Category: Public Finance

Editorial | When it comes to Illinois bond ratings, up definitely better than down

Mary Pat Campbell

Link: https://www.news-gazette.com/opinion/editorials/editorial-when-it-comes-to-illinois-bond-ratings-up-definitely-better-than-down/article_d17d487c-5ff3-5da1-a958-60d7edd5c3e6.html

Excerpt:

Citing a “material improvement in state finances,” Moody’s Investor Services recently raised the state’s bond rating by one notch — up to Baa2 from Baa3.

Ordinary mortals won’t know what that means. But Illinois has climbed the ladder from being one notch above junk bond status to two notches.

It’s the first time Illinois’ bond rating has been raised in 20 years. The improvement comes after a steady spiral downward.

Author(s): Editorial Board

Publication Date: 4 July 2021

Publication Site: The News-Gazette

What is good tax policy?

Mary Pat Campbell

Link: https://allisonschrager.substack.com/p/known-unknowns-1c3?utm_medium=email&utm_campaign=cta

Excerpt:

So the goal of tax policy should be taking as much revenue as you can while trying to minimize distortions. Some kinds of taxes are more distortionary than others. In order of least to most harmful, it goes

1.     Consumption taxes

2.     Income taxes

3.     Wealth taxes

Cut to our current tax debate, where these concerns get no attention. The goal seems less about minimizing distortions/maximizing revenue and more about punishment, i.e., rich people for making too much in a zero-sum world and corporations for being greedy. Now, I think our tax system should be more progressive, too. But there are good and bad ways to achieve that goal.

Author(s): Allison Schrager

Publication Date: 6 July 2021

Publication Site: Known Unknowns at substack

Note to Bernie: The 8 arguments for restoring the SALT deduction, and why they’re all wrong

Mary Pat Campbell
Note to Bernie: The 8 arguments for restoring the SALT deduction, and why they’re all wrong

Graphic:

Excerpt:

We have argued against lifting the $10,000 cap in the New York Times, the Washington Post, and in a short analysis for Brookings. Our case is quite straightforward: the benefits of repeal would flow to the rich and affluent, who now have a disproportionate influence on the Democratic Party. To be specific, the top 1 percent would get an average tax cut of over $35,000. The middle class would get an average tax cut of about $37 (note that our analyses here relate to full repeal, since we do not know yet what alternative Sen. Sanders has in mind):

Author(s): Richard V. Reeves, Christopher Pulliam

Publication Date: 24 June 2021

Publication Site: Brookings

Treasurer Muoio Announces New Jersey Has Paid the Full State-Funded Portion of the Pension Contribution for the First Time in More than 25 Years

Mary Pat Campbell

Link: https://www.state.nj.us/treasury/news/2021/07012021.shtml

Excerpt:

State Treasurer Elizabeth Maher Muoio announced that the Treasury Department today kicked off the start of the new fiscal year by paying the full state-funded portion of the $6.9 billion pension contribution slated for Fiscal Year 2022 (FY 2022). This marks the first time in more than 25 years that New Jersey is making the full Actuarially Determined Contribution to the Pension Fund, plus an additional $505 million contribution, and also the first time in years that the state has made a lump sum payment, rather than quarterly payments.

The Treasurer also announced that by making the contribution in one lump sum, the State is now expected to save taxpayers roughly $2.2 billion over 30 years, rather than the $1.5 billion in savings initially anticipated if the state had made quarterly pension payments this year.

Publication Date: 1 July 2021

Publication Site: Dept of the Treasury, New Jersey state

Most New Jerseyans Are Fiscal Dullards

Mary Pat Campbell
Most New Jerseyans Are Fiscal Dullards

Excerpt:

That is what the Murphy administration has to believe for them to send out this piece of gripka:

….

treating $10.19 billion in Biden relief money as if it will never have to be repaid (one way or another).

Keep in mind when reading just this one excerpt below that $6.9 billion represents about six months worth of payments out of a pension system that is still accruing benefits at record levels and as of June 30, 2020 reported unfunded liabilities under GASB of $128 billion.

Author(s): John Bury

Publication Date: 2 July 2021

Publication Site: Burypensions

Op-ed: Illinois gets its first credit upgrade in 20 years, thanks to $138 billion in federal relief

Mary Pat Campbell

Link: https://www.chicagotribune.com/opinion/commentary/ct-edit-illinois-credit-upgrade-federal-bailout-20210701-mccvijig6fbuzpuhmc4eorkobm-story.html

Graphic:

Excerpt:

The ratings firm Moody’s Investors Service this week upgraded Illinois’ credit rating one notch to Baa2, a level two notches above junk. It’s a major turnaround given that just one year ago Illinois faced the prospect of becoming the first state to ever be rated junk. In mid-2020, shutdowns ravaged the state’s tax base, Sen. Don Harmon asked for a $42 billion bailout from Congress and the state projected billions in multi-year budget shortfalls.

What changed so dramatically in such a short period of time? Ignore the claims by Illinois lawmakers of their heroic acts of “balanced budgets,” “fiscal discipline” and the like. Even if those claims were true – and they are not – they couldn’t by themselves create such a swing in Illinois’ short-term fortunes.

Credit, instead, the massive $138 billion in federal funds from the multiple COVID relief and stimulus packages – as compiled by the Committee for Responsible Federal Budget – that are now flooding Illinois’ public and private sectors. Those billions have significantly reduced the probability of a bond default – which is ultimately what Moody’s really cares about. 

Author(s): Ted Dabrowski, John Klingner

Publication Date: 1 July 2021

Publication Site: Chicago Tribune

Even With Federal Aid, States Slashed Spending By $4.1 Billion To Avoid Shortfalls

Mary Pat Campbell

Link: https://www.forbes.com/sites/lizfarmer/2021/06/24/even-with-federal-aid-states-slashed-spending-by-41-billion-to-avoid-shortfalls/?sh=1a1c2ceb4a93

Graphic:

Excerpt:

A total of 12 states had to cut a combined $4.1 billion from their budgets in order to balance out projected shortfalls before the end of their fiscal year, according to a new report released Thursday by the National Association of State Budget Officers (NASBO). (Most state fiscal years end on June 30.) Nevada, New Mexico and Washington state cut the most, accounting for 42% of the total.

Many of these states targeted staff for these cuts, including implementing hiring freezes, eliminating open positions, cutting salaries and ordering furloughs. They also turned to Medicaid, which saw more than $1 billion in combined cuts from the 12 shortfall states while higher education cuts totaled more than $500 million from the group. Washington State focused its cuts mainly on K-12 education, slashing more than $1 billion from the budget over the past year.

Author(s): Liz Farmer

Publication Date: 24 June 2021

Publication Site: Forbes

Moody’s upgrades Illinois’ credit rating

Mary Pat Campbell

Link: https://capitolnewsillinois.com/NEWS/moodys-upgrades-illinois-credit-rating#new_tab

Excerpt:

Illinois received its first credit rating upgrade in 23 years on Tuesday when Moody’s Investors Services raised the state’s rating one notch, citing “material improvement in the state’s finances.”

Although the upgrade still leaves Illinois bonds rated just two notches above so-called “junk” status, Gov. JB Pritzker said it marked a turning point for the state, and he credited the General Assembly and members of his own administration for bringing greater fiscal discipline to the state’s budget.

Author(s): PETER HANCOCK

Publication Date: 29 June 2021

Publication Site: Capitol News Illinois

Judge: Pension fund can’t claim Harvey, Illinois’ federal ARPA aid

Mary Pat Campbell

Link: https://www.bondbuyer.com/news/judge-pension-fund-cant-claim-harvey-illinois-federal-arpa-aid

Excerpt:

A state judge refused to block distribution of Harvey, Illinois’ share of American Rescue Plan Act federal coronavirus aid relief funds after rejecting a pension fund’s claim to the money.

The financially stressed Chicago suburb, which has battled over the last decade with its public safety pension funds, Chicago, and bondholders over its obligations, settled a legal dispute in 2018 with its police and firefighters’ pension funds over past due payments. The settlement gives the funds a share of various funding that flows through the state government.

The firefighters’ fund recently sued Harvey to stake a claim to the ARPA money, arguing it is subject to the 10% claim on city tax and aid funds that are sent directly to the pension fund under the 2018 settlement. The fund asked the court to enjoin Comptroller Susana Mendoza, whose office manages the state’s pension intercept program, from distributing any funds until the case was argued.

Author(s): Yvette Shields

Publication Date: 28 June 2021

Publication Site: Bond Buyer

Report Reveals Albany’s Balanced Budget a Gimmick

Mary Pat Campbell
Report Reveals Albany’s Balanced Budget a Gimmick

Graphic:

Excerpt:

The dramatic reversal that shrank the state’s four-year budget gap from $38.7 billion in January to the current $3.4 billion occurred, incredibly, despite the Governor and legislature adopting a budget that increases state spending significantly in education and other areas. What turned the tide was a massive injection of federal aid—including $12.7 billion in no-strings federal aid awarded to the state in March under the American Rescue Plan—along with tax collections that defied earlier projections of vast, pandemic-induced revenue loss, and new tax hikes inflicted on high earners estimated to yield $2.75 billion in new revenue this year alone. As a result, the enacted budget financial plan the Governor’s budget office issued last month shows a balanced budget for this fiscal year and next. Even the red ink that starts accumulating in 2024 and 2025 looks manageable.

But looks are deceiving here. Extending the budget window—as does a chart on page nine of the Comptroller’s report, shown below—reveals large, yawning budget gaps growing from nearly $8 billion in 2026 to nearly $20 billion by the end of the decade. The dual expiration of American Rescue Plan funds in 2026 and a temporary hike in the PIT in 2027 sends the budget deep into the red.

Author(s): Peter Warren

Publication Date: 28 June 2021

Publication Site: Empire Center for Public Policy

Germany federal fiscal court demands changes to pension taxation

Mary Pat Campbell

Link: https://www.jurist.org/news/2021/06/germany-federal-fiscal-court-demands-changes-to-pension-taxation/

Excerpt:

Germany’s Federal Fiscal Court, the Bundesfinanzhof, demanded changes Monday to pension taxation to avoid future double taxation of retirement savings.

Prior to 2005, pensions had been basically tax-exempt because contributions came from taxed salaries. Under a 2005 law change, pension contribution payments gradually become tax-free. However, the taxable share of the pension increased. Because of the change, there is the potential of double taxation during the transition period if the tax-exempt portion of the pension is less than the contributions made earlier from taxed salaries.

A married couple who were assessed together for income tax purposes in 2009 filed a complaint against the rules, alleging that their 2009 tax assessment was unlawful. The court rejected the complaint as unfounded, stating that the plaintiffs had not been violated of their rights.

Author(s): Cassie Maas

Publication Date: 1 June 2021

Publication Site: Jurist

Elorza’s pension proposal relies on a risky approach and an adviser linked with 38 Studios

Mary Pat Campbell

Link: https://thepublicsradio.org/article/why-elorzas-latest-proposed-pension-fix-faces-a-lot-of-questions-

Excerpt:

Providence’s pension crisis has its roots in the late 1980s. That’s when the city’s Retirement Board approved unusually generous compounded cost of living adjustments for more than 2,500 city workers and retirees. Decades later, that move helps explain why there’s a $1.2 billion gap between the pension balance and the amount owed to current and future retirees.

The pension crisis has defied attempted solutions for years. Providence officials say the city has just 22% of the money needed to meet its long-term pension obligations. And the amount of the city budget consumed by the pension is growing 5 percent a year, to about $93 million currently. Without a change, that annual payment will rise to $227 million by 2040.

Mayor Jorge Elorza said these pension costs are unsustainable.

“It’s only a matter of time before they continue to squeeze everything else out of our budget, so that we’re cutting deeper and deeper into the bone,” he said during a recent news conference.

Elorza’s plan involves selling $704 million in pension obligation bonds. The idea is that these bonds could generate enough of a return to boost the pension system’s funding to more than 60 percent.

Author(s): Ian Donnis

Publication Date: 1 June 2021

Publication Site: The Public’s Radio