Muni Credit News November 8, 2016

Joseph Krist

Municipal Credit Consultant









Audit Update -Alejandro García Padilla’s administration recently finalized the hiring of KPMG, which once again will be in charge of the external audit of the Puerto Rico government’s financial statements for fiscal year 2015. The contract runs until June 2017. KPMG is also auditing the Employees Retirement Systems ($425,000) and the Government Development Bank ($1.35 million), both set to expire next summer. The goal is to release “before the end of the first quarter of 2017” the government’s comprehensive annual financial report (CAFR) for fiscal 2015. This would mark a 10-month delay since its due date, or May 2016.

Of the 70 entities which make up the government’s financial report , 58 have completed their audit processes, yet the retirement systems, the Government Development Bank (GDB) and the Electric Power Authority have yet to finalize theirs. It is not yet known whether KPMG will be the firm in charge of fiscal 2016 audited statements. The administration’s initial plan was to have KPMG jointly conduct the audit of fiscal years 2015 and 2016, and thus deliver a consolidated CAFR. The Puerto Rico government unveiled July 1 its audited financial statements for fiscal 2014.

Litigation Status – The Puerto Rico Financial Oversight & Management Board asked U.S. District Court Judge Francisco Besosa to reconsider his ruling in which he denies the panel’s request to intervene in three consolidated cases whose plaintiffs are seeking a lift of Promesa’s stay on liability claims. Besosa denied the board’s motions to intervene, contending that it failed to comply with Federal Rules of Civil Procedure because it didn’t attach to its motion a pleading addressing the substantive merits of its petition.

Control Board – Just before midnight Monday, Oct. 31, the Puerto Rico government submitted documentation on seven of the nine information requests made by Promesa’s fiscal control board, Secretary of State and Financial Advisory & Fiscal Agency Authority.  The board received annual and monthly information on the government’s cash flow, and its projections until the fiscal year’s end; a report on monthly payroll expenses; a report on the monthly receipt and disbursement of federal funds; a report on annual and monthly compliance with the approved budget; monthly and annual information on revenues and Treasury Department’s measures to increase these; and details about the commonwealth’s debt service obligations for the current fiscal year. Quarterly reports on productivity and performance in the commonwealth’s public entities, and macroeconomic statistics of Puerto Rico weren’t submitted.


The state of Kansas in October again missed its revenue target by $12.7 million. During October, the state collected $10.7 million less in retail sales tax and $7.8 million less in corporate income tax than anticipated. The state treasury surpassed monthly projections on individual income tax by reaping an extra $9.3 million.

Kansas’ cumulative revenue shortfall surpassed $80 million. Overall for the fiscal year, Kansas revenue is more than 4 percent below the level predicted by a panel comprised of Brownback administration officials, legislative staff and university economists. Absent a decisive economic turnaround in Kansas, Brownback would be required to submit a sharply revised budget for the current year and outline for House and Senate members a difficult path to a balanced budget in the upcoming fiscal year.

“If the next two quarters are that bad, you’re talking $240 million in this fiscal year. That would be a worst-case scenario,” said the Senate Minority Leader. State sales tax revenue was $45 million below the projection. The statewide sales tax was raised from 6.15 percent to 6.5 percent in 2015 to help close a projected budget deficit. State tax collections have fallen short 33 of the 46 months since Brownback and the Republican-led Legislature agreed in 2012 to reduce individual income tax rates and exempt more than 330,000 business owners from the state income tax. The energy and agriculture economy in Kansas remained in a tailspin. Robust economic activity in Johnson County and a few other locales can’t compensate for weight of low oil and commodity prices.

Overall, Kansas generated $447 million in total taxes for the month. Total tax collections have exceeded the previous fiscal year to date by $6.8 million, or 0.4 percent. The treasury couldn’t match projections that Kansas would bank $80.4 million, or 4.2 percent, more from July through October.

The state Revenue Department pointed to a September analysis by the Rockefeller Institute of Government that state tax revenue growth had slowed in the first half of 2016. The institute said U.S. corporate income taxes declined 4.5 percent nationally as sales tax revenue slowed.  Kansas ranked rock-bottom in the three-month change in economic growth metrics from July through September, with a decline of 1.18%. Indeed, it was one of only eight states that showed any decline. The U.S. average gained 0.64%.


Elizabeth River Crossings (ERC) is sponsored by two infrastructure development and management firms—Skanska Infrastructure Development and Macquarie Infrastructure and Real Assets (MIRA). The project comprised the development, design, construction, finance and operation of a new two-lane tunnel adjacent to the existing Midtown Tunnel under the Elizabeth River, maintenance and safety improvements to the existing Midtown and Downtown tunnels, extending the MLK from London Boulevard to Interstate 264, and interchange modifications at Brambleton Avenue and Hampton Boulevard. The Project is located between the cities of Portsmouth and Norfolk in Hampton Roads. Under a comprehensive agreement VDOT  maintained ownership of the infrastructure and oversee ERC‘s activities. ERC financed, and built the facilities, then operates and will maintain them for a 58-year concession period.
Unique to this project was the recent announcement  that Norfolk and Portsmouth residents will soon receive help paying tolls through the Elizabeth River Tunnels. Toll Relief, the first program of its kind in the nation, will provide financial relief to qualified Norfolk and Portsmouth residents who travel the Elizabeth River Tunnels.

To qualify for Toll Relief, participants must: Reside in Norfolk or Portsmouth; Earn $30,000 or less per year; Have or obtain a Virginia E-ZPass transponder and registered account; Record eight trips or more during a calendar month through the Downtown or Midtown tunnels. Once a qualified participant’s Virginia E-ZPass transponder has recorded eight trips or more through the Downtown or Midtown tunnels during a calendar month, a $0.75 per trip refund will be credited to his or her Virginia E-ZPass account.

Toll Relief is a 10-year program. The first year of the program will serve as a pilot. Data collected will help determine if adjustments to implementation are needed.

On another front in Virginia, Gov. Terry McAuliffe announced that the state will sign a 50-year deal with I-66 Express Mobility Partners to build and operate toll lanes from the Beltway to Gainesville. The deal is separate from a plan to add rush hour tolls along I-66 east of the Beltway. Cintra, Meridam, Ferrovial and Allan Myers teamed up to submit the selected bid. Ferrovial, which owns Cintra, is a Spanish company that has been involved in a series of similar toll road deals elsewhere in the country, which have an admittedly mixed operating record.

The firms have pledged to spend $800 million on transit projects over the next 50 years. They plan to spend another $350 million to improve mobility through the 66 corridor. The firms will be responsible for all upfront costs and all maintenance of the lanes. “And just for icing on the cake, on top of all of that, Express Mobility Partners will write the Commonwealth of Virginia a check for $500 million that we’ll receive early next year,” McAuliffe said. He called the deal a model for other states considering similar projects.

“Tolling revenue is very important. It is also very lucrative,” McAuliffe said. “If we are going to give tolling revenue away, we’re going to negotiate a very, very tough deal.” Under the terms, two express lanes would be built in each direction. The lanes will operate similarly to express lanes that run along Interstates 495 and 95 in Virginia. Construction is expected to begin next year and the lanes should open to traffic in 2022.

Like other express lanes elsewhere in the region, cars with three or more occupants and an E-ZPass Flex in HOV mode will travel for free. Cars with one or two people will pay a toll that adjusts based on the number of vehicles using the lanes. A higher toll is meant to discourage drivers from using the lanes in order to keep traffic moving. Lower tolls at times when there are fewer cars in the lanes are meant to attract drivers to the lanes. This deal is separate but related to plans to toll solo drivers during the rush hour on I-66 east of the Beltway. Tolls are set to begin in mid to late 2017 for drivers traveling east in the morning and west in the afternoon.

Virginia plans to raise the HOV requirement from two to three people once the express lanes west of the Beltway open, expected in 2021. The proposed agreement states that changes to HOV rules inside the Beltway that would lower the number of passengers required to qualify as a high occupancy vehicle or that would reduce the length of the tolling periods would likely result in a payment from the state to the companies operating the toll lanes outside the Beltway.

With no upfront state funding needed, $300 million in state road funds that had been allocated for the express lanes project would be available for other projects.


All Aboard Florida last week asked for — and on Thursday was granted — an extra month to respond to the counties’ most recent filing. Martin and Indian River in that filing asked the court to block All Aboard Florida’s access to the $1.75 billion of tax-free bonds it was issued last year. All Aboard Florida needed extra time to respond because it is contemplating a plan that would substitute a $600 million debt issue for the first phase of construction in place of the original bond plan which is being challenged.

The U.S. Department of Transportation — according to All Aboard Florida – would provide preliminary approval for the bonds — at a Nov. 16 meeting. If the bonds are approved, the counties’ case would be moot, All Aboard Florida contends in court documents. The counties replied that All Aboard Florida’s financing plan is an attempt to

Our experience tells us that when a speculative project like this so desperately clings to tax exempt financing, that the economics of the project are marginal at best. This reflects the fact that if a project has any real viability in a wider range of financing environments, that there would not be such desperation in the effort to secure the cheapest financing. All in all, the warning signs are as clear as the gates being lowered, the red lights flashing, and the bells ringing at this railroad investment crossing.


Bernie Sanders may not be on the ballot but one of his big issues is, at least in Colorado. Voters will be asked to approve Amendment 69 which would establish what would effectively be Medicare for all in the Centennial State. The Colorado Foundation for Universal Health Care published an Economic Analysis of the ColoradoCare Proposal with projections for 2019 and compares Coloradans’ expenses under the current system with their expenses under ColoradoCare. That study projects that Under ColoradoCare, in 2019 Colorado residents and employers would pay $26.7 billion in premiums and out-of-pocket expenses for the services typically covered by comprehensive health and dental insurance — $4.5 billion less than the $31.2 billion cost with the current system.

ColoradoCare would have no deductibles, no copays for most preventive and primary care, and would waive other copayments when they cause financial hardship. All Coloradans would have affordable health care. The current system is projected to leave more than 23% Coloradans underinsured in 2019. There would no longer be burdensome medical debt or bankruptcy caused by medical bills. Overall, Colorado residents and employers would pay $4.5 billion less for health care. The calendar year 2019 is projected to have a $1.5 billion surplus to offset future health care costs and/or be refunded to Premium Tax payers. Overall, Colorado residents would gain over $1.1 billion from income tax deductions.

We take no position on whether or not the initiative should be approved. It would rely on cost cutting in the healthcare system which could have an adverse impact on providers.

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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