Monthly Archives: May 2015

Muni Credit News May 28, 2015

Joseph Krist

Municipal Credit Consultant

The month of June is crunch time for state budget makers and this year there is no shortage of contentious budget action. We focus on four significant state budgets and the increasingly poor outlook for favorable resolutions, at least from the perspective of bondholders.


It was not unexpected but the Illinois budget process has turned into a major battle. House Republican Minority Leader Rep. Jim Durkin  called it “a Greek tragedy.” The likelihood is that the actual budget may not be finally adopted until later this summer. While we do not expect this spectacle to impair the payment of debt service on state debt, we do expect that the various twists and turns of the soap opera will continue to pressure prices and ratings on the state’s bonds.

Illinois Democrats have offered a series of budget bills designed to restore social service cuts proposed by Gov. Bruce Rauner. Republicans have criticized the House Speaker’s budget as being irresponsibly out of balance, while Democrats retorted that the Governor’s February budget proposal counted on more than $3 billion in false savings. The Governor has said he would consider raising taxes — but only after lawmakers agreed to a series of his proposals including term limits on lawmakers, a property tax freeze and reforms to workers compensation laws. He has threatened to keep the legislature all summer if they fail to pass those measures.

Debate was focused by the introduction of a bill to restore deep cuts to human services. It included programs that the Governor’s plan had slashed or zeroed out including restoring immigrant and refugee funding as well as money for autism, epilepsy, Alzheimer’s, Boys and Girls Clubs, YWCA and YMCA programs. The bill’s sponsor said it included $134 million in cuts in all and held Medicaid spending to fiscal year 2015 levels.

House Democrats contend that the $36.3 billion spending plan would reflect “what the state of Illinois should do for Illinoisans who need the government to be helpful to them.” according to the House Speaker. He did however, acknowledge that  “we don’t have the money to pay for this budget” — in fact they’ll be about $3 billion short — but he said he’s prepared to work with Rauner to find “new money.” All the while, the State’s biggest issue – pensions – remains unresolved.


The Florida legislature has one constitutionally established responsibility – the passage of a budget. Not since 1992 has the state flirted with budgetary disaster so close to the end of the fiscal year on June 30. Hoping to break the Legislature’s budget stalemate, the Senate tweaked its Medicaid expansion plan Tuesday in the face of continued opposition from the House and Gov. Rick Scott.

The House did not have a categorically negative response , but Gov. Rick Scott stepped up his criticism of what he called the Senate’s “Obamacare Expansion Plan” and accused his fellow Republicans of trying to impose higher taxes on Floridians. Gov. Scott claims that the Senate’s plan to expand Medicaid under Obamacare will cost Florida taxpayers $5 billion over 10 years. His two priorities in the special session are a package of tax cuts and more money for public schools. Scott has ordered agencies to make contingency plans to provide critical services in case of what he has called a possible “government shutdown,” and has issued dire warnings of teachers not being paid and child abuse complaints being ignored.

The Senate changes, if adopted in committee and floor votes in next week’s special session, would drop the requirement that people would first have to be enrolled in a Medicaid HMO for six months. Instead, they could use federal money to buy subsidized insurance on the private market, in an effort to head off House criticism of Medicaid as a “broken system.”

A job-seeking provision for people in the revamped Senate plan would require them to seek work by using the state workforce portal, Career Source. Patients also could enroll in insurance plans through a federal health exchange, rather than using the state-run option, and the Legislature would have to approve any major changes in the plan ordered by the federal government.

Senate President Andy Gardiner, for the first time, said that approval of a health care plan is not directly linked to passage of a state budget. “We fully intend to pass a budget,” he said. “You could have a scenario where no health care bills get done and we pass a budget and go home.”

The House’s chief budget-writer, Rep. Richard Corcoran called the revised Senate plan “exciting,” but said the House wants guarantees that the Senate will take up several unrelated House proposals. These include plans to expand ambulatory surgical centers, a requirement that hospitals to publish price lists, and an end to approval of new hospital beds through the certificate of need process.

The Legislature will reconvene on June 1, for a three-week special session to finish work on the budget. The session is scheduled to end June 20, but the state Constitution requires a three-day “cooling off” period before lawmakers can vote on the budget. To stay on schedule, they would have to finish all work on the budget by Wednesday, June 17.


The P.R. House of Representatives approved a tax bill that calls for the implementation of an 11.5% sales tax at cash registers, up from the current 7% paid under the sales & use tax (IVU by its Spanish acronym), after introducing several amendments on the floor. The Senate approved the tax bill after amendments were introduced by the Senate before voting on it. If the House decides not to concur with the Senate’s version, a conference committee will be needed to address the impasse, something that could further delay the legislative process.

Among the amendments is one that would establish a commission which would submit a report on the different tax models within 60 days of the law’s final approval. The commission would be created to evaluate the different alternatives to change the consumption tax, including a return to the tax at the ports. The Consumption Tax Transformation Alternatives Commission (CATIC by its Spanish acronym) would comprise the Treasury secretary as its president, the Justice secretary, the Office of Management & Budget director, the Ports Authority director, members from the Senate and the House, as well as representatives from the private and labor sectors.

If it includes findings or recommendations favoring a move toward the tax at the ports, legislation would have to be presented within 10 days of the report’s presentation to address the findings.

A last-minute amendment to the bill calls for applying the 11.5% sales tax on frozen, refrigerated, canned, packaged “or in some other way preserved or packaged” food items. It is argued that the amendment levels the playing field for all involved in the food industry. Prior to the vote, some had been pushing to exclude from the proposed sales tax prepared food items served at restaurants, which have been taxed since the implementation of the sales tax.

The tax plan calls for a nine-month transition from the sales tax to a VAT, a process that is expected to be completed by April 1, 2016. A 4% tax on business-to-business services, as well as professional services, was also included, and is slated to kick in Oct. 1. These services are exempt under the current tax system.


The Commonwealth is no stranger to prolonged budget battles and this year is no exception. The new Governor, a Democrat, faces a legislature where Republicans hold significant majorities. The legislature sees pension reform as its top priority through a bill to scale back pension benefits for future and current public school and state government employees. The governor has made education funding his top priority and released an open letter last week that showed how little headway he has made in winning over opponents to a tax increase on Pennsylvania’s natural gas industry, a source of money Wolf is counting on to put more money into public schools. Overhanging all of this is a projected $2 billion deficit in the fiscal year starting July 1

The Governor’s plan requires over $4 billion annually in higher taxes, according to an Independent Fiscal Office analysis, and Republicans oppose nearly all of it. The House has passed a bill to increase state sales and income taxes as a way to reduce the school-funding burden currently funded primarily by local property taxpayers. Senate leaders are skeptical.  The House also passed a bill to privatize much of the state-controlled wine and liquor store system, but it has not been acted on in the Senate for three months and it is opposed by the Governor. As for the pension situation, the Governor supports the issuance of pension bonds – a red flag for any market observer – as a stopgap measure.

We would not be surprised to see a late budget, a failure to address the Commonwealth’s pension situation, and a greatly compromised effort to address school funding. There is simply no consensus in the Commonwealth around any of the proposed resolutions and there is a deep sense of cynicism on the part of the electorate about efforts to reform school property taxes. This discussion has colored state politics in Pennsylvania for at least a quarter century with no successful resolution achieved regardless of which party has been in power. The net result is likely additional pressure on the Commonwealth’s ratings as well as those of many localities.
Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Muni Credit News May 21, 2015

Joseph Krist

Municipal Credit Consultant


The May update of the budget proposed by Gov. Jerry Brown included  millions more dollars for the university system than he had originally proposed, in exchange for a tuition freeze for in-state students in the 10-campus system. The revised $115.3 billion budget plan ends a dispute between the Governor, who did not support a tuition increase and the president of the University of California. She had threatened to raise tuition unless the state gave more money to the schools. The plan freezes tuition for California residents over the next two years, while out-of-state tuition could increase by as much as 8 percent in each of the next two years and 5 percent in the third year.

The new plan, if approved would provide 4 percent increases in spending for the system in each of the next four years and provides $436 million for the system’s pension obligations. Last fall, the University of California’s regents approved annual tuition increases for in-state students of as much as 5 percent for five years. There has been pressure from the legislature to limit tuition and increase state support. One avenue of cost savings opposed by the system president is massive online open courses (MOOC) as a way to save large sums of money.

The plan also calls for university employees hired after July 2016 to choose between a pension with a defined contribution plan or a defined benefit plan capped at $117,000 per year, a significant decrease from the current cap of $265,000. Tuition and fees for in-state students is more than three times the rate in 2002 at $12,000 a year. The figure does not including room and board or other additional charges on some campuses.

Non-education provisions of the governor’s updated proposal include a new earned-income tax credit to help low-income workers.


Puerto Rico Governor Alejandro Garcia Padilla and lawmakers agreed on a proposal to raise the island’s sales tax. The plan would raise the rate  to 11.5 percent from 7 percent for nine months, in a transition to implementing a value-added tax. The increase is estimated to generate $1.2 billion of revenue. Lawmakers also agreed to recommend $500 million in spending cuts as part of a $9.8 billion budget for fiscal 2016. Puerto Rico’s House of Representatives and Senate must vote on the plan. A sales-tax boost would be a temporary alternative to the governor’s proposal for a value-added tax applied at each level of production and distribution.


A mayoral committee Monday proposed a financial plan for building an approximately $1.1-billion NFL stadium in hopes of persuading the Chargers to stay in San Diego. The plan includes major public contributions – $121 million from the city of San Diego and $121 million from San Diego County – but not a tax increase.

The plan would also include $300 million from the Chargers, $200 million from the NFL, $173 million in construction bonds, $225 million from the sale to a developer of 75 acres at the site of the existing Qualcomm Stadium. It  includes asking the Chargers to pay $1 million per game in rent. The mayor hopes for negotiations with the Chargers to begin by June 1. If a deal can be struck, he said, negotiations will deal with when the public vote would be scheduled.

This plan competes with two rival stadium proposals which have been announced. One is in Inglewood from the owner of the St. Louis Rams and a plan announced by the Chargers and Oakland Raiders to build a joint-use venue in Carson. Officials in Inglewood and Carson have opted not to put the land-use proposals to a vote of the public. In San Diego, however, Mayor Faulconer has promised a public vote even though the funding plan does not require it. A tax-funded proposal would require a two-thirds vote for approval which is widely viewed as a political impossibility.

Putting the issue to a public vote might be the undoing of the plan. The NFL has warned that waiting to hold a vote until November 2016, the next general election, might mean that the city would be too late to persuade the team to remain. The mayoral committee, made up of nine civic leaders, had earlier recommended that the 166-acre, city-owned site in Mission Valley would provide the quickest and least expensive location to build a stadium. A Chargers plan for a stadium in downtown San Diego, near the waterfront convention center, was rejected as too expensive and too fraught with problems with multiple ownership.

To avoid a tax, the committee’s proposed city and county contributions would come not in lump-sum payments but as annual payments. The city, the committee suggested, would be able to redirect money that otherwise would be used for the upkeep of Qualcomm. Once built, the new stadium would be self-supporting, the committee report said. It would be home to the Chargers, the San Diego State Aztecs, the Holiday and Poinsettia Bowls and events including bar mitzvahs, weddings, proms, reunions, corporate gatherings, monster truck jams, music festivals and religious ceremonies, the mayoral committee suggested.


Like the traffic many of you will face this weekend, federal transportation legislation made a small bit of progress this week. The House on Tuesday approved a two-month extension of funding for transportation projects which would maintain funding for the Highway Trust Fund through July 31. The bill now goes to the Senate, which has just two legislative days left before a scheduled week long Memorial Day recess. The transportation program’s spending authority is set to expire during that break, on May 31.

The program has for years relied on fuel taxes that are no longer keeping pace with the nation’s transportation needs.  The last full plan expired in 2009. Federal gasoline and diesel taxes that provide most of the financing were last increased in 1993. There is little support for raising the fuel tax, so Congress needs to find an alternative source of funding. The fight over financing has forced Congress to pass numerous short-term extensions, often just before leaving town for recess. This would be the 33rd short-term extension in recent years.

The House bill faces some resistance in the Senate where Democrats said the short-term extension, perpetuates  uncertainty that has made it difficult for state and local officials to build and maintain infrastructure. The Obama administration released a statement shortly before the House vote saying it did not oppose the stopgap measure because more time was needed to come to a long-term agreement.

Some Republicans would like to pair consideration of a long-term highway bill with tax reform. But there is great skepticism that this could be accomplished within 60 days. The chairman of the Senate Committee on Commerce, Science and Transportation, said he was for a multiyear highway bill and raised the possibility of funding it while extending a series of business tax breaks that are renewed annually, known as tax extenders.


One state has chosen not to wait for Congress to act. In Nebraska, the state’s unicameral legislature overrode Gov. Pete Ricketts’ veto of a 6-cent-per-gallon gas tax increase to pay for road and bridge repairs. The increase would raise Nebraska’s total gas tax over four years to 31.6 cents per gallon and is estimated to generate an additional $25 million annually for the state and $51 million for cities and counties once fully implemented.

The bill received 30 yes votes — the minimum required; 16 senators voted against it. Sen. Jim Smith, the bill’s sponsor, said the gas tax remains the most effective way to pay for construction work to help improve road safety and the economy. “The need is great. The options are few. Waiting is not an option,” said Smith, a fiscal conservative who usually supports tax cuts. In a statement released after the override, Ricketts said the tax will hit low-income Nebraska residents hardest because they pay a larger share of their income on gas than wealthier drivers.

The legislature apparently agreed instead that the road situation has grown too large to address without additional revenue. In a 2014 report, the Department of Roads identified $10.2 billion in projects it says are needed over the next 20 years. Nebraska has more than 100,000 miles of roads and 20,000 bridges, mostly owned by counties and cities. Roughly 10,000 miles of road and 3,500 bridges belong to the state. The state’s share of Federal Highway Trust Fund money has fallen faster than the national average in recent years. Funding from the federal gas tax has declined for most states as vehicles became more fuel efficient and motorists cut back on driving.

The higher tax was cast the tax as a “user fee” because it’s only paid by motorists, including those from out-of-state. Smith said repairing roads and bridges would help save motorists money by reducing car maintenance costs.


Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Muni Credit News May 14, 2015


Joseph Krist

Municipal Credit Consultant


Illinois provided lots of muni news this week. Within a couple of days, the IL Supreme Court was voting 7-0 to find that the state constitution would not allow the legislature to unilaterally alter worker pension benefits and the Governor released his recommended FY 2016 budget. Effectively, they are both the same story.

The enacted pension changes would have reduced future cost-of-living adjustments for workers, increased the retirement age for some and capped on pensions for those with the highest salaries. The court however, cited the state Constitution which says that benefits promised as part of a pension system for public workers “shall not be diminished or impaired.” “Crisis is not an excuse to abandon the rule of law,” Justice Lloyd A. Karmeier said. “It is a summons to defend it.”

The decision itself was anticipated but some of the direct language included in the opinion was. “The General Assembly may find itself in crisis, but it is a crisis which other public pension systems managed to avoid,” Justice Karmeier wrote. “It is a crisis for which the General Assembly itself is largely responsible.”

The Governor has suggested that voters should consider a constitutional amendment that would mark a distinction between guarantees of benefits already earned and changes to future benefits. Under the state’s Constitution, officials may assign new benefits to future workers, but cannot diminish benefits already promised. Several states have adopted “tiered” pension systems where pension terms are adjusted for prospective employees. One state which has successfully employed such a system in New York.

The court acknowledged that the decision complicates the state’s fiscal outlook. “The financial challenges facing state and local governments in Illinois are well known and significant,” the opinion read. “In ruling as we have today, we do not mean to minimize the gravity of the state’s problems or the magnitude of the difficulty facing our elected representatives. It is our obligation, however, just as it is theirs, to ensure that the law is followed.”

The Governor’s recommended budget relies on $2.2 billion in savings related to a new proposal to reform Illinois’ critically underfunded retirement systems. These savings are assumed to be realized in the fiscal year that begins on July 1, 2015, even though the pension proposal has not been introduced as legislation in the Illinois General Assembly and is likely to face its own legal challenges.  In addition to pension savings, the proposed FY2016 budget assumes a reduction of $655 million, or more than one third, in the cost of State group health insurance through collective bargaining. Both the magnitude of the projected savings and the short timeframe for reaching agreement with the State’s largest union suggest that the budgeted numbers are unlikely to be realized. Other budgeted savings, particularly in the Medicaid program, depend on changes in State law or require federal approval.  The Governor’s recommended budget cuts local governments’ share of State income taxes by half. The budget also proposed cuts to spending on community care for the elderly, disabled and those with mental illness.

The state is also not the only entity potentially impacted by the decision on pensions. The City of Chicago’s pathway out of its pension minefield most likely became more twisted. According to Moody’s, if current laws stand, Chicago’s annual pension contributions are projected to increase by 135% in 2016; by an average annual rate of 8% in 2017-21; and by an average annual rate of 3% in 2022-26. Looming contribution increases to the Municipal and Laborer plans could be reduced if the courts find Public Act 98-0641 unconstitutional. The city’s impending contribution increases to the Police and Fire plans will be reduced if the state amends Public Act 96-1495 per the city’s request.

That law requires that the City fund the Police and Fire pension funds annually in amounts are equal to (1) the normal cost of the pension fund for the year involved, plus (2) an the amount sufficient to bring the total assets of the pension fund up to 90% of the total actuarial liabilities of the pension fund by the end of municipal fiscal year 2040. Without the increased payments that current statutes require of the city, the plans will continue to liquidate assets to pay benefits. As the plans approach insolvency, risks to the city’s solvency will grow. The legislature will likely have concerns about the legality of any changes it must approve which would alter the City’s pension systems. All of this resulted in Moody’s Investors Service downgrading the city’s debt rating on bond issues backed by property, sales and fuel tax revenue to Ba1 from Baa2.

Mayor Rahm Emanuel maintains that pension changes he engineered for the workers and laborers funds can withstand the legal challenges they face. Moody’s said however that, “we believe that the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably. “Whether or not the current statutes that govern Chicago’s pension plans stand, we expect the costs of servicing Chicago’s unfunded liabilities will grow, placing significant strain on the city’s financial operations absent commensurate growth in revenue and/or reductions in other expenditures. The magnitude of the budget adjustments that will be required of the city are significant.” Emanuel responded to the double downgrade by saying Moody’s had overreacted and noted that they did not downgrade the state of Illinois.

The cure for the pension problem is easy – new revenue and negotiated changes in benefits. The dilemma for both entities is the lack of political support for higher taxes. Other than savage cuts to services which may be even more politically unpalatable, increased revenues dedicated to pension funding seem to be the only way to address the chronic underfunding practices which created the current crisis. Unless plans emerge to address the situation, the downward pressure on ratings and valuations will continue for both entities. S&P put the State ratings on negative outlook on Friday.


It’s not an audit and while it is a “quarterly” report and it’s been seven months between releases, a current financial update was provided by the Commonwealth. It was unsurprisingly bleak. The commonwealth in fiscal 2016 “may lack sufficient resources to fund all necessary governmental programs” requiring “emergency measures [possibly including] a moratorium on payment of debt service,” the report said. It also referenced the potential for a debt adjustment, or the utilization for the payment of the commonwealth’s debt service of certain taxes and other revenues previously assigned by law to certain public corporations to secure their indebtedness.”

The government estimates a $2.4 billion deficit in the coming fiscal year, assuming no steps are taken to increase revenue or cut expenditures. In comparison, the current fiscal year budget is $9.56 billion. The report projects a current fiscal year will end deficit of $191 million. It says that there are resources to pay off its debts in the current fiscal year. It potential difficulties with the commonwealth’s and the Government Development Bank for Puerto Rico’s ability to make roughly $800 million in payments in July and August.


Bondholders lost another round in bankruptcy court in the ongoing tug of war between creditors and pensioners. A bankruptcy judge has dismissed a suit challenging the city of San Bernardino’s decision to make its pension payments in full to CalPERS. The ruling from U.S. Bankruptcy Judge Meredith Jury rejected the claim filed by Ambac Assurance Corp. and a Luxembourg bank named EEPK. Last fall the city, which filed for bankruptcy in 2012, said it would pay its $24 million-a-year CalPERS bill in full. Ambac and EEPK said that arrangement was unfair to other creditors.

Although San Bernardino hasn’t filed its complete repayment plan, it’s likely that many creditors would stand to receive only a portion of what they’re owed. Ambac and EEPK are owed a total of more than $59 million in the San Bernardino bankruptcy.

CalPERS welcomed the ruling saying,  “The judge in this case has ruled appropriately”. “Now the city can turn its attention to the more pressing matter of completing its plan of adjustment for exiting bankruptcy.”

Last fall, a bankruptcy judge ruled that Stockton had the legal right to reduce its payments to CalPERS. But the judge also approved Stockton’s repayment plan, in which the city agreed to continue paying CalPERS in full. Anything less than full payment by cities triggers a complicated legal mechanism that would result in a significant slashing of benefits to current and future retirees. In Stockton, for example, pension benefits would have dropped 60 percent, and city officials claimed that police, firefighters and other municipal employees would have quit for other jobs.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.

Muni Credit News May 7, 2015

Joseph Krist

Municipal Credit Consultant


Gov. Rick Snyder announced plans last week  to create a new debt-free Detroit public school district and pay off the old district’s debt with an additional state contribution of between $53 million and $72 million annually for up to 10 years. Snyder’s plan for overhauling education in Detroit calls for establishing a “brand-new school district, not a charter” school system that would be governed by a new seven-member board initially appointed by the governor and the mayor.

Snyder would get four appointments to the board of the new district, to be known as the City of Detroit Education District, while Detroit Mayor Mike Duggan would get three. The new education district would include operations, teachers and buildings that would transfer to them. The new DPS would inherit the district’s pensions, union contracts and employees. The old DPS district would continue to collect the 18-mill non-homestead property tax and use the money to pay down the district’s debts. The tax generates approximately $72 million annually, while the district faces debt service payments of $53 million each year, diverting $1,100 per student away from classroom instruction, according to the Citizens Research Council of Michigan.

Under the proposal, there would be a six-year “pathway” for returning to a locally elected Detroit school board by staggering out elections for two seats in November 2017, two seats in November 2019 and the remaining three seats in November 202. Detroit’s elected school board has been effectively sidelined for six years while the district has been under the control of four state-appointed emergency managers. The governor said he hoped to get legislation moving soon but added, “From a practical matter, it probably won’t be done until fall. The proposed financial assistance for DPS could be three times the $195 million lawmakers committed last year toward funding the city of Detroit’s pension funds.

The governor said the district has accumulated $483 million in debt.  Under the proposal the state would need to commit an extra $53 million to $72 million annually for 8-10 years from the School Aid Fund toward operating funding for the new DPS According to the proposal by isolating the debt  the annual cost to the state could be lowered if about $300 million in outstanding bond debt can be refinanced.

Previously, the Coalition for the Future of Detroit Schoolchildren, a 36-member group issued a report in late March with recommendations for overhauling the city’s school system. They included returning DPS to local control, putting Education Achievement Authority schools (Charter schools)  back in the district and having the state pay off the district’s debt.

While the District has not issued debt under its own property tax based credit for many years, the plan offers relief to insurers of that debt who have already been battered by the City’s bankruptcy. It also offers the potential for an upgraded entity should it eventually issue its own traditional GO debt.


Infrastructure is a much lamented topic especially as it pertains to roads. Drivers nearly everywhere lament the condition of their area’s roads, especially after a difficult winter. So it was a bit of a surprise that Michigan voters resoundingly defeated tax changes this week that would have produced more than $1 billion a year for roads. The vote is considered a setback for Gov. Rick Snyder. A one-cent increase in the sales tax was the cornerstone of the ballot measure, which also would have created more money for education, local governments and public transit as well as fully restoring a tax break for lower-income workers.

The proposed constitutional amendment was placed on the ballot by the Republican-led Legislature and was supported by the Republican governor, Democrats, and a coalition of business, labor and government groups. It would have eliminated an existing sales tax on fuel so all taxes on motor fuels could go to transportation. It also would have restructured and doubled existing fuel taxes, and raised vehicle registration fees, to increase Michigan’s $3.7 billion transportation budget to $5 billion.


Puerto Rico Rico Electric Power Authority (PREPA) bondholders granted the utility a 35-day extension on its forbearance agreement, which will now expire June 4, with PREPA delivering its restructuring plan by June 1. “During the new forbearance period, PREPA will have the opportunity to provide information to its creditors and meet on a timely basis to discuss all the elements of a plan that will improve PREPA,” according to the utility. This is the third extension conceded to the troubled utility after the original March 31 deadline.

“Under the agreement, PREPA has agreed to provide an informative session between the authority’s rate consultants and creditors’ advisors by May 11 and deliver a proposal for a comprehensive recovery plan to the bondholders’ advisors by June 1,” the PREPA statement said. On April 15, creditors agreed to grant PREPA a second 15-day extension “to allow all parties to continue their dialogue to develop a consensual solution to transform PREPA that will benefit all stakeholders,” Lisa Donahue, the utility’s chief restructuring officer, said.


Senators Ron Wyden (D-OR) and John Hoeven (R-ND) have proposed The Move America Act of 2015. The Act is designed to leverage additional private investment in public infrastructure. The program creates Move America Bonds, to expand tax exempt financing for public/private partnerships, and Move America Credits, to leverage additional private equity investment at a lower cost for States. Move America provides up to $180 billion in tax-exempt bond authority for States over the next 10 years and  up to $45 billion in infrastructure tax credits for States over the next 10 years.

Move America Bonds would generally be treated as exempt facility bonds under current law, with several exceptions. So long as facilities are generally available for public use, the government ownership requirements for exempt facility bonds do not apply to Move America Bonds. This retains the restriction to public-use infrastructure, while allowing more flexible ownership and management arrangements. It also allows private partners to benefit from depreciation deductions, should they take ownership of the facility either directly or through a long term leasing arrangement. The interest income on Move America Bonds is excluded from the alternative minimum tax. This eliminates the interest rate penalty placed on states for public projects with private partners.

Qualified facilities for Move America Bonds are limited to publicly-available transportation infrastructure, including airports, docks and wharves, mass commuting facilities, freight and passenger rail, highways and freight transfer facilities, flood diversion projects, and inland and coastal waterway improvements. The qualifying projects for docks and wharves is expanded to include waterborne mooring infrastructure and landside road and rail improvements that integrate modes of transportation. Move America Bonds are subject to a uniform volume cap, set equal to 50 percent of a State’s current private activity bond volume cap. As some projects have long lead times or may require more bond volume than a State receives in a single year, States would be permitted to carry forward volume cap for up to three years. Any carried over volume cap not used after three years would be reallocated to States that have fully utilized their cap, ensuring that the program is fully utilized. States would be required to report to the U.S. Treasury Department the amount of unused volume cap that is being carried forward each year.


The New York Mets better than expected start has garnered them some favorable attention some 30 games into the 2015 season. Mostly it is baseball fans who are interested but the bonds which financed  the Mets’ home park are also of interest to investors. NYC IDA debt for the Queens Ballpark LLC is widely held by New York investors both individually and institutionally.  The standings are reminders of the financial importance of good on the field performance as reflected in the recently released operating results for the Queens Ballpark entity that supports the outstanding debt which financed Citi Field.

The Corporation reported a 1.8% decrease in total revenue. The primary sources of decrease were ticket sales and advertising revenue. On the plus side, parking and concession revenues were up. Since only a portion of attendance-based revenues are pledged whereas all of the parking and concession revenues are pledged, lower attendance as the result of a losing season is mitigated. The means that the ultimate impact on current coverage is fairly minimal.

We feel that the bonds are appropriately rated at the BB range. The steadily increasing annual debt service requirements and inconsistent performance of the team and its impact on attendance are enough to constrain the quality of the credit over the foreseeable term.


Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned.  Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice.  Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed.  Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.