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October 14th, 2019:

Featured Bond: City of Galveston $32 Million in Capital Improvement Bonds (New)

Municipal Bond Yield Curve for October 11th, 2019 (New)

New Issue Muni Bond Weekly Calendar for the Week of  October 14th, 2019

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

 MuniNet Guide Experts Roundtable: Michael Belsky 

Not All Cities Have a Pension Problem

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.

To read full article, Click Here

Feature Bond – Week of September 30th; City of New York

New York City, Source: Wikimedia Commons.

The City of New York is scheduled to issue $850 million in General Obligation Bonds to finance its 2020 budget and various capital projects planned for the new year. The sale is expected to be scheduled between October 1st to the 3rd, with Jefferies as the lead underwriter and many other large investment banks as co-managers. The city also intends to sell $130 million of taxable general obligation bonds by competitive sale on October 3, 2019,  bringing the total sale to approximately $980 million.

About the Bonds

Subseries B-1 of tax-exempt bonds total $850 million, maturing between 2021 and 2044. The Tax-Exempt Bonds maturing on or before October 1, 2029 are not subject to optional redemption or mandatory tender prior to their stated maturity dates. The Tax-Exempt Bonds maturing after October 1, 2029 are subject to redemption or mandatory tender, at the option of the City.

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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?

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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 Entire Article, Click Here

An Update on the Evolution of Taxing Policy in the New World of Digital, Shared Economy, and Artificial Intelligence Revolution

By Jim Spiotto

This is Part 3 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.

The Shared Economy and artificial intelligence  – automation creates new challenges in the reliability of traditional taxing sources and the need to recalibrate to match the economic shifts to new sources and ways to tax and raise revenues for the government of the future. Comparison of sources and ranking of levels of taxation by State and some MSAs help put into  focus  the strengths and weaknesses of various state taxing policies and the need to adjust those policies to the evolving changes caused by the digital revolution and the Shared Economy. These comparisons help indicate what areas of taxation that have comparative room for increase, those that  have comparative need for decrease and what new source can be developed for the future. The lessons learned in the 1930s Depression where 60- 70 % of State and Local tax  revenues was real estate based during a real estate downturn exacerbated and prolonged the financial problems. Diversity and sustainability of tax sources is the hallmark of government success.

This article will look at three different aspects of the evolution of taxing policy:

1. Analysis of tax revenue source of Illinois and Midwest States.

2. Will digital and shared economy revolution threaten traditional tax revenues sources mandating changes in tax policy and focus?

3. The need to reexamine the future viability of current tax revenue sources and consider new policies and sources for taxes to survive the digital, shared economy and artificial intelligence revolution.


1. Analysis of tax revenue source of Illinois and Midwest states:

Tax revenue increases 2000-2015. Illinois tax revenue increase between 2000-2015 was 93.4% which was higher than the U.S. average of 79.7%. Seven out of twelve Midwest states had tax revenue increases above the U.S. states average of 79.7%, namely: North Dakota (229.9%), Iowa (217.0%), Kansas (95.0%), Nebraska (89.0%), South Dakota (89.7%), Illinois (83.4%) and Minnesota (80.0%). There were two Midwestern states with below 50% increase in tax revenue between 2000-2015, namely Wisconsin (45.0%) and Michigan (26.3%).

Midwestern States and Local Government General Revenue and Tax Revenue Increase 2000-2015 and 2000-2010 chart

State revenues, gross and per capita, 2016. In 2016, Illinois was ranked 21st highest in tax revenues per capita nationally and 5th highest in the Midwest. With the exception of North Dakota (3) and Minnesota (5), the remainder of the Midwest states ranked between 18-45, nationally. Most of the Midwest states are in the middle of the range of per capita tax revenues. Eight out of twelve Midwest states are in the top half of U.S. states nationally for highest per capital state tax revenue in 2016. There are three states of the non-Midwest comparable states that are in the top ten states with ten highest tax revenues per capita, namely Connecticut, New York and California.

Midwest States 2016 Tax Revenues Gross and per Capita chart

Comparable Other US State 2016 Gross and Per Capita State Revenue chart

Effective property tax rates for Midwest states, in general, are higher than U.S. states average by national rank. Illinois effective property tax rate was ranked the highest in the Midwest and 2nd highest among the U.S. states. Two Midwestern states rank in the top five for effective high property tax rate, namely Illinois (2) and Wisconsin (5). All but one of the Midwestern states rank in the top 26 states by effective tax rate. The one exception was Indiana (28).

To Read The Entire Article, Click Here

An Update on Comparisons of Key Economic and Debt Factors: The Good, the Bad, and the Ugly

By Jim Spiotto

This is Part 2 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.

The Comparison of key economic factors of Illinois and Chicago demonstrate the Good, the Bad and the not so pretty. Slower population, employment, personal income and GDP growth since 2000 can be reversed. While the larger reduction of unemployment in the Midwest generally and Illinois in particular should be encouraged to improve. While pension liabilities and debt to GDP ratios have led to some credit rating downgrades there is the improving jobs numbers and resulting increase in taxpayers and tax receipts that can shine light on the path forward.

Population growth of Midwest states and the U.S.:

The U.S. between 2000 and 2017 experienced population growth of 15.4% to 325.7 million. Only one Midwest state grew between 2000 and 2017 faster than the U.S. average of 15.4%, namely: North Dakota at 17.6% for obvious reason of energy production. Only four states in the Midwest grew over 10.0% between 2000 and 2017, namely: North Dakota (17.6%), South Dakota (14.9%), Minnesota (13.0%) and Nebraska (12.0%). Another five states in the Midwest grew between 5-10% during the period of 2000 and 2017, namely: Indiana (9.4%), Missouri (9.0%), Kansas (8.1%), Wisconsin (7.8%) and Iowa (7.3%). Three of the Midwest states grew less than 5.0% between 2000 and 2017, namely: Illinois (2.9%), Ohio (2.5%) and Michigan (1.0%). This is less than 20.0% of the U.S. average population growth rate for the period.

Other non-Midwest states grew faster than Midwest states such as Texas (40.5%), Utah (38.1%), Florida (31.2%) and Arizona (36.7%). Between 1990 and 2000, the U.S. population grew by 13.2% but no Midwest state equaled or exceeded that percentage of growth. The highest was Minnesota at 12.4% followed by Wisconsin at 9.6%, Indiana at 9.7%, Missouri at 9.3% and Illinois at 8.6%. With the exception of North Dakota and South Dakota, the Midwest states had negative net domestic migration where more people left the state than those who migrated to that Midwest state with Illinois, Kansas, Michigan and Wisconsin leading the way in loss in domestic migration. Illinois (-5.0%) was second only to New York (-5.25%) in negative domestic migration.

Midwest States Population Increase 2000-2017 and 1990-2000 chart

Non-Midwest States Comparison Population Increase 2000-2017 and 1990-2000 chart

To Read The Entire Article, Click Here











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