Sales tax securitization delay gives Chicago time to fiddle with structure

CHICAGO — Faced with rockier post-tax reform market conditions, Chicago put off the pricing of its sales tax securitization borrowing and will use the delay to consider tinkering with its structure.

The city and its finance team plans to continue discussions with market participants and will look at adding a taxable advance refunding component. Tax-exempt advance refundings were eliminated in the reform package signed by President Trump. The city could also shift coupons and calls to cater to current demand.

https://www.bondbuyer.com/news/sales-tax-securitization-delay-gives-chicago-time-to-fiddle-with-structure?feed=0000015b-11b9-dcff-abff-f9fd85f60000

Nobel winner would slash Puerto Rico debt

obel prize-winning economist Joseph Stiglitz is calling for cuts in Puerto Rico’s outstanding debt of 50% to 80% or more.

Economists Stiglitz, Martin Guzman, and Pablo Guzman released the report on the need for the cuts to help restore the island’s economy.

https://www.bondbuyer.com/news/nobel-winner-calls-for-deep-puerto-rico-debt-cuts?feed=0000015b-11b9-dcff-abff-f9fd85f60000

Deep budget challenges greet New Jersey's new governor

The Chris Christie era in New Jersey ended late Tuesday morning with the swearing-in of Gov. Phil Murphy, who will be tested right out of the gate with a host of fiscal obstacles.

Murphy, a former executive at Goldman Sachs and ambassador to Germany, inherits a state that was downgraded 11 times during Christie's eight years, driven largely by a rising unfunded pension burden. Murphy, a Democrat, campaigned on a proposal to structurally balance the state budget with a millionaire’s tax, but new federal tax legislation that caps deductions on state and local taxes creates a potential hurdle to this revenue strategy.

https://www.bondbuyer.com/news/deep-budget-challenges-greet-new-jerseys-new-governor

Florida's Population Boom Helps Fuel Demand for Dirt Bonds

While the bonds are benefiting from a stronger housing market, land-backed debt accounts for 25 percent of payment failures in the $3.8 trillion municipal market. Of the $9.3 billion of municipal debt in default -- excluding Puerto Rico -- $2.3 billion, the largest portion, are dirt bonds, according to Municipal Market Analytics.

https://www.bloomberg.com/news/articles/2018-01-11/florida-s-population-boom-helps-fuel-demand-for-dirt-bonds

Fiscal woes greeting N.J. governor

Mr. Bryan was referring to the impact on municipalities which, according to actuarial reports and the treasurer's office, must come up with an extra $422.5 million in pension fund contributions for the 2019 fiscal year under the 7% rate. By law, they must contribute 100% of their actuarially required contribution, and they don't have many choices for raising revenue.
"The change in the assumed rate of return has made budgeting more difficult at the state and local levels," said Lisa Washburn, a Summit, N.J.-based managing director for Municipal Market Analytics, a research firm.

http://www.pionline.com/article/20180108/PRINT/180109893/fiscal-woes-greeting-nj-governor

The Week in Public Finance: Tax Reform Hits Muni Market, California Plays Tax Games and Local Pensions Do Better Than State

Corporate Tax Break Already Affecting Muni Market

Even though the federal tax overhaul has yet to go into effect, the cuts to the corporate tax rates are already impacting the municipal market. Preliminary data shows that banks have begun to reduce their muni bond buying. According to Municipal Market Analytics (MMA), banks' third quarter net buying fell to about $5.7 billion. That’s the lowest quarterly number since 2009, when banks collectively sold off a net $10.3 billion.

In addition to reducing how much they buy, MMA’s Matt Fabian says it’s “not unreasonable that at least some institutions will become net sellers” of tax-exempt municipal bonds in the early months of 2018. This, he says, could counteract what was expected to be an advantageous interest rate climate for governments.

http://www.governing.com/week-in-finance/gov-finance-roundup-tax-reform-muni-market-california-local-pensions.html

Tax Overhaul, Pension Change Are an 'Unwelcome Gift' for New N.J. Governor

New Jersey and its municipalities are likely to face greater fiscal pressures in the year ahead after the state opted to lower the assumed rate of return for pension assets, according to Municipal Market Analytics.

The state treasury's decision to change the investment return assumption to 7% from 7.65% is "an unwelcome gift" from outgoing Gov. Chris Christie to Governor-Elect Phil Murphy, MMA analyst Lisa Washburn said in a Jan. 3 report. The more fiscally conservative assumption will translate into higher unfunded pension liabilities, lower funded ratios and higher required contributions for New Jersey local governments, Washburn said. The timing is also problematic, she said, because the state's revenue-raising ability "has likely been impaired" following a tax overhaul package signed by President Trump that caps the federal deduction on state and local taxes at $10,000. 

https://www.highbeam.com/doc/1G1-521461982.html

Tax overhaul, pension change are an ‘unwelcome gift’ for new N.J. governor

New Jersey and its municipalities are likely to face greater fiscal pressures in the year ahead after the state opted to lower the assumed rate of return for pension assets, according to Municipal Market Analytics.

The state treasury’s decision to change the investment return assumption to 7% from 7.65% is “an unwelcome gift” from outgoing Gov. Chris Christie to Governor-Elect Phil Murphy, MMA analyst Lisa Washburn said in a Jan. 3 report. The more fiscally conservative assumption will translate into higher unfunded pension liabilities, lower funded ratios and higher required contributions for New Jersey local governments, Washburn said. The timing is also problematic, she said, because the state’s revenue...

https://www.bondbuyer.com/news/tax-overhaul-pension-change-an-unwelcome-gift-for-incoming-nj-governor

Virgin Island bonds stir concern

U.S. Virgin Island bonds have plunged since Hurricane Maria amid deepening concern over the territory's ability to make payments due in the coming year.

Prices of the Series 2014C U.S. Virgin Islands gross receipts tax bond in the secondary market have declined by 40%, according to Markit. The bonds are trading at about 44 cents on the dollar, down from about 74 cents in mid-September.

https://www.bondbuyer.com/news/concern-about-virgin-island-bonds-grow?feed=0000015b-11b9-dcff-abff-f9fd85f60000

Muni investors left reeling from a year of political change

The final days of 2017 find municipal bond investors looking back on a year of unprecedented volatility, mostly driven by political change in President Trump's first year in office.

It was a year marked by price fluctuations, yield curve flattening, spread compression, credit quality concerns, supply and demand imbalances, and most of all, political wrangling over tax reform, strategists and fund managers said.

“The political backdrop provided an overriding influence for the municipal bond market in 2017,” said Jeffrey Lipton, head of municipal research and strategy at Oppenheimer & Co.

https://www.bondbuyer.com/news/skimpy-supply-low-yields-and-tax-reform-among-key-impacts

FEMA loan to the government remains uncertain

In the case of the Virgin Islands (USVI), FEMA indicated that it granted a financing of $ 202 million for the water and electricity systems of the territory, its central government and two hospitals.

Governor Kenneth Mapp, according to USVI news media, has stated that the financing already approved by FEMA reaches about $ 500 million.

According to Fabian, in the case of the USVI CDLs, the federal Treasury requested a repayment priority on the bonds of the territory, but this did not prosper.

USVI, according to Fabian, had to offer as collateral to the financing the collections of the "gross income tax", which would be equivalent to the Sales and Use Tax (SUT) of Puerto Rico and the collections for matching that it receives through the reimbursement of the rum tax.

In addition, the USVI CDLs have the same payment priority as debt owed by creditors in the territory.

https://www.elnuevodia.com/english/english/nota/femaloantothegovernmentremainsuncertain-2384434/

Race is on to sell tax-free bonds ahead of U.S. tax changes
 

That possibility, which first surfaced Nov. 2 in the U.S. House Republicans’ tax bill, would saddle nonprofits with higher borrowing costs as well as eliminate a way all muni issuers can take advantage of lower interest rates to save money.

“We’re seeing a huge race to get to market and every kind of transaction. December may be the best market for issuance that we’ve seen in a long time,” said Matt Fabian, a partner at Municipal Market Analytics.

Muni issuance totaled $40.3 billion in November, the biggest supply for that month since $45 billion of bonds were sold in November 2010, according to Thomson Reuters data. That was when issuers rushed Build America Bonds to the market before the federal government’s subsidy program for the debt expired at year end.

https://in.reuters.com/article/us-usa-tax-municipals/race-is-on-to-sell-tax-free-bonds-ahead-of-u-s-tax-changes-idINKBN1DV61T

Sanders' Puerto Rico bill dwarfs requests from Gov. Rosselló, Trump

U.S. Sen. Bernie Sanders, I-Vt., introduced a comprehensive support bill for Puerto Rico and the U.S. Virgin Islands Tuesday, calculated to cost up to $146 billion.

https://www.bondbuyer.com/news/sanderss-puerto-rico-request-eclipses-that-of-governor?feed=0000015b-11b9-dcff-abff-f9fd85f60000

Trump seeks Texas, Florida hurricane relief; Puerto Rico request to come later

No matter how much the island gets, it won’t be enough, said Matt Fabian, a partner with Municipal Market Analytics. “Puerto Rico will likely be requesting aid this time next year,” he said. Officials in the White House “probably think that that’s an incredibly generous offer.”

http://www.newhampshire.com/article/20171118/NEWS06/171119246/-1/SERVICES04

Muni-Bond Market Braces for Borrowing Rush Ahead of Tax Changes

The House of Representatives bill would require investors to pay income taxes on so-called private activity bonds, or PABs, which finance projects like airports, water facilities and toll roads, and do away with a frequently used refinancing technique known as advanced refunding. While the Senate version leaves PABs intact, the risk may push borrowers to act before the law is changed, Municipal Market Analytics said in a research report.

“It could be a huge end of the year,” Matt Fabian, a partner with MMA, said in an interview. “Issuers will probably begin to access the market shortly just on the risk. If they’re going to borrow next year they might as well accelerate to borrow now.”

A late-year rush -- if significant enough -- would offset the slowdown in the municipal market, where new debt sales have declined from last year’s record pace. That contributed to this week’s drop in state and local government bonds prices, paring the gains that came after the tax overhaul promised to slash sales in the years ahead by pulling the tax-exemption from a significant chunk of the market.

https://www.bloomberg.com/news/articles/2017-11-14/muni-bond-market-bracing-for-borrowing-rush-ahead-of-tax-changes

Smaller private colleges face tougher burden if private activity bonds go away

The House Republican tax package would put some more pressure on the already pressured private higher education sector.

Eliminating the tax-exemption for private activity bonds would force private schools to issue more expensive taxable debt for capital projects.

The House bill, which advanced Thursday from the House Ways and Means Committee, would terminate PABs on Jan. 1, 2018.

https://www.bondbuyer.com/news/smaller-private-colleges-would-be-impacted-more-by-an-elimination-of-private-activity-bonds

Of the Newest Governors, New Jersey's Has the Bigger Financial Bind

By 2016, the state had about $168 billion less than it will need to cover all the benefits that have been promised to employees. Among all 50 states, New Jersey has the most underfunded pension system in the country, according to data compiled by Bloomberg.

It will be a challenge to pay that down, said Lisa Washburn, a managing director at Municipal Market Analytics.

"It seems like a millionaire’s tax is going to be woefully insufficient to make those payments and fund other spending priorities," she said.

The state will need to balance spending on social programs that Murphy has highlighted, such as more investment in community colleges, with keeping up with pension and OPEB costs, Washburn said.

"I don’t see personally in the near-term credit rating boosts coming New Jersey’s way," she said.

https://www.bloomberg.com/news/articles/2017-11-08/of-the-newest-governors-new-jersey-s-has-bigger-financial-bind

States' Financial Practices Get Graded

Take Illinois. The state went two years without a budget and saw multiple downgrades from ratings agencies. But it was still able to float bonds and easily find buyers because no state in the modern era has defaulted on its debt. "There's no reasonable risk of a state actually defaulting," Matt Fabian, a principal at Municipal Market Analytics, which consulted on the report, said at the report's release. "But you had the governor and legislature acting in completely unpredictable ways that belied the understanding of almost anyone. So, the bonds of Illinois ended up trading almost like a day stock which is terrifying to anyone in the market."

http://www.governing.com/topics/finance/gov-states-financial-practices-get-graded.html

Detroit foresees end to state oversight

Experts say bankruptcy allowed Detroit to drop billions in debt, setting it on a solid financial path. But the city faces massive future payments for past borrowing and pension obligations that are difficult to plan for.

“It really takes the economic environment to cooperate, as well as some very good and focused financial management. Right now, that seems to be all there,” said Lisa Washburn, managing director of the Concord, Massachusetts-based firm Municipal Market Analytics.

“Eventually, I suspect there will be another economic downturn and how that affects that region, that’s something outside of their control. But it can’t be outside of their field of vision.”

http://www.detroitnews.com/story/news/local/detroit-city/2017/11/06/detroit-financial-outlook-regain-control/107393696/

NJ’s Hefty Unfunded Liabilities Matter of Concern to Outside Analysis

The Volcker Alliance began its analysis of the states’ budget policies in 2015, releasing an initial report that scrutinized the fiscal practices of just New Jersey, California, and Virginia. The exercise was then widened, with help from faculty and staff at 11 universities, as well as Massachusetts-based consultant Municipal Market Analytics. The goal, according to the organization’s new report, is to better inform the public about state budgeting matters so they can begin encouraging policymakers to improve transparency and overall performance. Worst practices

“By pursuing this investigation, the Volcker Alliance hopes that drawing attention to prevailing practices — and identifying the strongest and weakest among them — will encourage new efforts to raise standards for all states,” the report said.