Muni Credit News July 27, 2017

Joseph Krist

Senior Municipal Credit Consultant



The government’s chief financial officer, asked the agencies to cut an additional 5 percent of the current budget in order to add $100 million to the government reserve requested by the fiscal control board. The purpose of the request is to add initiatives to avoid a reduction in the working hours of public employees or the elimination of their Christmas bonus on Sept. 1, the date imposed by the board for the government to demonstrate how it will put into effect the more than $400 million in cuts this fiscal year, which began in July.

At the same time, the Treasury secretary said that before the end of July his agency would send about $50 million in taxpayer refunds and that the rest—roughly $105 million more—would be sent in August to some 55,000 people. In fact, reimbursements are also a reason why the government requested an additional 5 percent budget cut to its agencies.


It has been legal to sell marijuana for adult recreational use in Colorado since January 1, 2014.In the ensuing period, The state of Colorado has received more than half a billion dollars in cannabis-related revenue since legal adult cannabis sales began. Revenues are generated through a 15 percent excise tax on wholesale sales of cannabis; a 10 percent special sales tax on retail sales; applying the standard 2.9 percent state sales tax to adult-use and medical cannabis; and the application and licensing fees paid by adult-use and medical cannabis businesses. Local governments in Colorado are generating significant annual revenue by levying standard local sales taxes on cannabis products, enacting special cannabis-specific taxes, and collecting local application and licensing  fees. Localities also receive a portion of the cannabis tax revenue collected by the state government.

So what is the money used for? In FY 2016 and 2017, $117.9 million was used to fund school construction projects, and an additional $5.7 million was distributed to the Public School  Fund; $5.8 million was allocated for school drop-out prevention programs and bullying prevention and education, plus more than $4.5 million for grants to increase the presence of school health professionals; more than $16 million was allocated for substance abuse prevention and treatment, and $10.4 million was used for mental and behavioral health services.


In a move that will please providers of and investors in mass transportation, The Senate Transportation, Housing and Urban Development, and Related Appropriations Subcommittee today approved its FY2018 appropriations bill with funding to advance transportation infrastructure development.  The bill provides $19.47 billion in discretionary appropriations for the U.S. Department of Transportation for fiscal year 2018.  This is $978 million above the FY2017 enacted level.  Within this amount, priority is placed on programs to improve the safety, reliability, and efficiency of the transportation system.

Especially pleasing to transit advocates is the fact that the bill includes $550 million, $50 million above the FY2017 enacted level, for TIGER grants (also known as National Infrastructure Investments). A House proposal more reflective of trump administration priorities would eliminate this program which has widespread support at the local level. In addition, the Senate bill calls for $12.129 billion for the Federal Transit Administration (FTA), $285 million below the FY2017 enacted level.  Transit formula grants total $9.733 billion, consistent with the FAST Act.  The bill provides a total of $2.133 billion for Capital Investment Grants (“New Starts”), fully funding all current “Full Funding Grant Agreement” (FFGA) transit projects, which is $280 million below the FY2017 enacted level.

Heavy rail will benefit as well with the Senate proposing $1.974 billion for the Federal Railroad Administration (FRA), $122 million above the FY2017 enacted level.  This includes $1.6 billion for Amtrak for the Northeast Corridor and National Network, continuing service for all current routes.  The bill also provides $250.1 million for FRA safety and operations, as well as research and development activities.

The bill also provides $92.5 million for the Consolidated Rail Infrastructure and Safety Improvement grants program, of which $35.5 million is for initiation or restoration of passenger rail, $26 million for Federal-State Partnership for State of Good Repair grants, and $5 million for Restoration and Enhancement grants.


 Housing is another sector receiving Senate support despite a lack of interest from the Trump administration. HUD would receive $40.244 billion in discretionary appropriations, an increase of $1.4 billion above the FY2017 enacted level. The bill includes support for HUD rental assistance programs which provide housing assistance for nearly 5 million vulnerable families and individuals.  Of those receiving assistance, 57 percent are elderly or disabled.  This bill provides necessary increases to continue assistance to all families and individuals currently served by these programs.

Included in the bill is:  $21.365 billion for tenant-based Section 8 vouchers, $1.07 billion above the FY2017 enacted level; $6.45 billion for public housing, $103.5 million above the FY2017 enacted level; $11.5 billion for project-based Section 8, $691 million above the FY2017 enacted level; $573 million for Housing for the Elderly, $70.6 million above the FY2017 enacted level, and $147 million for Housing for Persons with Disabilities, nearly $1.0 million above the FY2017 enacted level.

All of these are categories which receive some level of capital funding through the municipal bond market.


The Senate Appropriations subcommittee on transportation agreed to raise the federal cap on so-called passenger facility charges from $4.50 to $8.50 per flight, or $34 for a connecting round-trip. Airports have urged a hike in the fees as a way to fund construction projects such as improving terminals, with $100 billion in projects looming over the next five years. The airline industry strongly opposes the provision as a “secret tax hike”.

Airports issue bonds backed by passenger facilities fees as a way of keeping terminal rental and airline landing fees lower. These revenues can be applied solely to general airport revenue bonds. Airlines don’t like the fees because they appear on the passengers’  tickets thereby making the cost of a flight more expensive. The Senate legislation must still be reconciled with the House, which didn’t include a fee hike in its version of the bill.

The debate comes amid the release of first quarter airline fare trends. The average domestic air fare decreased to $352 in the first quarter of 2017, down 5.0 percent from $370 in the first quarter of 2016, adjusted for inflation but up 1.5 percent from $347 in the fourth quarter of 2016, the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) reported. The average domestic one-way air fare was $256 in the first quarter of 2017, while the average round-trip air fare was $417. Fares are based on the total ticket value, which consists of the price charged by the airlines plus any additional taxes and fees levied by an outside entity at the time of purchase. The first quarter fare of $352 was the lowest first-quarter fare in the 22 years since BTS began collecting air fare records in 1995. The previous low was $370 in the first quarter of 2016. The first-quarter 2017 fare was down 28.3 percent from the average fare of $491 in 1999, the highest inflation-adjusted first quarter average fare on record.


The US Bureau of Labor Statistics released data this week on job growth trends across the country.  From September 2016 to December 2016, gross job gains from opening and expanding private-sector establishments were 7.5 million, a decrease of 185,000 jobs over the quarter, the U.S. Bureau of Labor Statistics reported today. Over this period, gross job losses from closing and contracting private-sector establishments were 7.1 million, an increase of 127,000 jobs from the previous quarter. The difference between the number of gross job gains and the number of gross job losses yielded a net employment gain of 376,000 jobs in the private-sector during the fourth quarter of 2016.

In the fourth quarter of 2016, gross job losses represented 5.8 percent of private-sector employment. Gross job losses are the result of contractions in employment at existing establishments and the loss of jobs at closing establishments. Contracting establishments lost 5.7 million jobs in the fourth quarter of 2016, a decrease of 6,000 jobs from the prior quarter. In the fourth quarter of 2016, closing establishments lost 1.4 million jobs, an increase of 121,000 jobs from the previous quarter.

If one were to look at recent budget trends across the states, one might see a correlation. Gross job gains exceeded gross job losses in 41 states, the District of Columbia, and Puerto Rico in the fourth quarter of 2016. Over this period, 25 states exceeded the U.S. rate of gross job gains as a percent of employment, which was 6.2 percent.

Alaska had the highest rate of gross job gains as a percent of employment, at 9.6 percent. Alaska also had the highest rate of gross job losses as a percent of employment at 10.0 percent, above the national rate of 5.8 percent. Connecticut had the lowest rate of gross job gains as a percent of employment at 5.1 percent. Tennessee had the lowest rate of gross job losses as a percent of employment at 5.0 percent.


Transportation has rightfully been sighted as the major sticking point holding up Wisconsin’s adoption of a new biennial budget. Education funding with its implications for school finance at the local level is also serving to hold things up. A new plan in the State Senate would increase per-pupil funding, from the current $250 to $654 over the biennium, and additional dollars for low-spending districts and private schools that take part in one of the state’s four voucher programs. It raise the income cap on the statewide Parental Choice program, which allows students outside of Milwaukee and Racine to attend private schools on vouchers. The cap would be raised from the current 185% of the federal poverty level to 220%, or about $54,120 for a family of four. At 220%, the Senate proposal would cost about $4.4 million, though that would be passed on to the local public schools, and is projected to increase enrollment in the statewide program by about 550 students.

Governor Walker’s  proposal would raise the state’s per-pupil aid from the current $250 to $450 in 2017-’18 and $654 in 2018-’19, at a cost of about $505 million. Revenue limits, which control how much districts can raise from the state and local taxpayers, remain unchanged for most districts. But low-spending districts, which were locked into those rates when revenue caps were imposed in the 1990s,  would be allowed to gradually raise their spending to $9,800 per student by 2022-’23.

Concurrently, it would increase funding for all four of the state’s private school voucher programs, however, most of the increase would be passed on to local public school districts in the form of cuts to their state aid. Per-pupil payments for the Milwaukee, Racine and statewide Parental Choice programs would rise from the current $7,323 to $7,757 in 2018-’19 for K-8 students and from $7,969 to $8,403 for high-schoolers. Per-pupil payments for students in the special needs scholarship program would rise from the current $12,000 to $12,434 in 2018-’19.

Clearly the trend is towards private schools and away from the public school system. This has negative implications for local school district tax pressures.

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.

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