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  #551  
Old 06-26-2018, 12:31 PM
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FLORIDA

https://www.watchdog.org/florida/flo...456e41f6c.html

Quote:
Florida one of 14 states to secure Aaa bond rating
Spoiler:
Citing "sustained" improvement in the state's economy and a "proven track record of rebounding from severe weather events.," Moody's Investors Service upgraded Florida’s general obligation (GO) rating to Aaa from Aa1, its highest credit ranking,

“This is a clear indicator of the strength of Florida’s economy and will save taxpayers money in future state interest payments,” Gov. Rick Scott said Friday, wasting little time in incorporating the state’s upgraded bond rating into his U.S. Senate campaign against three-time incumbent Democrat Sen. Bill Nelson.

According to Moody’s, the state's 2017 Gross Domestic Product grew by 2.2 percent, topping $967.3 billion, the fourth highest amongst states behind California, Texas and New York. The state's per capita income level was 93 percent of the national rate in 2017.

Florida’s state finances have been "characterized by healthy reserves and historically strong governance practices and policies that are expected to continue,” Moody maintains, noting the state's low state debt and pension ratios, job growth and positive long-term prospects, despite its aging population.

The state’s general fund reserves will hold about $2.5 billion in Unallocated General Revenue, or about 8.7 percent of general revenues, on June 30, the last day of fiscal year 2018.

Florida’s $88.7 billion 2019 general fund budget transfers $50.3 million into the Budget Stabilization Fund and earmarks $67.7 million for BSF transfer in Fiscal Year 2020. It will enter the new fiscal year with a $1.42 billion balance.

Unallocated General Revenue, the BSF, and the $766 million Lawton Chiles Endowment Fund are the three primary components of the state’s reserve funds. Collectively, they set aside more than $5 billion in reserve capacity.

Florida’s pension liability of $16.5 billion, according to Moody’s, is 35 percent of state revenues, “which compares well to the 50-state median of 82 percent.”

Moody’s specifically applauds Citizens Property Insurance Corporation’s performance in providing “strong claims-paying resources and reduced exposure to future liabilities” even after Hurricane Irma caused $10 billion in estimated damage.

“Over the past decade, the state-run property insurance company has reduced their insurance-in-force exposure by two-thirds while both the property and reinsurance entities have increased their claims-paying resources,” Moody’s states. “These entities still represent a risk of unanticipated state-related bond issuance that is unique among Aaa rated states, however.”

Citizens "depopulation" program, which allows private companies to draw customers away from Citizens with comparable rates, have reduced its policy count from nearly 1.5 million in 2012 to approximately 443,000 as of May 2018.

Florida joins 14 other states with a Aaa rating. The agency also upgraded Florida's Department of Management Services facilities pool revenue bonds and certificates of participation to Aa1 from Aa2; the Department of Children and Families certificates of participation to Aa2 from Aa3; State Board of Education's Lottery $18.7 billion in revenue bonds to Aa3 from A1.

Florida's stable outlook “reflects our expectation that sound fiscal management practices will continue through future economic cycles and administrations, including the state's continued willingness to raise revenues and cut spending to address budget imbalances and maintain strong reserve levels, offsetting an economically-sensitive revenue structure reliant mainly on sales taxes,” Moody’s concludes.

Scott said the upgrades validate his economic policies and stewardship.

“When I became governor in 2011, Florida’s economy was in terrible shape,” he said. “By December 2010, state debt and unemployment had skyrocketed, taxes had been needlessly hiked by more than $2 billion and frivolous spending was commonplace – all costing Florida families more than 800,000 jobs.”

According to Scott’s "The Florida Turnaround Story," 1.54 million jobs have been created in Florida since 2010, unemployment is down to 3.8 percent from 11.2 percent in 2010.

Scott said he has slashed $10 billion in taxes in 100 separate tax cuts since 2010 and paid down state debt by $9 billion.

“Since day one,” he said Thursday, “we’ve worked nonstop to reverse this course, and today’s rating from Moody’s demonstrates the success of Florida’s economic turnaround.”

Florida Chief Financial Officer Jimmy Patronis, seeking re-election in November, said the state’s “sound fiscal policy and strong leadership” the past seven years has “provided a platform for growth and continuous improvement in Florida’s economy.”

'While (Thursday’s) announcement of the upgraded GO rating is great news for Floridians, we must continue doing everything we can to reinforce Florida’s strong economic security,” Patronis concluded.

Not everyone agrees that Florida’s economic policies and fiscal management are worthy of top ratings.

In fact, according to Truth in Accounting (TIA), a Chicago-based fiscal number-cruncher, Florida deserves no more than a ‘C’ in its annual state financial rankings because at the end of fiscal year 2017, it owed $11.6 billion more in debt than it had money to pay for it.

According to TIA, on July 1, 2017, Florida’s Comprehensive Annual Financial Report (CAFR) indicated the state had $58.6 billion available in assets to pay $70.1 billion in spending, making it a “Sinkhole State without enough assets to cover its debt.”

“Most of the debt comes from pension funding, or a lack thereof,” TIA claims. Of $60.8 billion in retirement benefits promised, the state has not funded $10.9 billion of pension benefits and $9.3 billion of retiree health care benefits.


“As a result of this and other deferrals,” TIA says, “the state's overall net position is inflated by $4.3 billion.”

TIA maintains the “state continues to hide $5.9 billion of its retiree health care debt,” although changes beginning in the 2018 fiscal year “will require states to report this debt on the balance sheet” in the future.

“Florida’s elected officials have made repeated financial decisions that have left the state with a debt burden of $11.6 billion, according to the analysis. That burden equates to $1,800 for every state taxpayer,” TIA writes.
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  #552  
Old 06-29-2018, 04:11 PM
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PUBLIC EMPLOYEE UNIONS

http://www.governing.com/week-in-fin...m_medium=email

Quote:
The Week in Public Finance: Will Weaker Unions Mean More Money for States?
The Supreme Court dealt a blow to public-sector unions this week. Whether it'll save governments labor costs is debatable.

Spoiler:
The U.S. Supreme Court dealt a potentially crippling blow this week to public-sector labor unions when it eliminated the requirement for non-union employees to pay “agency fees” to contribute to the cost of collective bargaining and related activities.

The decision is expected to cause a drop in union membership, which has fallen in nearly every state over the past decade, and a subsequent decline in unions' revenue and power. A big question for governments is whether a weakening of labor unions will translate to lower labor costs in the 22 states that have not already adopted right-to-work laws, which let workers opt out of union fees.

Two key areas to watch, says Moody’s Investors Service Vice President Nick Samuels, are wage and benefits negotiations in the coming years. But any fiscal impact, he cautions, “is likely to happen over time.”

RELATED
Do Weak Labor Laws Actually Spur More Teacher Strikes? Unions Widen Who They're Fighting For For State Budgets, What a Difference 6 Months Make Supreme Court Deals Major Setback to Public Unions
That’s not necessarily so, says Fitch Ratings analyst Laura Porter. Teacher strikes across several right-to-work states this past spring, she says, indicate that weak labor laws don’t necessarily halt labor movements, and even without pressure from unions, workers have the power to demand better wages and benefits. “It illustrates that once you’re in that situation [where unions are comparatively weak], you can’t do whatever you want,” she says. “There are practical limits -- market pressures to be competitive are still at work."

In general, the financial impact of right-to-work laws is unclear. Certainly, where they exist, union membership tends to be lower. In Michigan, for example, 14.4 percent of the workforce belonged to a union in 2016 -- down from about 20 percent at the start of the decade, before the state passed a right-to-work law in 2013.

But a look at state spending trends in key labor areas shows that states with weaker unions aren’t necessarily facing less financial pressure or winning more labor concessions.

Take protecting retirement benefits, which is a big focus for unions. In the five years following the Great Recession, all but 10 states reduced pension benefits for workers. Among those that didn’t, seven were right-to-work states with supposedly weaker unions. In addition, 36 states increased the amount employees are required to contribute toward their pensions. Of the 14 that didn’t, half were right-to-work states.

A look at education funding presents similar mixed conclusions.

Many states have struggled to restore funding since the recession, and the 10 states that have cut the most in education funding over the past decade are all right-to-work states. On the other hand, of the 10 states that have increased per pupil funding the most since 2008, five are right-to-work states.

To be sure, right-to-work states tend to spend less overall on education than states with stronger unions. But a new study from Stanford University suggests that’s more due to politics than unions. That research found that the states that now have collective bargaining rights have a long history of spending more on education -- even before collective bargaining rights were instituted. The study attributes this gap not to labor unions’ influence but to the fact that states with higher teacher salaries tend to be more liberal and wealthier.
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  #553  
Old 07-11-2018, 02:51 PM
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GREEN BONDS

http://www.governing.com/topics/fina...m_medium=email

Quote:
Green Bonds Are in High Demand, But Are They a Better Deal?
Green bonds help governments finance environmental projects. It's unclear whether they help governments' finances.
Spoiler:
States and localities spend billions on infrastructure every year. Going forward, Christiana Figueres, the former United Nations climate chief, wants them to pay for it "whenever applicable" with green bonds -- an emerging way of financing projects with clear and measurable environmental benefits.

The push by Figueres is part of a new initiative called the "green bonds pledge" to ensure that all infrastructure built from now on is climate-resilient and low carbon. In her address at a Climate Bonds Initiative event in London earlier this year, Figueres promised the governments and corporations taking the pledge that "a wealth of opportunity will be unlocked."

But opportunity for who?

RELATED
The New Gold Rush for Green Bonds Why Environmental Impact Bonds Are Catching On The Construction Projects Governments Are (and Aren't) Funding
While the benefits for the environment are clear, it's much less clear that governments issuing green bonds get any better treatment than those issuing other types of debt. Even the Climate Bonds Initiative has found no conclusive evidence that green bonds are cheaper for governments to issue. So far, it seems that any evidence of a rate advantage for green bond issuers can be accredited to unrelated factors.

One of those factors is supply and demand.

Green bonds are still a tiny part of the bond market, but more and more investors are being compelled to buy them to meet environmental mandates. Green bonds are often oversubscribed, meaning there are more orders placed to buy bonds than are available to sell. The average green bond sale in the U.S. is three times oversubscribed, according to research by the Climate Bonds Initiative.

Demand certainly helped DC Water when it issued the first-ever green bond by a water utility in 2014. The utility actually upsized its issue by $50 million on the day of the sale thanks to the high demand from investors, says DC Water's former chief financial officer, Mark Kim.

Another factor driving better rates for some green bonds is the reputation and transparency of the government issuer.

DC Water, for instance, has a good reputation in the municipal market in part because it releases annual green bond reports that detail where all that money is being spent and gives updates on environmental outcomes. But that's not the case with every green bond issuance and, therefore, may affect what rate issuers get.

Overall, there is evidence that good transparency and reporting standards -- not just for green bonds -- can help government issuers get a better rate. The state of Massachusetts was one of the first major governments to embrace this idea when it began allowing investors to buy bonds directly from the state, rather than going through a broker, and launched an investor relations page where bond buyers could find all the state's financial and interim disclosures.

Colin MacNaught, who helped spearhead that effort and now runs a startup called BondLink that helps governments create investor relations sites, says any pricing bumps in the green bond market work the same way. "That granular detail is super important," he says. "Managers want to report back to their investors on the environmental impact their fund is having."

MacNaught adds that governments already do a lot of analysis on a project's expected impact before it sells the bonds. So committing to consistent impact reporting, he says, shouldn't be too much more of a stretch. "If an issuer can do that, you'll see an impact on pricing."

For these reasons, Dan Kaplan, who manages the $3.9 billion portfolio for the wastewater treatment division in King County, Wash., says green bonds are "much ado about nothing." Municipal bond sales in general are often oversubscribed, he says, so the notion that green bonds generate "extra" demand is misleading.

Kaplan agrees with MacNaught that better reporting, as well as a good credit rating, are what bring down the cost of issuance -- not some "external label" applied to projects that governments would be doing anyway. "What you're seeing is not even necessarily a bump from transparency," he says, "but the benefits of being a large, well-run and well-established organization."

http://www.governing.com/topics/tran...m_medium=email

Quote:
New Gold Rush for Green Bonds
Spoiler:
Hanging on the wall just outside Bryan Kidney’s office in Lawrence, Kan., is the framed first page of a bond offering statement. Unlike most -- or really, any -- bond statements, this one required a color printer. It could even be described as cheeky: It’s for the sale of the city’s first green bond, and every reference to “green bond” or “green project” is printed in green ink.

Kidney, the city’s finance director who shepherded the $11.3 million sale last year, says the green ink originally started out as a joke.

But then, he thought, why not? When the projects are fully implemented, Lawrence is projected to save 3,201 tons of carbon dioxide equivalents (CO2e) annually, which is equal to burning 3.5 million fewer pounds of coal. “I get really passionate about this stuff,” Kidney says. “I was just so excited that Lawrence stepped up to be a leader in sustainability.”

Green bonds are an emerging category of finance. Their purpose is to fund projects with clear, definable and measurable environmental benefits. As the Trump administration has walked back federal climate change policy -- most notably, backing out of the Paris Agreement -- states and localities are increasingly taking charge of their own environmental strategies. Green bonds are a natural funding tool. The vast majority of them finance water-related projects, but they also are used to finance, for instance, solar and wind power or reduced methane emissions. In Lawrence’s case, they are funding a slew of energy efficiency projects identified by a state Facility Conservation Improvement Program audit. The audit determined that certain upgrades, such as energy-efficient lighting and heating and cooling systems, would reduce the carbon footprint for this city of 96,000 and save it money in the long run.

The concept of green bonds was developed a little more than a decade ago by a London-based group called the Climate Bonds Initiative. The idea was to help the world’s growing cadre of environmentally conscious investors identify climate-friendly investments. These are folks who aren’t only interested in a financial return on their investment. They want to know that their money has helped improve the environment. “If you’re doing a bond issuance that’s electric or coal generated, those investors don’t want to be part of that transaction,” says Tim Fisher, government affairs manager for the Council of Development Finance Agencies. “They’re putting their investments into securities that have a double- or even triple-bottom line.”

For the first few years, green bonds remained something that only large global institutions like the European Investment Bank and the World Bank dabbled in. It wasn’t until 2013 that the first green bond issuance made its way to the U.S. municipal market when Massachusetts sold $100 million in bonds to finance energy efficiency projects. The following years saw other large issuers like California and New York take part. To date, those three states -- Massachusetts, California and New York -- are by far the most frequent issuers, accounting for $2 out of every $3 of green bonds issued in the past five years. More recently, a few municipalities have begun to experiment with them. But even as muni market issuance of green bonds doubled last year to $11 billion and is predicted to almost double again this year, green bonds remain largely outside of the mainstream.

So it’s saying something when a place the size of Lawrence decides to jump in. The city may very well be a bellwether of the next big leap for green bonds. That would be good news for issuers since the bonds have the potential to attract a fresh set of investors at a time when tax reform has created fewer incentives for banks and insurance companies to buy municipal bonds. Some even think that green bonds will someday be cheaper for states and localities to issue than general obligation debt. But before any of that happens, there are underlying challenges with green bonds’ authenticity that have to be resolved first.

Since they debuted a decade ago, green bonds have been issued under a variety of names -- environmental impact bonds and climate bonds being among the most prevalent. Whatever their name, one of the biggest threats to the long-term viability of these bonds is a matter of meaning. The definition of what’s “green” seems to alter slightly with each issuer.

In recent years, some groups have taken a stab at narrowing down the variables in what makes a bond green. Moody’s Investors Service has come up with a green bond assessment tool, which looks at the likelihood that the bond money will go toward environmental improvements. S&P Global Ratings has also come out with commentary. But neither provides a rating or measurement of how environmentally positive a bond might be. Elsewhere, the Climate Bonds Initiative has released a set of green bond principles for issuers while state and local governments are increasingly seeking third-party certification for their green bonds.

Compounding matters is the reality that the investment community doesn’t agree on what’s green and what isn’t. Everything is optional. Julie Egan, director of municipal research at Community Capital Management, a major green bond investor, says her standard for “green” is that it has to be an innovative project. But that doesn’t always apply when she’s shopping for some of her clients who might not feel the same way. When she looks at a water and sewer system’s green bond sale, she often sees something that looks like “the exact same thing they’ve been doing for years. Is it green? Technically, for some people, it is: They’re providing clean water,” she says. “But there’s no new technology. It just is not something that would create a great deal of excitement at our firm.”

Clearly, what some might see as environmentally forward-thinking in one place is just run-of-the-mill in another. It’s led to accusations of so-called greenwashing, a term originally coined in the 1980s and meant for corporations that present themselves as caring environmental stewards, even as they are engaging in environmentally unsustainable practices. Some governments are now being accused of slapping on a label to entice investors while doing nothing else to ensure the sustainability of a project. Case in point: In early 2015, the Climate Bonds Initiative’s CEO called out the Massachusetts State College Building Authority for its “pathetic” green bond sale that included funding a garage for 725 cars. Until these inconsistencies are resolved, the future of green bonds will remain in doubt.


For water utilities, green bonds have seemed like a natural fit. The reasons are fairly obvious. These authorities spend a lot of money on cleaning water -- a slam dunk of an environmental benefit if ever there was one. Water and sewer authorities have many ways in which they go about defining, packaging and communicating about their green bonds. That is, many green bond investors want additional reports on the environmental impact of the projects they’re financing. For issuers, that’s an additional process.

The way in which DC Water handled its green bond is an early model. DC Water, which serves the greater Washington, D.C., region, was the first water authority to issue green bonds, not just in the U.S. but globally. In July 2014, it sold $350 million in environmental impact bonds to finance a phase of its Clean Rivers Project. In part because the concept was so new -- it was only the third green bond issuance in the U.S. -- DC Water looked to Europe for best practices. Following the green bond principles outlined by the Climate Bonds Initiative, it opted to get a third-party verification and used that to both market the sale and offer a glimpse into the sort of annual impact reporting investors could expect on the bonds’ proceeds. “Quite frankly, for DC Water, we wanted to set a high bar because we wanted to distinguish ourselves from other issuers,” says Mark Kim, the authority’s former chief financial officer and now the chief operating officer of the Municipal Securities Rulemaking Board.



DC Water issued only the third green bond in the U.S. in 2014. (David Kidd)


The approach worked. In fact, DC Water upsized its issue by $50 million on the day of the sale thanks to the high demand from investors. Since then, the authority has issued more than a half-billion dollars in green bonds. It releases annual green bond reports that detail where all that money is being spent and gives updates on environmental outcomes. Investors who bought a DC Water green bond in 2014, for example, know that their money helped finance the first phase of the DC Clean Rivers Project, which has now helped significantly reduce nitrogen and phosphorus levels in the Anacostia and Potomac rivers.

That level of reporting isn’t for everyone. And that’s another challenge for the green bond movement. The additional reporting can be expensive, though it doesn’t necessarily have to be. In some cases, as in Lawrence, the impact reporting is already part of the project: Lawrence has a sustainability coordinator whose job includes reporting on the city’s energy savings and carbon emissions.

There are other strategies. In 2016, when the Massachusetts Water Resources Authority issued $682 million in green bonds, the first of what has been a handful of green bond sales for the authority, it took steps to avoid the extra cost of ongoing environmental impact reporting. All the bonds have been refinancings for projects completed under the federal Clean Water Act and Safe Drinking Water Act. “We thought it would be just as easy to issue refundings as green bonds because investors already know what that money was spent on,” says CFO Tom Durkin. “We have limited resources and try to be frugal here. To have to produce a glossy five- or six-page report seemed like one more burden we didn’t want to put on our Treasury Department.”

Cleveland, on the other hand, made no claims about impact reporting in its 2016 green bond sale. It offered up $32 million in green bonds for stormwater projects and sewer upgrades and repair, telling investors in its offering statement that the city assumes no obligation to ensure the projects comply “with any legal or other standards or principles that relate to Green Projects.” Instead, it committed to simply reporting on the use of proceeds until the bond money was spent. Investors bought them anyway.

Many issuers remain unconvinced of the advantage of green bonds. In part that’s because there has yet to be a proven pricing benefit. The bonds don’t win better rates from investors to justify the expense of the additional reporting, but Lawrence’s Kidney and others make the case that selling green bonds opens up governments to new institutional investors. These are people who sit on the environmental or social investing side of a firm -- nowhere near the municipal investor desk. For others, like the Eastern Municipal Water District in Southern California, that’s just not enough of a selling point. “[When] we start to see a pricing bump,” says Eastern’s Deputy General Manager Debby Cherney, “then we’ll certainly take a much more serious look at coming into the market.”

Without agreed-upon standards about what a green bond is and what the reporting requirements should be, some say it’s only a matter of time before an issuer falls out of favor by either using proceeds for a project that isn’t green, or by not delivering on the environmental impact reporting that’s expected. Until that happens -- and some believe it’s inevitable -- governments are likely to keep pushing the margins. “Not all green bond issuers are alike and I’d say some have not adhered to best practices,” says Kim, the former DC Water CFO. “Some have taken liberties with their designation.” But he thinks enforcement has to come from investors. “They need to do their due diligence and hold municipal bonds accountable for what they’re selling,” he says. “And if they don’t like what they see, don’t buy it.”

Maybe. Perhaps this new breed of environmentally conscious buyers will be different, but relying on investors to police the muni bond market hasn’t worked before. It’s more likely that until there is a real cop on the beat to instill some kind of standard, the legitimacy of the green bond market as a whole will remain in question.

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  #554  
Old 07-15-2018, 09:50 AM
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NEW YORK

https://www.syracuse.com/state/index..._finances.html

Quote:
NY state comptroller issues warning about state finances

Spoiler:
ALBANY, N.Y. (AP) -- In New York state government news, Comptroller Thomas DiNapoli is sounding an alarm about state finances.

DiNapoli, a Democrat, released a report last week on the state's financial plan that showed state spending is on track to outpace revenues. He warned that could put the state in financial peril if the economy turns or if the federal government cuts funding.

Meanwhile, lawmakers are planning a hearing on state efforts to boost minority- and women-owned businesses.

Here's a look at stories making news:

FINANCIAL CLOUDS LOOM: The comptroller's report looked at the current state budget approved by lawmakers this year as well as financial plans for the next few budget cycles. He determined that if current spending levels continue, the state's expenditures will outpace revenues within three years, creating a cumulative deficit of nearly $18 billion.

Lawmakers could avoid the deficit by cutting spending or raising revenue -- but DiNapoli warned that it could put the state in a tough position if the economy worsens or if the federal government cuts funding. Increasing debt is another factor, he noted, as is the decision by lawmakers and Democratic Gov. Andrew Cuomo not to shift significant funds to the state's budget reserves.

"The state ended the last year with the largest general fund balance in recent years, but continues to face real fiscal challenges," DiNapoli said. "New York's growing out-year gaps, shrinking debt capacity and the lingering threat of federal funding cuts cloud the horizon. Yet, there are no plans to add to our reserves, leaving the state with little cushion in the event of an economic downturn."

Lawmakers passed a nearly $170 billion state budget in March. DiNapoli's analysis shows that budget represents $6.5 billion in new spending, while revenue is projected to increase only $541 million.

Nearly $7 billion in expenditures will use one-time funding sources -- such as legal settlements or one-time grants or payments -- which could cause further headaches for lawmakers when the money runs out.

The report estimates that total tax receipts this year will hit nearly $78 billion, down 1.7 percent from the previous year.

BUSINESS DIVERSITY: The state has a number of programs intended to encourage women and minorities to start and operate businesses, and now Republican members of the state Senate want to know if they're working.

The Senate's committees on labor and economic development have scheduled a July 17 hearing in Watertown to examine the state's Minority and Women-Owned Business Enterprises program. Lawmakers say they'll consider changes to make the program more efficient while also enhancing the state's overall business climate.


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Old 07-24-2018, 11:42 AM
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CONNECTICUT

https://www.washingtonpost.com/opini...=.926c4fa3df70

Quote:
Connecticut is drowning in debt. Should the rest of us have to pay?
Spoiler:
In 1787, when the Constitutional Convention and an infant republic “hung by a thread,” two imaginative New Englanders solved the problem and saved the day. Roger Sherman and Oliver Ellsworth, both representing Connecticut, proposed a bicameral legislature made up of one house representing population and the other giving each state an equal voice. The “Connecticut Compromise” — designed as a safeguard against the domination of smaller states by the more populous neighbors — entered history as perhaps the most crucial of all the bargains that enabled a new nation to be welded together out of the ramshackle Articles of Confederation.

But Connecticut, which today, along with a number of other states, faces a seemingly insurmountable budgetary crisis, may end up regretting the statesmanship of its illustrious forebears. Sherman and Ellsworth’s two-members-per-state system stands as a bulwark to prevent reckless states — Connecticut included — from raiding their more responsible brethren. Let’s thank them for their innovation.

Over the past few years, several of today’s 50 states have descended into unmanageable public indebtedness. In Illinois, vendors wait months to be paid by a state government that is $30 billion in debt and one notch above junk bond status. And in terms of per capita state debt, Connecticut ranks among the worst in the nation, with unfunded liabilities amounting to $22,700 per citizen.

Each profligate state is facing its own budgetary perdition for different reasons, but most share common factors. The explosion of Medicaid spending, even before Obamacare, has devoured state funds just as it and its entitlement cousins, Medicare and Social Security, have done at the federal level. This has crowded out other vital public activities, as striking teachers in most states experiencing such hardships know.

In parallel, public pensions of sometimes grotesque levels guarantee that the fiscal strangulation will soon get much worse. In California, some retired lifeguards are receiving more than $90,000 per year. A retired university president in Oregon received $76,000 per month — and no, that’s not a typo. These are the modern-day welfare queens, and they are the reason for some of the nation’s worst budget crises. California’s pension shortfall, $250 billion under the rosiest of assumptions, is more likely close to $1 trillion.

With things this far gone, even an aroused public or a sudden eruption of statesmanship is unlikely to prevent a crash. In some states, government unions have barricaded their benefit levels behind a Maginot Line of legal and even constitutional protections.

More and more desperate tax increases haven’t cured the problem; it’s possible that they are making it worse. When a state pursues boneheaded policies long enough, people and businesses get up and leave, taking tax dollars with them. We see this often in the headlines: GE leaves Connecticut, General Mills exits Illinois, Chevron and Waste Management flee California. But also watch the U-Haul rental data: Illinois and California are first and second , respectively, in net rentals leaving vs. coming into the state.

So where is a destitute governor to turn? Sooner or later, we can anticipate pleas for nationalization of these impossible obligations. Get ready for the siren sounds of sophistry, in arguments for subsidy of the poor by the prudent.

In fact, this balloon was already floated once, during the crunch of the recent recession. In 2009, California politicians called for a “dynamic partnership” with the federal government. Money from other states, they said, would be an “investment” and certainly not a bailout. They didn’t succeed directly, although they walked away with $8 billion of federally borrowed “stimulus” money. Such a heist will be harder to justify in the absence of a national economic emergency.

In the blizzard of euphemisms, one can expect a clever argument might appear, likening the bailout to another important compromise of the founding period: the assumption of state debts by the new federal government. But that won’t wash. Those were debts incurred in a battle for survival and independence common to all 13 colonies, not an attempt to socialize away the consequences of individual states’ multi-decade spending sprees.

Sometime in the next few years, we are likely to go through our own version of the recent euro-zone drama with, let’s say, Connecticut in the role of Greece and maybe a larger, “too big to fail” partner such as Illinois as Italy. Adding up the number of federal legislators from the 15 or 20 fiscally weakest states, one can count something close to half the votes in the House.

The Senate — thanks to Ellsworth and Sherman — will be our theft insurance. These statesmen could never have imagined governments as sprawling and expensive as those even today’s more cautious states operate. But had they somehow foreseen that their own beloved state would be among the worst offenders, one of those most likely to try to fob off its self-inflicted problems on its counterparts, I think they would only have felt better about their handiwork.
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Old 07-25-2018, 03:48 PM
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CONNECTICUT

https://www.publicintegrity.org/2018...s-country-club

Quote:
Connecticut in Crisis: How inequality is paralyzing 'America's country club'
The state is caught in an economic straitjacket and there's no easy way out
Spoiler:
New Haven, Conn. — By July 2017, when the state of Connecticut was more than 50 days into the fiscal year without a budget, Angela Serrano had been living at the state-supported Careways Shelter for Women and Children for four months. Serrano was shocked to find herself there when just a few short years ago she had a career, a mortgage and the comforts of middle class life.

The shelter, at that time housing 10 families near New Haven’s historic Wooster Square neighborhood, would be closed by September. The nonprofit group running Careways couldn’t afford to keep it open while financial aid from the state was tied up in budget deliberations — but Serrano, 46, was able to secure an apartment in New Haven for herself, her 17-year-old son and a 9-year-old grandson.

After a futile search for a job there, Serrano found work as a health-care aide in Trumbull, a suburb in nearby Fairfield County. She started night classes at Gateway Community College at the end of May in hopes of earning an EMT license — the ticket, she hopes, to a better-paying, more stable job.

But despite the progress she’s made, Serrano and others like her share a sinking feeling that Connecticut, by some measures the nation’s richest state, is not working for them. It’s a feeling she shares with other working-class Americans who can’t understand why the current economic prosperity seems to be passing them by.

Everything feels like a struggle. Serrano commutes a half-hour over Connecticut’s famously congested roads in the used car she bought, but the job in Trumbull pays $12.30 an hour, more than many of the available jobs in New Haven. Her state rental assistance ran out in April, so Serrano has been cobbling together overtime to make up the difference.

She doesn’t think her two-bedroom New Haven apartment, behind an alley and up two flights of stairs, is worth the nearly $1,000 a month she pays. But rent is high all over Connecticut, and it’s a quiet place to read and write, with a park around the corner for her grandson.

“I focus on my home,” Serrano said. “With everything I’ve endured, it’s important to me.”

Serrano’s daily struggles are symptoms of a state in crisis. For decades, Connecticut coasted fat and happy off defense firms, insurance companies, and a handful of super-rich financiers who came for the manicured lawns and to escape the higher taxes of neighboring New York and New Jersey. But the good times have ended, and Connecticut has been caught flat-footed.

Blue chip companies like General Electric have either left or are threatening to leave. A yawning budget deficit continues to loom over the state, amplified by some of the nation’s most glaring economic inequality. Greenwich, home to hedge funders and Manhattan corporate titans, and the Norman Rockwell suburbs of Westport, New Canaan and Darien share few priorities with Hartford, New Haven and Bridgeport, gritty cities struggling with searing poverty and fiscal disaster. Connecticut’s political leaders must choose between what seem like equally rotten options: cut services, and push more burden onto the urban poor, or hike taxes, and risk repelling both the suburban rich who pay much of the freight and new businesses that might consider moving here. Put simply, Connecticut is in a bind with precious little room to maneuver.

Connecticut’s troubles are extreme but hardly unique. The recovery that has entrenched Connecticut into the haves and have-nots has been unequal in other regions as well – from Florida to California and down to Texas. As the stock market climbs but wages remain relatively flat, the Constitution State serves as a troubling bellwether of national priorities that seem to favor wealth creation for the few before investments in the broader economy.

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From factories to finance
Connecticut’s early reputation was built on the reliable bedrock of manufacturing. The state’s industrious citizens made hats in Danbury, and forged brass in Waterbury; nearly every Wiffle Ball in the world still comes from Shelton. Samuel Colt invented and produced his Colt revolver in Hartford and defense contractors like Remington Arms — which once employed 17,000 — turned Bridgeport into a boom town.

Over time, Connecticut’s economy followed a familiar path, drifting away from manufacturing as companies found it cheaper to operate elsewhere. Remington fled Bridgeport for Arkansas by 1988, leaving behind a fire-prone empty building on Barnum Avenue, named after the famous showman and Bridgeport Mayor P.T. Barnum.

Not to worry, though. Defense contractors like Sikorsky Aircraft, insurance firms like Aetna in Hartford and white-collar behemoths like General Electric in the suburban office campuses of Fairfield County — some of them lured with tax breaks — kept the state humming and obscured looming challenges. More than 400 hedge funds managing over $750 billion between them now call the state home, in tony suburbs like Greenwich. The state doled out incentives like a $35 million economic incentive package to AQR Management of Greenwich and a $22 million economic development grant to Bridgewater Associates of Westport, the largest hedge fund in the world, in 2016.

And that worked. For a while.

But the Great Recession hit the state with frightening force. Connecticut’s economic output has contracted since 2008, and the population has shrunk to 3.588 million, about 14,000 fewer residents than its 2013 peak. General Electric left Connecticut for Boston in 2016 and earlier this year MassMutual announced it would close an office in Enfield that employs 1,500 people. The companies said they couldn’t attract young talent wanting an upscale urban lifestyle to troubled cities or placid suburbs.

What’s left: a bifurcated economy that produces wealth but doesn’t spread much of it out. Connecticut boasted the nation’s highest per capita income in 2017, at $70,121. From 2009 to 2015, the income of the top 1 percent in Connecticut grew by 22.9 percent while incomes for everybody else dropped by 1.8 percent, according to the Economic Policy Institute, a Washington, D.C. think tank. The institute ranks Connecticut the third most unequal state in the country, behind New York and Florida, in its most recent study.

Economist Mark Price, who worked on the Economic Policy Institute inequality study, said financial industry hubs in Connecticut and New York exacerbate inequality in those states, but he noted that disparities are present throughout the U.S. economy. Unemployment numbers are improving nationwide and since 2015, Price said, there has been “broader and healthier growth” that is more widespread. “But that doesn’t reverse the overall 36-year trends where a tiny fraction of the folks at the top capture a significant share of income growth.”

Inequality is especially stark in Connecticut’s cities, according to a Center for Public Integrity data analysis. The Center used 2016 Census data to measure the ratio between two benchmarks: the lowest combined income a household could earn while still breaking into the top 5 percent of household income and the highest combined income a household could earn while still falling in the bottom 20 percent.


The analysis showed the Bridgeport-Stamford-Norwalk metro area in Fairfield County to be the most unequal in the country, where households in the top 5 percent of income took home 14 times more than those in the bottom 20 percent. The nearby New York-Newark-Jersey City metro area is close behind, as households in the top 5 percent there earn 11 times more than the bottom 20 percent. Other metro areas cities among the top 10 most unequal as measured by the Center: San Francisco-Oakland-Hayward, where the top 5 percent earn 10.9 times more than the bottom 20, Miami-Fort Lauderdale-West Palm Beach (10.4 times more) and Houston-Sugarland metro area (10.24 times more).

In Connecticut, the New Haven-Milford metro area and the Hartford-West Hartford-East Hartford metro area also rank high on the inequality scale.

The findings don’t surprise Rev. Bonita Grubbs, the executive director of Christian Community Action, a nonprofit that provides emergency housing and other support for needy families in New Haven. “The optimistic way is to think the rising tide lifts all boats. The reality is the boat has a hole in it and there are some individuals who are not in that boat,” Grubbs said.

Unemployment is currently trending downward in Connecticut, just as it is nationwide, and some defense contractors like Electric Boat Shipyard in Groton and engine builder Pratt & Whitney in East Hartford are adding slots. But about half of the jobs created since the end of the recession are low-skilled, low-wage jobs in the retail and service sector. Many don’t come with benefits or stability or enough pay to live comfortably in a place that isn’t as pricey as New York City, yet has a higher cost of living than many other regions.

And some of the best jobs are gone for good.

“In Connecticut, financial services has been a major, major part of our economy,” said Joe Brennan, CEO of the Connecticut Business and Industry Association. “It got hit very hard [by the recession]. Those jobs went away and they’re not coming back.” Employment in Connecticut’s financial services sector has shrunk by about 11 percent since the Great Recession - about 17,000 jobs.

The Connecticut Business and Industry Association estimates there are 13,600 jobs open in the state in advanced manufacturing, but these positions require specialized training that Connecticut hasn’t done a good job bestowing on its residents.

These were the quandaries that were facing Michael Hankins, 43, at a recent job fair at the Margaret E. Morton Government Center in Bridgeport. Finding a job is hard enough, Hankins said, “but they don’t want to pay you what you’re worth.” Hankins served 18 years in the Army and “even that doesn’t help” find a job that pays more than $10 or $11 an hour, he said, hardly enough to pay for a decent one-bedroom apartment in Bridgeport.


Michael Hankins at a job fair in Bridgeport. Hankins recently returned to Connecticut from Texas, where he earned an HVAC accreditation that doesn’t help find employment in Connecticut. Jared Bennett/ Center for Public Integrity
Hankins left Connecticut in 2017 to receive technical training at a school in Texas that advertised to veterans. The school, Retail Ready Career Training, shut down after the federal Department of Veterans Affairs investigated it for fraud. Hankins earned an HVAC license but upon moving back to Connecticut found the credentials aren’t accepted here.

Fairfield County, where Bridgeport sits, is “supposedly the richest county in the country,” Hankins said, “but I don’t see it.”

People are feeling the squeeze even in super-affluent Greenwich, also in Fairfield County. “We have tremendous wealth, but it's also a tale of two cities. There’s a growing number of low income people,” said Alan Barry, commissioner of social services in Greenwich.

Due to the outsized cost of living in Greenwich, Barry’s department uses 200 percent of the federal poverty level to determine who is eligible for services like public housing.

“To use the federal poverty level [to set benefit eligibility] is totally ridiculous. It’s outdated, antiquated and it's just not useful,” Barry said. “There’s no consideration that this is Greenwich, this is Connecticut, this is the Northeast. The cost of living is way different here.”

Barry says a more useful metric for economic stress is the United Way’s ALICE budget, which stands for Asset Limited, Income Constrained, Employed, and in Fairfield County amounts to 300 percent of the federal poverty level. Barry said that while Greenwich has 1,214 households living at the federal poverty level, it has 4,549 households living at or below the ALICE threshold, or about 20 percent of Greenwich’s population of 62,359.

Taxes
Non-stop budget challenges and discomfort with Connecticut’s level of inequality has led to growing demand for what has become the elephant in the room: raising taxes on the wealthy.

Many politicians don’t even like talking about the possibility, for fear of pushing high earners out of the state. More than almost any state in the country, Connecticut relies heavily on personal income taxes. Its businesses pay some of the lowest effective tax rates in the country. In 2017, income tax produced 51 percent of the state’s revenue —but where it came from reflects the state’s broader challenges. In 2013, for example, 36 percent of Connecticut’s personal income tax revenue came from just 10 towns: places like Greenwich, Stamford and West Hartford, according to the Fiscal Stability and Economic Growth commission. Conservatives and cautious politicians see that concentration and fear the loss of a handful of ultra-wealthy individuals could spell serious trouble for Connecticut’s budget projections.

Connecticut has raised income tax rates for the highest earners three times since 2009. The state’s progressive wing says Connecticut can afford to further raise rates on the highest earners, who currently pay 6.99 percent, and still maintain lower rates than neighboring New York (8.82 percent) and New Jersey, (8.97 percent). Expanding the sales tax to include internet sales and services could generate another $1.5 billion, and business taxes, the progressives say, could increase without pushing wealthy individuals out.

But that opinion is far from universal. “High taxes and the fear of more taxation will continue to push people and businesses out of our state, further eroding tax revenues and jeopardizing core functions of government,” state Sen. Len Fasano, Republican President Pro Tempore from North Haven, and state Sen. L. Scott Franz, R- Greenwich, wrote in a 2017 letter to Democratic co-chairs of the Finance, Revenue and Bonding Committee.

“The reality is higher taxes are self-defeating right now,” said CBIA CEO Brennan. Brennan noted that Connecticut’s population has been shrinking, and many of the high earners leaving the state end up in Florida, he says, a state with no income tax.

Others scoff at the idea that people will flee Connecticut if taxes are raised. They point to a 2016 study by Stanford and U.S. Treasury researchers showing states would have to raise taxes by 10 percent to have “even a 1 percent impact on millionaire migration.” Meanwhile, Connecticut is home to more millionaires and billionaires than ever.

A 2014 report by on the impact of Connecticut’s taxes across income levels by the state’s Department of Revenue Services found that households earning less than $48,000 a year directly or indirectly pay nearly a quarter of their income in state and local taxes. Other recent changes will actually raise the tax burden on Connecticut’s lower income families. The biennial state budget signed in the fall reduced the Earned Income Tax Credit, a tax relief for lower income workers, to 23 percent of the federal credit, down from 30 percent. The result, according to Connecticut Voices for Children, amounts to a $25 million tax increase for the state’s lowest income earners.

“There’s this whole narrative of how Connecticut is failing and we can’t betray our billionaires because they are so important to our state revenues, but we’re actually losing working class and middle class and young people,” said James Bhandary-Alexander, an attorney who represents low-wage workers at the New Haven Legal Assistance Association. Connecticut’s political leaders, Bhandary-Alexander said, “are concerned about billionaires, but they aren’t concerned about people who can’t find work in Hartford, people who are deprived of opportunities in Bridgeport or New Haven.”


Empty buildings pepper downtown Bridgeport. Jared Bennett/ Center for Public Integrity
City life
Tax increases are often blamed for pushing General Electric out of Connecticut in 2015, the highest profile departure in recent years. Ultimately though, it was another, more fundamental issue that drove the company to Boston and to a state with even higher taxes. The company’s campus-like headquarters in Fairfield County “was a morgue,” Chief Financial Officer Jeffrey Bornstein told The Wall Street Journal, and the company moved to Boston to attract young talent more interested in vibrant city centers.

Connecticut’s cities are struggling with urban revitalization, and have a lot stacked against them. Connecticut’s towns and smaller cities are fiercely independent, leading to rampant duplication of services like 911 call centers. California has five; Connecticut has 110. Connecticut also provides less aid to local government than other states. In 2015, the state sent 24 percent of its revenues towards local governments, a third less than the national average of 36 percent. Municipalities overwhelmingly rely on property taxes, a particularly regressive form of taxation, to raise revenues. For smaller, more affluent towns, this system is not so bad. But major cities like Bridgeport, New Haven and Hartford are doubly disadvantaged. They cost more to run, but are geographically compact. And much of the territory within these cities is covered with tax-exempt properties held by nonprofits like churches, schools or the state government.

The state was supposed to make amends through Payments In Lieu of Taxes, or PILOT, to cities to make up some of the difference, but since its inception in 1969 the PILOT program has been consistently underfunded.

Connecticut’s disparities have a distinctly racial contour. In 2017, the Open Communities Alliance, a Hartford-based fair housing group, found that half of Connecticut’s black and Latino populations live in areas most lacking key resources like good schools and employment opportunities — areas that total just 2 percent of the state’s land area. Just 9 percent of the state’s white population live in these areas.

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“After decades of changes in the industrial base as well as demographic changes, much of the property wealth is outside the city,” said Hartford Mayor Luke Bronin, a Democrat. Hartford, the state capital, consists of just 17 square miles, and about half of the land mass in Hartford is tax exempt. As a result, owners of taxable property face sky high rates, 74.29 mills on the assessed value of property, where one mill is equal to $1 in tax per $1,000 of the property’s value.

The city has a population of more than 120,000, down from over 170,000 in the 1950s, and provides many services used by neighboring towns: hospitals, universities and public land. A vivid example is found in the South Meadows section of Hartford on the Connecticut River, where a trash-to-energy plant burns waste from seventy nearby towns. The site is owned by the state and a constant source of frustration for environmentalists and public health advocates.

After decades of fiscal stress, Hartford was on the edge of bankruptcy last year. Connecticut Gov. Dannel Malloy struck a deal with the capital city in which the state would shoulder Hartford’s $550 million in debts, a commitment that could have taken as many as 30 years to pay off. In return, the state would monitor Hartford’s spending under a new Municipal Accountability Review Board. The General Assembly revised that deal in May. The new agreement allows the state to reduce aid to Hartford after five years.

But the underlying structural problems remain. Last fall, Bronin went on a tour of Hartford’s neighboring towns, from West Hartford to Wethersfield, to make the case for increased investment in the city. Neighboring townspeople were receptive, Bronin said, but recordings reveal they peppered Bronin with skeptical questions about the city’s labor contracts and the prospect of higher taxes in suburbs isolated from the city’s struggles. “It’s a tougher sell once you start talking nuts and bolts,” Bronin said.

Most everyone in Connecticut sees the divides: rich-poor, black-white and most especially urban-suburban, but the political will to bridge them seems lacking. Representation in Connecticut’s House of Representatives is based on population, but the largest cities like Bridgeport and Hartford have six members each, while representatives from the state towns and smaller cities make up a solid voting bloc in the 151 seat chamber.

The budget
It’s under these conditions that Connecticut has tried to address seemingly endless budget challenges. The state sets its budget in two-year cycles and in recent years, a pesky deficit and underwhelming tax returns have turned the budget process into a roller coaster of spending cuts, shortfalls and eleventh-hour adjustments.

In the good times, the State spent more year after year, up from $16.39 billion in 2005 to $25.55 billion in 2015 (not adjusted for inflation). But for decades Connecticut neglected to put money away to meet growing obligations in pensions and health-care benefits for state employees. Only three states, Kentucky, Illinois and New Jersey, had more severely underfunded pensions than Connecticut, which had only 41 percent of committed pension funds in 2016, according to research from the PEW Charitable Trusts. The state’s overall recent spending increases have mostly gone towards addressing those sorts of locked-in, long-term commitments.

The 2018 fiscal year started on July 1, 2017, but the General Assembly spent the summer and most of the fall struggling to craft a budget. The legislature reached a two-year budget compromise in October that retroactively covers the period from July 1, 2017, through June 2019. The deal included across-the-board spending cuts and narrowly targeted new taxes for agenda items like transportation funding; Malloy signed off with some reluctance, arguing that revenue projections were unrealistic and didn’t accurately account for planned future tax cuts.


Activists, urging Connecticut state legislative leaders not to cut Medicaid spending, wait outside the room where a new two-year, bipartisan budget agreement was being negotiated, Wednesday, Oct. 18, 2017, at the Capitol in Hartford, Conn. Susan Haigh/AP
The cuts were immediately unpopular. Among the trims: $91 million in reductions to municipal aid and changes which lowered the income threshold for HUSKY A, the state’s Medicaid assistance for the poor, from 155 percent of the federal poverty level to 138 percent. The budget also raised the eligibility requirements for the state’s Medicare Savings Program, which provides financial assistance to low-income Medicare enrollees to help them with premiums and deductibles. Advocates organized protests for much of the winter.

The legislature responded in January by delaying cuts to the Medicare Savings Program for six months. And then beleaguered lawmakers caught a break. The federal tax law signed in December closed a loophole that allowed hedge fund managers to accumulate profits offshore to avoid federal and state income taxes, resulting in a one-time $1.2 billion windfall for Connecticut as investors repatriated money previously stored overseas.

Connecticut’s General Assembly used the new money to pass a revised budget just hours before the legislative session ended on May 9. The new budget allocates $20.9 billion for the remainder of the two-year budget cycle ending in June 2019 and increases spending by about 1.6 percent over the previously adopted budget. The revisions tap into the windfall and pull from a reserve fund, providing a way to balance Connecticut’s budget for this year. The new budget also restores cuts to the Medicaid assistance and Medicare programs and nixes most of the reduction in municipal aid scheduled by Gov. Malloy.

The budget does manage to avoid major tax increases that the business community and conservatives feared would further drive away businesses. But the budget did not include concessions from the state’s unions that Republicans in the Legislature desperately wanted. The GOP sought to end collective bargaining for retirement benefits after the current union contract ends in 2027, giving the state Legislature more control. Republican lawmakers also wanted to remove overtime from pension calculations and freeze cost-of-living adjustments to pensions for workers who come on board after 2027. None of these changes were adopted.

Union leaders and progressives say organized labor has already made significant concessions to help deal with the budget crisis and that the pension difficulties stem not from overly generous contracts but from the state government’s failure to make prudent payments to meet its obligations. Gov. Malloy reached a deal with the State Employees Bargaining Agent Commission in 2017 resulting in $24 billion in savings through concessions from state employees like a freeze on cost-of-living raises and increased contributions to pension funds from workers.

“Public employees have stepped up to the plate time and time again to help close the deficit” said Larry Dorman, the communications coordinator at Council 4 AFSCME. “Too much of the discussion in Connecticut has been on austerity and disinvestment,” rather than generating new revenue from “modest tax increases, and closing loopholes that benefit big corporations.”

Malloy, whose second and final term ends in 2019, signed off on the adjustments. But once again, he criticized lawmakers’ lack of fiscal discipline. The budget adjustments restore cuts to health and human services, Malloy wrote in a signing note, “without making the accompanying difficult decisions to reduce spending in other areas of the budget in order to afford these benefits” — absent the benefit of one-time revenue lawmakers could lean on this session.

Connecticut’s reserve fund still had over $900 million at the end of the fiscal year in late June. That’s more than the state had socked away in recent years, but less than half what is recommended by state Comptroller Kevin Lembo.

And the future remains uncertain at best. The budget shuffling still leaves the state with a projected $2 billion deficit for the 2019-2020 fiscal year, according to Connecticut's nonpartisan Office of Fiscal Analysis.

Back in New Haven, folks like Angela Serrano aren’t leaving, though she admits she sometimes thinks about it. She lived in Maryland during what feels like a previous life and even though the cost of living was just as high, the jobs paid much more, she said. Serrano often thinks of the other families in the Careways shelter last summer, those who didn’t have an apartment to go to when the shelter closed its doors. She wonders where they’ve gone.


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Old 07-27-2018, 05:02 PM
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MINNESOTA

http://www.startribune.com/bond-rati...rks/489186601/

Quote:
Bond rating agencies give Minnesota top marks
AAA rating means better interest rate, taxpayer savings.
Spoiler:
Two bond-rating agencies gave Minnesota top marks Wednesday, confirming that the state is in good financial health 10 years after the Great Recession.

"Our state government has made a complete financial turnaround in the past 7 years," Gov. Mark Dayton said in a statement. "The credit for Minnesota's success belongs to the people of our state. I thank Minnesotans for their many contributions to the strength of our economy and the stabilization of our State's budget."

Standard & Poor's and Fitch both gave Minnesota its highest rating, AAA, while Moody's Investors Service continued to rate Minnesota at Aa1, its second-highest rating. A higher bond rating means Minnesota can borrow money for projects at a lower interest rate, saving taxpayer dollars.

Dayton, a Democrat, has emphasized the need to bolster the state's reserves and improve its fiscal health during his past two terms. He and Management and Budget Commissioner Myron Frans recently visited the bond-rating agencies to make their case, highlighting a bill passed this year that overhauls the state's pension system and puts Minnesota on a more stable path to provide benefits for retirees and public workers.

Both S&P and Fitch downgraded Minnesota a notch in 2011, the year Dayton took office. Minnesota was still struggling with the aftershocks of the Great Recession when the agencies lowered its bond ratings. At that time, the state's reserves were empty and it was facing a $6.2 billion deficit, according to the Dayton administration.

Former Gov. Tim Pawlenty, the Republican who led the state before Dayton and is now running again for his old job, did not immediately respond to a request for comment.

Gov. Mark Dayton said state “made a complete financial turnaround” in 7 years.

Gov. Mark Dayton said state “made a complete financial turnaround” in 7 years.
Senate Majority Leader Paul Gazelka, R-Nisswa, said: "The Republican-led Legislature's work to spur economic growth, minimize debt and reform public pensions has paid off in a big way, with a credit rating upgrade that has been elusive up to now."

Republican Rep. Jim Knoblach, of St. Cloud, chair of the House Ways and Means Committee, said the bond rating was the result of the Legislature and governor working through differences to pass pension reform and last year's tax bill.

"It's good news for Minnesota," Knoblach said. "Congratulations to the Legislature and the governor, because it's working together."

He also attributed the state's economic turnaround to its diverse industries, including agriculture, technology, mining and health care.

Fitch returned the rating to AAA in 2016 and has reaffirmed that the past two years.

This is the first year since 2011 that S&P has given Minnesota a AAA. In a news release, S&P credit analyst Eden Perry said the pension changes played a role in the higher rating.

"The upgrade reflects the state's improved financial performance, return to strong budget management and structural budget balance, and the 2018 Omnibus Retirement Act, which is expected to decrease pension liabilities through benefit reform and increased contributions," Perry said.

Moody's said its Aa1 rating reflects "the state's diverse and growing economy, supporting healthy revenue growth in recent years."

It is also a reflection of improvements in how the state manages its finances, including replenishing its reserves. The state's debt and pension burdens are manageable and give the state financial flexibility, the agency said.

"Management of our state pensions had long been a concern for the rating agencies, so it was a highlight of my time as commissioner to tell them we had taken a significant step to achieve pension reform with bipartisan support," Frans said in a statement.
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Old 07-30-2018, 04:35 PM
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BAILOUT

https://www.bloomberg.com/view/artic...-be-it#new_tab

Quote:
If Rich States Need Federal Help, Remember They Paid for It
It would be a sign that progressive taxation has worked and should continue.
Spoiler:
Yes, Connecticut is in trouble. No, it’s not going to follow the path of the Greek debt crisis.

My Bloomberg Opinion colleague Brian Chappatta recently wrote about widening credit spreads on its municipal debt, and the prospect that one day the state could default. Other states like New Jersey and Illinois have similar woes.

Mitch Daniels, president of Purdue University and former governor of Indiana, compared the state budget crisis with the European debt crisis, with Connecticut and Illinois playing the role of Greece and Italy. But this analogy gets the relationship backward. Daniels also argued that the structure of the U.S. Senate will prevent “profligate” states like Connecticut from being bailed out by others, but given the structure of U.S. taxation, it’s entirely appropriate for some of the overburdened states to get federal help.

First look at why Connecticut and Illinois are not the Greece and Italy of the U.S. In the euro zone, those two poorer nations have far greater debt burdens than their richest neighbor — Germany — and far lower GDP per capita. Daniels’s logic can sort of apply in Europe, where many have argued that Germany is more productive than the more-indebted members of the periphery, and should not be responsible for their financial shortcomings. (What would help resolve the imbalance, but isn’t possible given the governance structure of the European Union, would be currency adjustments.)

But Connecticut and Illinois are not poor states. Connecticut is third in GDP per capita, and Illinois is 11th, the highest in the Midwest. Last fall, the Office of the New York State Comptroller released a report looking at federal taxation by state, and it showed Connecticut paid more per capita to the federal government than any other state, and Illinois was 10th. Both states paid more to the federal government than they got back in federal spending. Daniels’s Indiana, by comparison, paid less than the national average and received more in federal spending than it paid in taxes.


This is the outcome we should expect in a progressive tax system, where richer states pay more in taxes than they get paid, with poorer states getting the opposite outcome. But it reframes the fiscal problems now plaguing these wealthier states. Yes, the pension systems of many of those “profligate” states were irresponsibly pumped up by legislators and unions. But it’s a little perverse for politicians in Indiana to be scolding Connecticut for financial troubles, when Connecticut has long subsidized the finances of Indiana.

The progressive tax system of the U.S. has generally served the country well. For decades, coastal and Northern states have been wealthier and more economically developed than Southern and interior states, and transfer payments from the former to the latter have helped grow and sustain the economies of underdeveloped states. 1

In the future, the more pressing need may be to help with the legacy financial obligations of some of the aging, historically wealthier states. It only seems fair that the states they long subsidized should return the favor.

Some of those transfer payments have been used to poach businesses and talent from wealthier states. When GE was looking to relocate its headquarters from Connecticut, Georgia competed heavily to win the relocation. It wouldn't be a stretch to frame that situation as Connecticut having high state taxes to make up for a funding shortfall created by the state being a large net taxpayer to the federal government, GE looking to flee as a result, and Georgia using the tax money it got from Connecticut as an incentive to entice GE to move from Connecticut to Georgia.
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Old 08-14-2018, 04:03 PM
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https://www.sec.gov/news/press-release/2018-153

Quote:
SEC Files Charges in Municipal Bond “Flipping” and Kickback Schemes

Spoiler:
Washington D.C., Aug. 14, 2018 —
The Securities and Exchange Commission today charged two firms and 18 individuals in a scheme to improperly divert new issue municipal bonds to broker-dealers at the expense of retail investors. According to the SEC’s complaint, the defendants – known in the industry as “flippers” – purchased new issue municipal bonds, often by posing as retail investors to gain priority in bond allocations. The defendants then “flipped” the bonds to broker-dealers for a fee. The SEC also charged a municipal underwriter for accepting kickbacks from one of the flippers.

The SEC alleges that from at least 2009 to 2016, Core Performance Management LLC, RMR Asset Management Co., their principals, and certain of their associates, misrepresented their identities to gain priority in new issue municipal bond allocations. Municipal issuers typically require underwriters to give retail investor orders the highest priority when allocating new issue bonds, particularly retail investors within the municipal issuer’s jurisdiction. According to the SEC’s complaint, these defendants used fictitious business names, falsely linked their orders to ZIP codes within the issuer’s jurisdiction, and split orders among dozens of accounts. After acquiring the bonds, the SEC alleges that the defendants quickly resold them to broker-dealers, typically for a fixed, pre-arranged commission, and often sought to hide the flipping activity from issuers and underwriters by manipulating sales tickets.

“More than a dozen of the individuals charged today are alleged to have engaged in plainly deceptive conduct,” said Stephanie Avakian, Co-Director of the Enforcement Division. “We are committed to investigating and charging individuals, especially where, as here, the alleged misconduct by many of these industry professionals harmed retail investors.”

“By improperly placing retail orders on behalf of broker-dealers, we allege the flippers prevented true retail investors from receiving priority in municipal bond offerings,” said LeeAnn G. Gaunt, Chief of the Division of Enforcement’s Public Finance Abuse Unit. “We are continuing our investigation to determine whether other market professionals had a role in these improper practices.”

Core Performance and managing director James P. Scherr, RMR and its president, Ralph Riccardi, and 13 of their associates settled the SEC’s charges without admitting or denying the allegations, agreeing to injunctions, to return allegedly ill-gotten gains with interest, pay civil penalties, be subject to industry bars or suspensions, and to cooperate with the SEC’s ongoing investigation. The settlements are subject to court approval. The SEC’s charges against RMR associates Richard C. Gounaud, Jocelyn M. Murphy, and Michael S. Murphy will be litigated in U.S. District Court for the Southern District of California.

In a related action, the SEC instituted settled proceedings against Charles Kerry Morris, the former head of municipal underwriting at broker-dealer NW Capital Markets Inc. The SEC found that Morris took kickbacks from Scherr and engaged in a parking scheme in which Morris allocated new issue bonds to Scherr with the understanding that Morris would repurchase them. As a result of this trading, the SEC found that Morris and NW Capital caused Scherr and Core Performance’s improper unregistered broker activity. The SEC found that Morris’s supervisor, James A. Fagan, failed reasonably to supervise Morris’s activities.

Morris, NW Capital, and Fagan agreed to settle the charges without admitting or denying the SEC’s findings. Morris agreed to pay a total of $254,009 and to consent to an industry bar. NW Capital agreed to be censured and pay a total of $87,065 and Fagan agreed to pay a $10,000 penalty and to consent to a six-month supervisory suspension.

The investigation, which is continuing, is being conducted by the Division of Enforcement’s Public Finance Abuse Unit, including Joseph Chimienti, Laura Cunningham, Warren Greth, Cori Shepherd, and Jonathan Wilcox, with assistance from Deputy Unit Chief Mark Zehner and litigation counsel Nicholas Pilgrim. Kevin Guerrero and Ivonia Slade supervised the investigation. Mr. Pilgrim will lead the litigation against Gounaud, Jocelyn Murphy, and Michael Murphy.
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Old 08-15-2018, 03:25 PM
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CONNECTICUT

http://www.yankeeinstitute.org/2018/...ned-to-hamden/

Quote:
What Happened to Hamden?

Spoiler:
Driving through Hamden, one would never think it is a town in severe financial distress.

Hamden looks vibrant, trendy, hip and well-off. It was ranked one of the best places to live by Money Magazine in 2016 and is home to Quinnipiac University, but a look at the town’s finances reveals something quite different.

Hamden, called “The Land of the Sleeping Giant,” has a giant-sized debt problem and it’s costing town taxpayers.

While much attention has been paid to the plight of Hartford, which barely staved off bankruptcy thanks to a state bailout, Hamden’s difficulties have largely remained a problem with only regional attention.

But a study by Marc Joffe of the Reason Foundation and the Yankee Institute, which scored Connecticut’s 169 municipalities based on their 2016 financial reports, found Hamden — not Hartford — faced the greatest financial challenge of all.

Joffe used a scoring system which is actually more lenient toward municipalities than ratings agencies like Moody’s Investment Services. A perfect score would be 100. Any municipality scoring 50 or less is considered in “severe financial distress.”

Hamden scored a 25, nineteen points lower than Hartford.

Based on the town’s 2016 financial report, Hamden faces a long-term total debt liability of $784.1 million.

The majority of that debt comes from retirement promises made to employees which the town never funded. Even though Hamden moved new hires into the state-run Municipal Employee Retirement System in 2007, its legacy costs for current employees and retirees continues to grow.

Pension liabilities for Hamden’s 1,154 active and retired pension recipients make up $276 million of the town’s total debt, according to Hamden’s 2016 pension valuation.

Historically, Hamden didn’t pay the actuarially required contribution toward retiree pensions and benefits, instead letting the costs compound over time. The town also used a 7 percent discount rate for its contributions, but only received a 4.75 percent return, according to the valuation.

According to a letter from the state's Office of Policy and Management, Hamden’s pension fund was only 10 percent funded in 2014. It’s ARC payments — which the town wasn’t paying — grew from $19 million in 2012 to $29 million in 2015.

The costs of the debt were growing faster than the town could pay, so in an effort to bolster the pension fund, Hamden took out a $125 million pension obligation bond in 2014, which increased the pension fund to 37.2 percent funded.

Pension obligation bonds are generally considered risky moves, supplanting one debt with another. The bond issuance will create savings for the town between 2019 and 2025, but afterwards the cost of the bond will outstrip any short-term savings, according to OPM’s projections.

Pension bonds also come with requirements and restrictions.

According to the letter from OPM and the State Treasurer’s Office, Hamden will have to pay the full ARC for its pensions. State law says a town can “ramp up” its ARC payment and Hamden will start paying the full ARC this year.

The ARC plus debt service on the bond was $16.3 million in 2015 and will grow to $33 million by 2022 and eventually top out at $38.8 million by 2040.

The numbers are not set in stone, however, and can change depending on the pension fund’s rate of return.

The letter also stated Hamden would have to raise its mill rate by an average of 4.6 percent every year for six years.

Hamden was forced to raise property taxes in 2016 and 2018 in order to deal with the growing costs, pushing the town’s mill rate to 47.96, one of the highest rates in the state. Hamden also had to lay off some clerical workers, and teachers were forced to take furlough days in an effort to bridge a $1 million education budget shortfall.

Rep. Josh Elliott, D-Hamden, says the town's fiscal problems mirror the issues faced by the state.

"As with the state, the town of Hamden has been over-borrowing, without putting enough money away for pension obligations. Unfortunately, towns have much less flexibility than the state to ensure that getting out of the hole is done equitably," Elliott wrote in an email.

The state of Connecticut hasn’t helped with Hamden’s woes either, withholding car tax reimbursements until April of this year and holding education funding flat to deal with ongoing state budget deficits.

According to Hamden Mayor Curt Balzano Leng in an op-ed for the Hamden Patch, the state has reduced Hamden’s municipal aid by $11 million over the last two budget cycles.

It isn’t just retirement costs that are a problem for Hamden; the town also has the fourth highest rate of bonded debt per capita in the state, according a report by OPM. Leng has indicated he wants to restructure some of that debt to save money.

Hamden’s credit rating was downgraded by Moody’s in December of 2017 with a “negative outlook” due to the town’s pension obligations and funding cuts from the state.

And the future doesn’t look especially bright: the costs of the pension obligation bond will continue to rise, and the state of Connecticut’s significant budget deficits threaten future municipal aid cuts — not just to Hamden, but to all Connecticut municipalities.

That doesn’t bode well for residents of Hamden. Michael Mele, a 75-year-old retired resident of Hamden, believes the burden of Hamden’s history is falling squarely on the taxpayers.

“For 30 plus years, officials have kicked the can down the road,” Mele said in an interview. “Now, it’s a financial time bomb.”

Mele points out that Hartford was just bailed out of its debt payments by the state, but he doesn’t believe Hamden could ever expect similar treatment from a state which faces its own significant financial challenges.

“No one will be bailing out the town of Hamden,” Mele said.

In reality, it will likely be town property tax payers who bail out Hamden. Although, it’s mill rate is high, it is still well below the rates of Bridgeport, Waterbury, and Hartford, which leaves room for the town tax burden to grow.

Elliott says that while it's possible to blame government financial mismanagement, Hamden is making headway in correcting mistakes of the past.

"I know that people are really getting squeezed in Hamden," Elliott said. "While there was just a fairly significant mill rate increase, we may now see a surplus, and while the strain will be felt by the middle class, working poor, and elderly, we are finally doing the right thing and not just relying on debt to get us through."
http://www.yankeeinstitute.org/wp-co...-Signs-min.pdf

Quote:
It is our local governments that we look to for many of the basic functions of government
- including education, public safety, and public health. But in Connecticut, the cost of
municipal government is driven up by state mandates, inflating our property tax bills and
making it harder for people to live here.

This study examines the fiscal health of Connecticut’s 169 municipalities. It does so by
measuring several factors -- including debt costs, pension and retiree healthcare liabilities,
savings, and recent changes in property values and unemployment.

The findings are a warning that problems could lie ahead for many of Connecticut’s cities
and towns. Eight municipalities received a score that indicates they are in severe fiscal
distress, while another 53 received scores considered marginal.

Most of Connecticut’s largest cities fell below the red line. These cities have many things in
common – including high poverty levels, relatively high unemployment, and greater union
political power.

But it isn’t just Connecticut’s large cities that are struggling– the municipality with the lowest
score was Hamden, home to Quinnipiac University. This town is plagued by high pension
liabilities and high debt.

All municipal leaders in Connecticut need greater authority to limit the growth of local
property taxes, which are among the highest in the nation. State lawmakers could provide
meaningful relief by reforming the collective bargaining and binding arbitration laws that
are hamstringing municipal budgets across our state.

We hope this report is both useful and instructive as we move forward in trying to restore
fiscal sanity to Connecticut.
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