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NEW ON MUNINET FOR THE WEEK OF
July 16, 2019:
 

 

Not All Cities Have a Pension Problem (New)

Featured Bond: Children’s Healthcare of Atlanta Inc. $915 Million in Revenue Bonds
 (New)

Municipal Bond Daily Yield Curve (July 16, 2019)

New Issue Muni Bond Weekly Calendar for the Week of July 15, 2019

The First Circuit Court of Appeals Ruling on Assured Should be Reheard or Reversed


Article Series:

Illinois & Chicago MSA’s Challenging Financial Developments Due To The Great Recession (Part 1)

Comparisons of Key Economic and Debt Factors: The Good, The Bad, & The Ugly (Part 2)

Evolution of Taxing Policy in the New World of Digital, Shared Economy, & Artificial Intelligence (Part 3)

Foreign Trade Zones, Economic Development Projects, and Risk Perception with Taxes (Part 4)


Featured Bond – Week of July 15, 2019: Children’s Healthcare of Atlanta Inc. $915 Million in Revenue Bonds

Egleston Children's Hospital in Atlanta circa 2011

Egleston Children’s Hospital in Atlanta circa 2011
Image from: https://commons.wikimedia.org/wiki/File:Henrietta_Egleston_Hospital_for_Children.JPG
License: https://creativecommons.org/licenses/by-sa/3.0/deed.en

Featured Bond – Week of July 15, 2019: Children’s Healthcare of Atlanta Inc. $915 Million in Revenue Bonds

Overview

Children’s Healthcare of Atlanta is borrowing $915 Million through negotiated sale during the week of July 15. The proceeds are to be used to develop the North Druid Hills campus and to refund the Series 2009 and Series 2017 Bonds issued by the Development Authority of Fulton County. The preliminary issuers of the 2019 Bonds are Brookhaven Development Authority, DeKalb Private Hospital Authority, and the Development Authority of Fulton County.  The bonds are rated Aa2 by Moody’s and AA+ by S&P.

More About The Bonds & Children’s Healthcare of Atlanta

The bonds are split into four Series – 2019A through 2019D. Series 2019A is $753 million in tax-exempt fixed rate bonds with issuer Brookhaven Development Authority. Series 2019B is $84 million in tax-exempt fixed rate bonds with the issuer DeKalb Private Hospital Authority. Series 2019C is $77 million in tax-exempt fixed rate bonds with issuer Development Authority of Fulton County, and then Series 2019D is $109 million in tax-exempt variable rate bonds with issuer Brookhaven Development Authority.

To read full article including a statistical snapshot, 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?

Read Full Article, Click Here





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


The Gathering Storm: Illinois & Chicago MSA’s Challenging Financial Developments Due To The Great Recession

By Jim Spiotto

This is Part 1 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.

The article discusses financial challenges, strengthens and weaknesses of various states and metropolitan areas and in particular and in comparison to Illinois and the City of Chicago. Challenges such as slower population, income and job growth and significant underfunding of public pension obligations can be countered and overcome by further development of strengthens such as higher GDP per capita, historic transportation hub, major manufacturing MSA and key business center as well as an educated workforce that is available. State and Local Government Spending should reinvest in services, infrastructure and future economic growth to overcome legacy challenges and ignite the business engine of the future.

Illinois and the Chicago MSA have faced some challenging financial developments due to the Great Recession, 2010 reduction in income tax rates and income, increased unfunded pension obligations and loss of manufacturing jobs among other reasons:

1. Illinois and Chicago Metropolitan Statistical Area (“MSA”) had a bittersweet economic climate since 2000.

The Sweet

Illinois was the 5th largest state by population and GDP, but negative population growth in 2017 of negative .26% compared to Pennsylvania positive .14% caused Illinois to drop to 6th largest state by population. Also, Illinois is only the 15th largest state by per capita GDP. Chicago MSA in 2015 is the 8th, 6th or 5th largest metropolitan area by GDP in the world (it was 4th in 2008). The larger GDP cities are Tokyo, New York, Los Angeles, London, Paris and Seoul. In the Midwest, Illinois has the highest GDP per capita but also the highest public debt per capita and the highest percentage of public debt to GDP.

The Not So Sweet and Bitter

From 1985 to 2000, Illinois and Chicago MSA were competitive with the increase in percentage of personal income and jobs compared to that for the U.S.A. average and the Los Angeles and New York City MSAs. After 2000, Illinois and Chicago MSA lagged in the percentage increase in personal income and jobs in comparison to the average for the U.S.A. and New York City and Los Angeles MSAs. This could be due to the adverse effects of NAFTA, China joining the World Trade Organization or the economic downturns of 2001 and 2008 and the combined loss of over 75% in value of the Dow from the beginning to the end of the 2001 and 2008 economic downturns.

Since 2000, Illinois’ increase in jobs was 17% slower than U.S.A. average. Illinois and Chicago MSA had 22-24% less GDP growth than U.S.A. average and higher unemployment rates. Due to a sunset of a tax increase in 2015, Illinois income tax collections were reduced by $4 billion in FY2016 compared to 2014. Illinois’ unpaid bills were estimated to be $7.8 billion by the end of FY2019 and may jump to $10.6 billion by the end of FY2020 according to the Civic Federation. Illinois’ five pension systems unfunded liabilities have increased over 650% since 1995 to about $133.7 billion by the end of FY2018. The Chicago Public Schools purportedly had no unfunded pension liabilities in 2000 and now have as of FY2014 over $9.4 billion unfunded pension liabilities.

To Read The Entire Article, Click Here


 

The First Circuit Court of Appeals Ruling on ‘Assured’ Should be Reheard or Reversed; Recent Ruling Sends a Harsh Message to Municipal Bond Market

“Puerto Rico’s ‘Assured’ Decision Should be Reconsidered or Reversed” by James Spiotto( )

Why the Municipal Bond Market Expects Pledged Special Revenues to be Timely Paid to Bondholders in a Chapter 9 Proceeding.  And, Why the First  Circuit’s Assured Ruling in Puerto Rico’s PROMESA Title III Proceeding Should Be Reheard or  Reconsidered on Appeal.

Update on “Puerto Rico’s ‘Assured’ Decision Should be Reconsidered or Reversed” (Feb 05, 2018)

by James Spiotto

On March 26, 2019, The United States First Circuit Court of Appeals ruled on the Appeal from the Title III adjustment of debt proceeding for the Commonwealth of Puerto Rico.  The First Circuit affirmed the ruling of the District Court dismissing the Amended Complaint of Assured Guaranty Corporation (“Assured”) and held that special revenues pledged to revenue bondholders are only exempt from the automatic stay (preventing creditor enforcement action for payments to bondholders) if the municipality voluntarily pays the special revenues to the bondholders, and that such timely payments are not mandatory in Title III or purportedly a Chapter 9 proceeding.

MuniNet previously has described the well-established justification of timely payments of special revenues pledged to bondholders in Title III and Chapter 9 proceedings and why the district court rulings should have been reversed in an article last year.  (Link “Puerto Rico’s Assured Decision Should Be Reconsidered or Reversed” February 5, 2018, James E. Spiotto.)

The First Circuit in ruling on this appeal saw no reason to write at length justifying this ruling, which was contrary to all prior case law precedent by courts hearing Chapter 9 cases, the recognized commentaries on special revenues and the legislative history for the 1988 Amendments to the Federal Bankruptcy Code 11 U.S.C. § 101 et seq. (“Bankruptcy Code”) which added Sections 902, 922(d), 927 and 928, among other provisions, into the Bankruptcy Code.  These sections were interpreted by the First Circuit in its opinion.

  1. The First Circuit in Its Opinion Attempted to Reason to Answer the Following Questions:

 

To Read Full Article, Click Here


 

 

 

 



 




 

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