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July 20, 2020:

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Commentary: Just Wipe Out Public Debt! — Not a Solution for Puerto Rico or Anyone Else 

Chronically Late Municipal Bond Audits Further Delayed in FY 2018

Just Wipe Out Public Debt! — Not a Solution for Puerto Rico or Anyone Else

James E Spiotto

James E. Spiotto,

With the end of the flurry of Congressional activity over impeachment, followed by a general yearning for the end to partisan conflicts, we now look to this year and what issues can be addressed before the national election. There remain lingering issues that are now left for 2020: infrastructure funding, immigration reform, public safety initiatives, health care enhancement, drug cost reduction and numerous other matters that should and do unite us. Some, like impeachment, divide us. However, there is one bill under discussion that should unite all of us in a determination that the proposed legislation should be buried once and for all.

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Chronically Late Municipal Bond Audits Further Delayed in FY 2018

By Richard Ciccarone

Every year since 2007, Merritt Research Services1 (Merritt Research) reports the time it takes for municipal bond borrowers to complete their annual financial audits. The results of the study consistently show slower reporting relative to industry standards of the securities markets. By now, it has been well documented that most municipal audits lag the corporate standard of 60 days by a range of three to six more months.

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What Illinois Can Learn From the Supreme Court of Rhode Island and Even Puerto Rico About Public Pension Reform


By James E. Spiotto

The U.S. Supreme Court and virtually all state courts have recognized what the Rhode Island Supreme Court recently reaffirmed: insurmountable, unaffordable government contractual obligations for public pensions must be capable of reasonable and necessary modifications to prevent the financial demise of government, the corresponding failure of public pension systems and the loss of public workers’ employment.  A few state courts, most notably in Illinois, have ruled that there can be absolutely no modification, impairment or diminishment of public pension obligations, no matter how little or necessary for the financial survival of government. The fatal flaw in the legal reasoning of these courts appears to be the insistence that there must be specific words in the constitutional or statutory language reserving the right to make modifications and changes or no modifications can be permitted.  But, the U.S. Supreme Court and virtually all state courts have recognized that the police powers of a government to impair contractual obligations for a higher public good, the health, safety and welfare of its citizens and its continued financial survival, cannot be waived, divested, surrendered, or bargained away. This is because police power is an inalienable attribute of sovereignty that is implicit in every government contractual relationship and does not have to be explicitly reserved.  This article provides the legal basis for Illinois and other states to justify needed and reasonable modifications of public pension benefits that are unaffordable and insurmountable through pension reform legislation or a Constitutional Amendment. This article discusses and explains why all states can learn and should follow what the U.S. Supreme Court and virtually all state courts have vigilantly protected as the necessary and required attribute of government for the benefit of all.

One of the hallmarks of a mature and successful society is the continued capacity for growth and change.  There are approximately 4,000 public sector retirement systems for state and local governments in the United State with about $3.8 trillion in assets, 14.4 million current employees, 9 million retirees and annual benefit distributions of around $228.5 billion.  Unfortunately, the legacy costs have resulted in underfunded pension liabilities estimated to range between $1 to $3 trillion. This raises the pesky question of whether this underfunded liability is sustainable and affordable given total revenues for state and local governments that are only in the vicinity of $3.3 trillion annually and the costs of essential government services that are rising faster than revenues.

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MuniNet Guide Experts Roundtable: Michael Belsky

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Michael Belsky

Mike Belskey,  the executive director of the Center for Municipal Finance at the University of Chicago Harris School of Public Policy.  (Photo by Robert Kozloff)

by Mardee Handler

Current Trends in Municipal Finance: A Birdseye View

Flint, Michigan made national news headlines when it experienced its water crisis in 2014. During the crisis, 12 people died and at least 87 others became sick from unsafe drinking water. Seven years earlier, all eyes were on Minneapolis, where the I-35 bridge over the Mississippi River collapsed, killing 13 people and injuring 145 others.

Detroit made history when it filed for municipal bankruptcy in 2013. The credit ratings for both Illinois and the City of Chicago, have hovered dangerously close to junk bond territory.

Are these isolated challenges, or signs of current trends in municipal finance? MuniNet Guide recently sat down with Michael Belsky, Executive Director of the Center for Municipal Finance at Harris School of Public Policy at the University of Chicago, who shared his insights about the issues states and cities around the U.S. are facing in 2019—and for the foreseeable future.

MuniNet: What are today’s top issues in municipal finance?

Belsky: The pension and healthcare liability crisis beleaguering so many cities and states across the country remains a critical public finance challenge. In many cases, the liabilities loom so large that they’re limiting the respective government’s ability to fund basic services to their residents.

To Read More Full Interview, click Here

Not All Cities Have a Pension Problem

By Richard A. Ciccarone,  President & CEO of Merritt Research Services, LLC and Co-Owner of MUNINET, LLC

The Top 21% of Cities With High Pension Funding Levels Deserve Attention and Usually Praise

With so much well-deserved negative attention focused on cities with huge unfunded pension overhangs,   it’s probably a good time to draw attention to the cities that are not burdened by pension liabilities.    Cities,  which have maintained adequate pension set-aside contributions based on reasonable actuarial assumptions fit the bill of practicing responsible management and have earned a pat on the back.

Only about three percent (3%) of all cities with populations of at least 30,000 have fully funded their total pension liabilities.    Another 18% of these cities have funded their pension liabilities by 90% to 99%.  That means that approximately 21% of all cities are in very good to excellent shape on pensions.

Beyond the best funded cities shown in the chart above, 19% of all cities bear a marginally fair to good funding ratio of 80% to 89%.

In contrast to cities which have fully funded pensions, the pie chart below shows that an equal 3% of cities have consolidated pension plan liabilities of  less than 50%.

The remainder of all cities in the study carries a funding ratio between 50% and 80%.   A breakdown of the city pension funding

This assessment of pension funding status is based on a new study of 1271 cities by Merritt Research Services, LLC, an independent municipal bond data and research company.

Chart 1.   Percent Consolidated Funding Ratio Breakdown


The  Merritt Research city funding ratios is calculated by deriving a consolidated funding position for each city accounting for all of a city’s pension plans, regardless of whether they are the sole responsibility of  that city (single or agent plans) or if they are their share of the of a city’s liability as part of a multiple employer plan.

These percentages are preliminary and likely to change somewhat since the analysis is based on the most recent city audits available to Merritt Research as of June 21, 2019.  That means that audit years may contain both fiscal years 2017 and 2018.  Specifically, 57% of the city audits relate to fiscal year 2018.

In the absence of the FY 2018 audit, Merritt used the FY 2017 audit.   Because most city audits n take six months to a year or longer to be completed and reported,  a large number of cities with fiscal years closing on December 31, 2018 are just becoming available.

To make matters more complicated but without usually impacting the final analysis materially, city audit fiscal year end periods may differ from their individual pension plan audits.   In those cases, the pension funding measurement period may lag the city audit fiscal year end by one year.

Which Cities Are the Best Funded? Full Article

An Update On Foreign Trade Zones, Economic Development Projects, and Risk Perception with Taxes

By James E. Spiotto

This is Part 4 in a 4-part article series on the Post-Fiscal Crisis State and the next fiscal crisis considerations. The information and charts come from a presentation given at the Government Finance Research Center’s conference entitled “Ready or Not? Post-Fiscal Crisis/Next Fiscal Crisis” held on May 2-3, 2019 at the Federal Reserve Bank of Chicago.

To read part 1 click here. To read part 2 click here. To read part 3 click here.

Slower population, job, personal income and GDP growth can be reversed by focused economic development the accentuates the strengthens of the State and Local Governments. Delayed infrastructure improvements and failure to reinvestments in desired and needed governmental services have led to the slower growth in all areas. There are  Trillions of dollars of needed infrastructure investments by  State and Local governments in the next 5 to 10 years that can make all the difference  in growing and expanding the economy and increasing population, jobs, personal income, tax revenues and GDP. Studies have shown every good hard dollar investment in infrastructure will yield over $3.00 in economic benefit over 20 year most front end loaded. Every new infrastructure improvement employee  creates one or more indirect jobs to supply  goods and services for that infrastructure  job and induces the new employed worker to spend new found funds that creates new jobs for the newly purchased goods and services. This job multiplier and the resulting increase in jobs, income, tax revenues and GDP is the high tide that raises all boats.  The use of Foreign Trade Zones in States and Local Governments create zones where foreign manufactured parts can be imported into the zone without the 20% tariff for remanufacturing, assembly to further processing by United States workers and companies. If we turn on these Lights the future will be bright.

The new reality of tariff wars and 20% surcharges on foreign manufactured parts and goods:

The tax reform of 2018 created a 20% surcharge on foreign manufactured goods or parts coming into the United States. Recent U.S. tariffs on imported steel and aluminum has triggered reciprocal tariffs on U.S. exports to foreign countries. The ability to attract new business and help current businesses in the Midwest to expand will depend on the states’ ability to deal with this new reality. One such method is the use of foreign trade zones.

What is a Foreign Trade Zone?

Around the world there are specially designated areas within countries’ borders that are established and controlled by national legislation and through which the receiving, handling, manufacturing, repurposing, and exporting of goods can occur free from import duties and taxes. These areas are usually known as free trade zones.

To Read the Full Article Click Here

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