI. Source: Juan N Only via Flickr .
Detroit, MI. Source: Juan N Only via Flickr.

Source: Baltimore Heritage via Flickr .
Source: Baltimore Heritage via Flickr.

2. The return-on-investment of public spending is often highest in poor neighborhoods, not rich ones.
Strong Towns president Chuck Marohn made some waves in 2017 with an article entitled "Poor Neighborhoods Make The Best Investments." I'll let him summarize it in his own words:

This map of Lafayette, Louisiana, based on research conducted by Strong Towns and geoanalytics firm Urban3, illustrates that the city's lower-income neighborhoods, on balance, deliver a higher return on public infrastructure investment, while many of its wealthier areas are money-losers.
This map of Lafayette, Louisiana, based on research conducted by Strong Towns and geoanalytics firm Urban3, illustrates that the city's lower-income neighborhoods, on balance, deliver a higher return on public infrastructure investment, while many of its wealthier areas are money-losers.

What is obvious here is that the poor neighborhoods are profitable while the affluent neighborhoods are not. Throughout the poor neighborhoods, the city is—TODAY—bringing in more revenue than they will spend to maintain the neighborhood....
This might strike some of you as surprising, yet it is important to understand that it is a consistent feature we see revealed in city after city after city all over North America. Poor neighborhoods subsidize the affluent; it is a ubiquitous condition of the American development pattern.
Of course, the reason for this isn't that, through some voodoo, these neighborhoods are magically producing more tax revenue per resident. Rather, value per acre is where they tend to shine. Poor neighborhoods usually have a more sustainable ratio of public infrastructure obligations to private wealth, even despite the lack of private wealth in these places.

Much of that is because 20th-century suburbanization left behind poor people in the places with a traditional development pattern. So it's not some ironclad law of economics that poor neighborhoods are more financially productive. What is actually the case is that the productivity advantage of the traditional development pattern is so dramatic that it actually outweighs the advantage of having wealthier residents and more expensive property.

Old and blighted: total value $1.1 million.
Old and blighted: total value $1.1 million.
Shiny and new: total value $618,000.
Shiny and new: total value $618,000.
Our distant ancestors built Rome and Jerusalem and Xi'an and Teotihuacan. Our more recent ones Kyoto and Buenos Aires and Paris and Marrakesh, and many more of humanity's timeless cities. And most of them did it not through vast infusions of wealth, but through many average citizens working incrementally. You don't have to be wealthy by modern standards to create a great place and maintain it. The genius of the traditional development pattern is exactly that: your place has the potential to thrive in the future even if the people living there then are of modest individual means.

3. Your suburban town probably can't afford its development pattern even if it is rich.
Here's a common sense observation: There is a limit to the amount of public obligation we can take on. And that limit is separate from any question of short-term cash flow or debt financing—i.e. the ability to write the checks today and have them clear.

Reductio ad absurdum: Suppose we built Elon Musk's Hyperloop and connected every city over a million people in the U.S. to the system. Could we afford to do it? If someone were willing to lend us trillions of dollars, sure, in a sense we'd be able to "afford" it: we'd have a loan through which we could pay contractors to make construction happen. Would it be a good idea? No. It'd be completely insane.

So we should all be able to agree there is a theoretical limit on the amount of infrastructure we can afford per capita. This is obvious and trivial. What we're arguing about is where the line is between affordable and not affordable, sustainable and not sustainable. Crucial to the Strong Towns argument is that the line isn't where you think it is.

We've been living so long with an illusion of wealth that we assume, "We must be able to afford all this stuff we've built, because it exists."

Reductio ad not-so-absurdum: If the state of Georgia wanted to double its road network, and someone were willing to lend the Georgia DOT the money to do it—backed by promises that the new capacity would unleash a virtuous cycle of economic growth and the investment would pay for itself—it could do so. If the debt financing were available, humans could be put to work building those roads, and then they'd exist.

I bet most readers will agree that this would be over-the-top. That wave of economic growth wouldn't materialize, because road spending doesn't really create much prosperity; it just tends to move it around by enabling people to live and work in new places and commute longer distances. Georgia would be stuck with a lot of expensive pavement in need of eventual maintenance.

Georgia currently has an estimated 271,000 lane miles of public road. The cost of a new road is highly variable but let's go with a lowball estimate of $1 million per lane mile. The state could double its existing road network for the low, low price of $271 billion. Divided over 30 years (a reasonable estimate of the lifespan of a road) and 10.43 million current Georgia residents, that's $866 every year for 30 years for every man, woman, and child in the state of Georgia. (Note for the nerds in the crowd: Yes, this is extremely simplistic in countless ways—it's a thought experiment, not a fiscal analysis.)

That's just roads: what if we also doubled the extent of sewers, water mains, pump stations, treatment plants, sidewalks, and so forth? And keep in mind the state has still got to maintain all of the stuff it's already built.

The thing is, this isn't actually that preposterous. Because we have done it before, and in a place without Georgia's booming growth. As Jason Segedy points out, Cuyahoga County, Ohio—home to Cleveland—more than doubled its built footprint from 1948 to 2002, while its population ended up being exactly the same in both years: 1.39 million.

Cleveland built a whole new Cleveland for no net new residents. And we wonder why we're going broke.

Suburban Atlanta can be smug and say, "But Cleveland is a Rust Belt city. It's been in decline for decades. We're growing."

Oh yeah? For how long are you going to keep that up? What happens when you don't grow?

So let's lay to rest the excuses of those who claim that the math about the unsustainable cost of infrastructure under the suburban development pattern doesn't apply to them:

"No one would lend us this money if it weren't a good investment."
"We wouldn't take on this debt if it weren't a good investment."
"Our growth itself is proof that we're doing something right."
"Well-to-do people keep moving here, so we must be doing something right."
"A government budget isn't like a household budget. We take on debt today in order to spur the economic activity that will pay down the debt tomorrow."
Sure, some municipal investments do pay off multiple times over—but the onus is on the government to do a rigorous cost-benefit analysis, absent the hand-waving that typically accompanies assertions that new spending is an investment in growth.

This isn't a small-government argument. It's actually agnostic to the normative question of how small or large local government ought to be. If you, the residents of an affluent community, want to tax yourselves more to invest in your quality of life, go for it. But can you back out of that obligation if your circumstances change?

Infrastructure is perilous because it's physically permanent. Cannibalizing your future tax base, via TIF or another means of jump-starting development right now, is perilous. When you commit your children's generation to paying for something you built, you need to think differently about that decision: because you don't know their situation, or even who will be living in your city then.

Carmel, Indiana. Source: Goodfreephotos .
Carmel, Indiana. Source: Goodfreephotos.

Carmel, Indiana, had $1.2 billion in public debt as of 2017. The city has gone on an above-and-beyond municipal spending spree in recent years—road projects, civic buildings, a New Urbanist downtown out of thin air—in a bid to be Indianapolis's premier suburb. It has vociferous defenders who claim the debt is not a problem, because it's all backed by future revenue streams.

Let's unpack "future revenue streams." I take that to mean taxes that will come in over the coming years under existing projections: that property values will remain high and Carmel will remain Indianapolis's premier suburb.

But the track record of 1970's or 1990's premier suburbs being 2018's premier suburbs is spotty at best. So here's my question: would the defenders of Carmel's high public debt be sanguine about it no matter who was living in Carmel? Or if Carmel's per capita income were just over the poverty line, would louder voices be calling for the heads of its municipal leaders for mismanagement of the city's finances?

The answer is telling. If your growth strategy only works as long as wealthy people live in your town, your growth strategy is deeply fragile.
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