Muni Credit News Week of February 5, 2018

Joseph Krist








Moody’s: Aa2      Fitch: AA

It is a long established credit with a favorable historic track record so there should not be anything which makes this particularly interesting that meets the eye. It’s for precisely that reason that we feel the deal is worthy of comment. A traditional toll road may not the most likely candidate as a harbinger of what might best work down the road in this sector but ironically it may be.

Here we have a facility which fits the profile of a user fee financed road. The facility can generate revenue regardless of the type of vehicle using it. It has no dependence on fuel based taxes as a source of debt repayment. It has flexibility regarding of method of revenue collection.

The senior lien revenue bonds are special obligations of the county, secured by a first lien on the trust estate established under the revenue bond indenture, which includes a gross pledge of funds in the debt service and debt service reserve fund (DSRF) and all revenues of the toll road system. The rate covenant requires toll revenue collection sufficient to produce revenues that provide at least 1.25x aggregate debt-service coverage on toll road senior lien revenue bonds accruing in such fiscal year. The senior lien DSRF is to be funded at not less than average annual aggregate debt service and not more than maximum annual debt service.

That revenue pledge is supported by a system of roads which serves a growing and increasingly diverse area economy that is highly dependent on the roadway network for commuting and combines with annually indexed toll rate increases to provide a significant track record of strong revenue growth. The tollway is considered to be in good condition. The combination of these factors has produced revenues adequate for good operational performance and limited maintenance expenditures. In addition, other entities have benefitted  from the Authority’s legal ability to transfer funds either to a $120 million annual transfer to the county for mobility projects or major capital projects like the $962 million Ship Channel Bridge.

The point is that the financial structure seems to be well positioned to handle the potential financial risks which are seen as inherent in the rollout of transportation and mobility as a service.



It comes as no surprise that the head of CMS who was formerly the head administrator for Indiana’s Medicaid Program under then Governor Mike Pence, has approved a waiver permitting a requirement that Medicaid recipients work. In order to qualify for coverage under the new plan, able-bodied individuals under 60 years old would need to work at least 20 hours a week on average, be enrolled in school, or participate in the state’s job training and search program. Those not meeting the standards will be suspended from the program until they can comply with the requirements for a full month. Indiana’s proposal offers exemptions from its work requirement, including if a beneficiary is pregnant, a primary caregiver, receiving substance use disorder treatment or identified as medically frail.

The newly confirmed head of HHS described the waiver provisions as things that can make Medicaid can become a pathway out of poverty. The thing is that Medicaid was never intended to be an employment program. The authorizing legislation always made clear it was an access to health program.

As for the concept that Medicaid is provided to a group of deadbeats sitting around, the Kaiser Family Foundation has data that puts paid to that idea. Data show that among the nearly 25 million non-SSI adults (ages 19-64) enrolled in Medicaid in 2016, 6 in 10 (60%) are working themselves. A larger share, nearly 8 in 10 (79%), are in families with at least one worker, with nearly two-thirds (64%) with a full-time worker and another 14% with a part-time worker; one of the adults in such families may not work, often due to care giving or other responsibilities. Adults who are younger, male, Hispanic or Asian were more likely to be working than those who are older, female, or White, Black, or American Indian, respectively. Those living in the South were less likely to work than those in other areas.

Most Medicaid enrollees who work are working full-time for the full year, but their annual incomes are still low enough to qualify for Medicaid.  So one has to ask, what is the real purpose of the waivers? Other than to achieve budget savings for states and the federal government, it is hard to see what the underlying basis for these waivers is. It seems more politically driven. More than four in ten adult Medicaid enrollees who work are employed by small firms with fewer than 50 employees that will not be subject to ACA penalties for not offering coverage. So it is hard to see exactly where all of these undeserving are.

There is data which shows what can happen when programs like welfare and Medicaid are tied to work requirements. The Center for Budgets and Priorities analyzed state-collected data on the employment and earnings of Kansas parents leaving TANF cash assistance between October 2011 and March 2015. Beginning in November 2011, Kansas Governor Sam Brownback and a Republican-controlled legislature enacted a series of punitive eligibility changes in the state’s Temporary Assistance for Needy Families (TANF) cash assistance program that made it harder for parents who lose their job or cannot work to receive the support needed to pay rent and utilities and afford basic goods.

The analysis indicates that the vast majority of these families worked before and after exiting TANF, but most found it difficult to find steady work and secure family-sustaining earnings. Most parents leaving TANF had jobs at some point, before and after leaving the program. Work was common but for most it was unsteady. Although some parents’ earnings rose after leaving TANF, the majority remained far below the federal poverty line.

According to the CBPP, Kansas’ TANF cash assistance caseload, hereafter referred to as families served, has fallen substantially since the state implemented its new work and time limit policies (see Figure 2). The number of families served has plummeted by more than half, from 13,014 in October 2011 to 5,231 in October 2016. Previously, that number ebbed and flowed as the economy and low-income programs changed. The steepest drop in families served occurred in the mid-to-late 1990s due to a strong economy, the 1996 welfare law, and other factors such as expansions in the Earned Income Tax Credit. Thereafter, the number rose in the early 2000s, fell in the mid-2000s, and increased again when the Great Recession caused poverty and joblessness to spike. With the recent changes, few families living in poverty now have access to benefits that help them meet their basic needs when work is not feasible or available. For every 100 Kansas families in poverty in 2015-16, only ten received cash assistance from TANF — down from 17 families in 2011-12 and 52 families in 1995-96.


Beginning January 2012, New York State’s underlying levels of government became subject to a tax cap law. The law limits New York local governments from increasing the property tax levy above 2% or the rate of inflation, whichever is lower. The cap applies to school districts differently than other local governments. School districts need majority voter support to pass annual budgets, but require 60% voter approval for budgets that raise the levy beyond the limit. In mid-January, State Comptroller Thomas DiNapoli announced that allowable levy growth for school districts will increase to 2%, the current maximum allowable limit.

The increase in the levy cap is a credit positive for the state’s nearly 700 school districts because it makes it easier for them to increase property taxes. The allowable levy will be higher than in prior years. This will allow districts that have historically sought to override the levy cap to not have to do so in this budget round, thereby reducing political pressure. This will allow districts to include services and programs that were generally not covered under the old levy rate. This reverses a trend of extremely low caps on levy increases of 0.12% in fiscal 2017, which ended  June 30, 2017. The number of districts seeking overrides more than doubled to 36 in fiscal 2017 from 16 in fiscal 2016.

The change comes at a good time politically in New York which will see elections for Governor and the state Legislature in 2018. By reducing the pressure on local budgets, especially for schools, a major issue influencing state election politics will have been effectively taken off the table.


The Governor has released his Fiscal Year 2019 budget adjustments. The proposal is designed to achieve a balanced budget in the current and future fiscal year. They include expenditure and revenue changes totaling more than $266.3 million. These changes are responsive to the underlying $165 million shortfall identified by the latest consensus revenue forecast, and an additional $100 million of changes to correct unrealistic spending assumptions in the adopted budget or for unrecognized needs.

It reduces projected out-year deficits by half; decreasing by $1.35 billion in FY20, $1.43 billion in FY21, and $1.49 billion in FY22, takes steps to ensure the long-term solvency of the Special Transportation Fund and restoration of billions of dollars in transportation projects currently deferred, pays the entire State Employees Retirement System (SERS) and Teachers Retirement System (TRS) state contribution and proposes changes to smooth the looming TRS payment spikes.

The plan leaves major tax rates are unchanged, but revenue changes include repeals of exemptions and credits or cessation of enacted rate changes. It also establishes a series of new steps to allow Connecticut’s citizens to receive more friendly tax treatment following the federal tax changes, including changes to pass-through entities, decoupling expensing and bonus depreciation, and allowing municipalities to create charitable organizations supporting local interests.

Proposed adjustments to the current two-year state budget also wipes out the $200 personal property tax exemption, creates a new 25-cent deposit on wine and spirit bottles and eliminates education cost sharing for the 33 wealthiest communities. On the transportation front, the budget eliminates threatened 10 percent Metro-North fare hikes on the New Haven Line while restoring Metro-North weekend branch line service. It would raise gas taxes by 7 cents per gallon over four years and would add a $3 charge on new tires.


In a letter to Governor Ricardo Rossello, the PROMESA fiscal control board set a Feb. 12 deadline for the new draft, which will chart Puerto Rico’s plan to regain economic stability. The original draft turnaround plan, submitted on Jan. 24, projected a $3.4 billion budget gap that would bar the island from repaying any of its debt until 2022. The plan included subsidy cuts to cities and towns and the streamlining of public agencies but, the board, which must approve the plan, demanded more details in the letter.

The board wants more details on key structural reforms, notably labor. It suggested that Rossello make Puerto Rico an at-will employer and make severance and Christmas bonuses optional. The board wants an emergency reserve of $650 million in the next five years and $1.3 billion within 10 years, “based on best practices for states and territories regularly impacted by storms.”


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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