No, Lightfoot’s Chicago Budget Does Not Make An ‘Actuarial’ Pension Contribution.

In late September, Chicago Mayor Lori Lightfoot delivered her 2022 budget address to the City Council. It was filled with a long list of new spending programs, including $400 million for community safety/violence reduction plans, $52 million for increased mental health services, $240 million for subsidized housing programs, $20 million for artists, and the list goes on. And among the achievements she lists is the following:

“In 2022, with the Budget we are proposing, we will climb our pension ramp, which means that for the first time in our city’s history, and all four pension funds will be paid on an actuarially determined basis. This is huge.”

Now, what she identifies as an “accomplishment,” having finished the climb up the pension ramp, is actually a state law that left her no choice in the matter. But that’s not the only incorrect part of her statement. Even having finally left the ramp behind, the plans are not funded on an “actuarially determined basis.” They are funded based on the Illinois legislature’s decision of a funding schedule which, for the police and fire plans, is sufficient to attain 90% funding in the year 2055, and for the Municipal and Laborers’ plan, not until 2058. Yes, if you do the math, that’s 34 and 37 years from now.

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by Elizabeth Bauer

Oct 10, 2021

California Backed a Valley Rice Plant with Tax-Free ‘Green Bonds.’ What its Bankruptcy Means.

It looked like a promising clean-tech investment for California — a revolutionary Sacramento Valley plant that would turn rice straw into fiberboard.

State officials were so enthused, they helped finance the fledgling plant with more than $300 million in tax-exempt bonds, figuring the project would create jobs in the heart of California rice country while helping to reduce greenhouse gases emitted by rice straw. The bonds didn’t put state taxpayers on the hook for the company’s financial troubles.

Now the plant has filed for bankruptcy.

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OCTOBER 07, 2021 10:02 AM

Muni Bond-Backed Fiberboard Plant Seeks Bankruptcy Restructuring.

California company says the road to converting rice-farming waste into a wood substitute ‘has not been smooth’

A Northern California plant for converting rice-farming waste into a wood substitute filed for bankruptcy protection after work stoppages and cost overruns triggered a roughly $344 million municipal-bond default.

CalPlant I LLC said the road to converting rice-farming waste into fiberboard from a new plant in Willows, Calif., “has not been smooth” and sought protection from creditors in the U.S. Bankruptcy Court in Wilmington, Del., on Tuesday to look for a potential buyer.

If no buyer emerges, CalPlant expects to hammer out a debt restructuring with senior bondholders, some of which have agreed to supply $30.1 million to finance the chapter 11 process through the purchase of new taxable bonds, according to court papers.

CalPlant Executive Chairman Jeffrey Wagner said the company began bringing its facility online in March 2020, shortly before the Covid-19 pandemic erupted in the U.S. The usual challenges associated with a startup were compounded by rolling out new technology during a global pandemic, he said.

Construction problems also plagued the operation, located about 85 miles north of Sacramento, Mr. Wagner said. It is among the first to make fiberboard from rice straw, a waste product of rice farming. The Sacramento Valley produces roughly a fifth of the nation’s rice, the company said.

The plant has been making the fiberboard since late 2020 but isn’t yet fully operational. Most of CalPlant’s debt was taken on to build and operate the plant and was issued by the California Pollution Control Financing Authority in the form of tax-exempt “green” bonds.

CalPlant has been in default on some of its debt, and forbearance agreements will expire Oct. 13.

Franklin Resources Inc.’s California High Yield Municipal Fund was among the original investors, and the asset manager still had CalPlant bonds in the portfolio as of May 31, according to a July regulatory filing.

Massachusetts Financial Services Co. also was holding the bonds at below par as of July 31, said a regulatory filing made last month.

After the plant opening was delayed by the pandemic, CalPlant defaulted on an interest payment in July 2020. Bondholders agreed to hold off on collecting debt payments.

Equity owners of the business include plywood maker Columbia Forest Products Inc., Teachers Insurance and Annuity Association of America and machinery manufacturer Siempelkamp, which also provided the engineering and design of the plant’s production process.

CalPlant and Siempelkamp are disputing amounts they believe they owe each other, court documents show. Siempelkamp employees had to leave the plant and return to Germany due to the pandemic last year and couldn’t return to the U.S. for several months.

CalPlant is represented in the bankruptcy by law firms Morris James LLP and Morrison & Foerster LLP. Paladin Management Group will provide restructuring advice. The cases have been consolidated under number 21-11302 and assigned to Judge John Dorsey in the U.S. Bankruptcy Court in Wilmington, Del.

The Wall Street Journal

By Becky Yerak

Oct. 5, 2021 4:17 pm ET

Muni-Backed Rice Fiberboard Project Files for Bankruptcy.

CalPlant I LLC, a muni-financed maker of rice-based fiberboard in California, filed for bankruptcy on Tuesday with plans to slash debt and sell itself.

The company cut a restructuring deal with senior bondholders and intends to pursue a sale in bankruptcy court, according to a statement from CalPlant. Certain senior bondholders have also committed to provide some $30 million of fresh financing. The company will keep operating without disruption to stakeholders, including vendors and employees, according to the statement.

CalPlant has faced years of setbacks and dealt municipal-bond investors one of the biggest high-yield defaults in recent memory. But it recently had given reasons for hope: in 2020, the company finished building a plant that makes a unique type of fiberboard from rice cultivation debris called rice straw. Earlier this year, it won the ability from a California state agency to sell even more municipal debt to fully scale up operations.

The Chapter 11 filing allows CalPlant to continue operating while it works out a plan to repay creditors. The company listed assets and liabilities of as much as $500 million each in its bankruptcy petition. It had issued $344 million of unrated tax-free debt since 2017.

“The road to fully commissioning our plant has not been smooth,” Jeffrey Wagner, CalPlant’s executive chairman, said in the statement. The Chapter 11 filing will allow CalPlant to strengthen its finances and keep manufacturing its sustainable fiberboard, he said. The consulting team includes Morrison & Foerster as restructuring counsel, and Paladin as financial adviser and investment banker.

Spokespeople for top bondholders Franklin Resources, Invesco Ltd., and Sun Life Financial declined to comment. Spokespeople for Teachers Insurance & Annuity Association of America, which provided equity backing to the company, didn’t respond to a request for comment.

The office of California Treasurer Fiona Ma, who supported the project as a voting member of the agency granting the company access to tax-exempt financing, is reviewing the bankruptcy filing, said her chief of staff, Genevieve Jopanda.

The case is CalPlant I LLC, 21-11303, U.S. Bankruptcy Court District of Delaware.

Bloomberg Markets

By Jeremy Hill and Romy Varghese

October 5, 2021, 6:02 AM PDT Updated on October 5, 2021, 11:50 AM PDT

Fitch: Planning Key for Public Power Clean Energy Shift Under Illinois Law

Fitch Ratings-New York-28 September 2021: Illinois’ new clean energy law does not have an immediate credit effect on public power utilities, says Fitch Ratings. Effectively managing the transition away from coal and natural gas will be key to mitigating cost pressures related to stranded resources. Illinois is the first midwestern state to pass sweeping clean energy legislation, which may provide a blueprint for other states to move away from fossil fuels.

The Climate and Equitable Jobs Act aims to achieve 100% clean energy generation by 2050 by phasing out coal and natural gas plants and investing in renewable energy sources. Renewable energy, which made up 11% of the state’s energy in 2020, must comprise 40% by 2030 and 50% by 2040.

The two publicly-owned coal-fired stations in the state, the Prairie State Energy Campus (PSEC) and Springfield City Water, Light and Power’s Dallman Station, must reduce carbon emissions 45% by 2035, plus a three-and-half-year grace period, and would be required to close by 2045 unless they completely eliminate carbon emissions. Emissions reduction at these levels involve closing one unit or deploying carbon capture technology, which is currently cost prohibitive.

Many bonds issued to finance the units mature well beyond 2035. However, the obligations of the nine PSEC owners, and the nearly 250 public power utilities supporting them, are unconditional and require payment of the PSEC project’s total costs, including operating expenses and debt service for the life of the debt whether or not the project is operating or capacity was interrupted or suspended. If the PSEC units become stranded and the owners are precluded from realizing the long-term benefit of continuing plant operations and production, the long-term financial burden and higher operating costs could weigh on credit quality or limit financial upside at best.

The Act does not affect the credit quality of PSEC’s owners and participating utilities in the near- to medium-term, as we expect plant operations and the cost burden to remain stable. The law provides a long lead time for participants to manage the transition but if production is limited they will need to plan for curtailed availability of the project and diversify power resources away from PSEC.

It is unclear to what extent the new law will affect utility customer rates but increases are likely over the long term. While the law provides for subsidies of about $47 million a year beginning in 2024 for converting coal-fired power plants into solar or energy storage facilities, it remains uncertain what, if any, benefits may accrue to the PSEC owners.


Dennis Pidherny
Managing Director, US Public Finance
+1 212 908-0738
Fitch Ratings, Inc.
Hearst Tower
300 W. 57th Street
New York, NY 10019

Sarah Repucci
Senior Director, Fitch Wire
Credit Research & Risk Analytics
+1 212 908-0726

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings.

Fitch: California Drought May Pressure Water Utilities’ Margins

Fitch Ratings-San Francisco/New York-29 September 2021: The current drought in California could cut into water utility revenues and pressure financial margins, Fitch Ratings says. Statewide water conservation mandates could be announced this fall, and some water agencies have already initiated cutbacks.

After two years of dry conditions, California is experiencing a moderate-to-exceptional drought, and an exceptional drought has been declared for over 88% of the state. The federal Central Valley Project (CVP) and California State Water Project (SWP) provide much of the state’s water from the Sacramento and San Joaquin river basins. The largest of the SWP reservoirs, Lake Shasta and Oroville, are only at 25% and 22% capacity, respectively, or 40% and 35% of historical averages. As a result, the SWP water allocation is just 5% of the requested amount, the lowest since the prior drought that ended in 2016. The CVP, which provides water to seven of the state’s top-10 agricultural counties, implemented a 0% allocation for agricultural contractors.

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Puerto Rico Lawmakers Present Debt-Restructuring Bill.

Puerto Rico’s House of Representatives filed a debt-restructuring bill Monday that proponents say will allow the U.S. territory to make its way out of bankruptcy while protecting pensioners and municipalities.

House Speaker Rafael “Tatito” Hernandez introduced the bill, calling it key to ending a 15-year economic slump that started after federal manufacturing incentives on the island were phased out. The bill authorizes the restructuring of some $18.8 billion in debt through the issuance of new bonds. If approved, the law will cut annual debt payments from $3.3 billion to $1.3 billion, Hernandez said.

Getting Puerto Rico lawmakers’ approval for a new bond sale to restructure some general obligations and commonwealth-guaranteed debt is a key step before U.S. District Court Judge Laura Taylor Swain begins conformation hearings in early November on Puerto Rico’s debt adjustment plan.

Puerto Rico, a U.S. territory of 3.3 million people, has seen its economy hit by hurricanes, earthquakes and brain drain. On Monday, the Bureau of Economic Analysis said the island’s gross domestic product had increased just 0.3% in 2019 after contracting the previous three years.

Less Pain

The bill also restores public pension cuts that are being required by the Federal Oversight and Management Board as part of Puerto Rico’s bankruptcy process. As Hernandez was holding his press conference, the oversight board said it had agreed not to cut any public pensions less than $2,000 per month if officials approve the new issuance of new debt. Previously, it had set the limit at $1,500.

With that new threshold, it will cost Puerto Rico’s government about $44 million per year to restore the cuts, Hernandez said. Even so, the bill stipulates that the pension restitution can only take place if Medicaid funding to the island is increased enough to cover the expense.

The bill also earmarks more money for municipalities. Additionally, the law creates a single fund for all government money, rather than doling it out to public corporations as has been done in the past. Hernandez said that move would help the government better manage funds.

“It’s time for us to change the pertinent laws and, if it’s necessary, our constitution to keep Puerto Rico from falling into bankruptcy again,” Hernandez said.

Bloomberg Markets

By Jim Wyss

September 27, 2021, 10:18 AM PDT

Connecticut Waterfront Project Cleared in 2007 to Sell Munis.

A district set up to transform part of Bridgeport, Connecticut’s waterfront plans to sell about $50 million of unrated municipal debt as soon as this week, in what amounts to a bond-market bet on future development for which financing has yet to be secured.

A subsidiary of RCI Group has built a 220-slip marina, a 150,000-square-foot store for outdoor retailer Bass Pro Shops and a mixed-use lighthouse building since the project was approved in 2007. But the developers of the largely vacant Steelpointe Harbor on Long Island Sound are still betting they can create a neighborhood of apartments, shops and offices about 60 miles (97 kilometers) from New York City, on the site of a former steel works.

A limited group of as many as 35 sophisticated investors can join the wager by purchasing tax-exempt bonds backed by an increase in property taxes generated by new development in the district, according to the offering statement for the debt.

More than $30 million of bond proceeds will reimburse Bridgeport Landing Development LLC for the construction of a bulkhead and $5 million will go to the city for street work. The RCI subsidiary has spent an additional $18.2 million in public infrastructure and $51.5 million in private improvements, the offering document says.

Homework Required

“Projects like these can change the entire character of a city’s waterfront,” said Adam Weigold, head of municipal strategies at Manulife Investment Management, which toured the site last week. “These deals are not without risk, and I think you really need to do your homework if you are going to get involved.”

He said he plans to buy the debt.

“We’ve been involved in waterfront development project financings in the past, and it’s great to see previously underutilized spaces turned into an attraction,” he said.

Tax-increment-financing bonds were among the riskiest types of securities in the $4 trillion municipal market even before the pandemic, which only added to the financial strains on districts relying on sales- and hotel-tax revenue. This month, bonds sold for a conference center in North Kansas City, Missouri, and secured by hotel-related taxes, defaulted.

High-yield munis have returned 6.6% this year, beating the 4.5% earned by their U.S. corporate counterparts, according to Bloomberg Indices. The riskiest munis have benefited from a reopening economy, federal stimulus and demand for junk offerings amid near-record low yields.

Apartments, Hotel

Bridgeport Landing Development plans three apartment buildings with a total of 370 units and a 120-room hotel at an estimated cost of $135 million, but it hasn’t obtained financing, according to the bond-offering document. Hotels, in particular, face a long recovery from the pandemic, which devastated business and leisure travel.

And while some New Yorkers have sought out homes in suburban Connecticut because of the pandemic, it’s unclear whether there’s enough demand for apartments in Bridgeport, a former manufacturing center where 22% of residents live in poverty.

However, location is also among one of Steelpointe’s strengths. The planned neighborhood is an 8-minute walk to the Metro-North and Amtrak rail station and is bounded by Interstate 95. The commuter train to Manhattan on weekday mornings can take as little as 90 minutes.

Bridgeport, a city of about 145,000, is in Fairfield County, one of the wealthiest in the U.S. As the county’s western part becomes pricier and denser, more people may move to cities such as Bridgeport, according to the offering statement.

Given the lack of available housing and changing location preferences amid the pandemic, the development has a strong possibility to tap into demand for larger apartments with easy access to major urban employment centers, said Jay Lybik, national director of multifamily analytics for

Buyers leaving New York have boosted house prices across Connecticut, putting ownership out of reach for many households, he said. The Bridgeport submarket apartment vacancy rate is 2.2%, showing there’s solid demand for renting in the area. There’s also been limited development over the past decade, with only 850 new units delivered and less than 100 under construction.

Risk Outlined

The tax-increment payments depend on the project’s timely completion by April 2025. If there’s a revenue shortfall, property owners in the district will have to make assessment payments. The developer is currently the district’s only property owner.

“This limited diversity in the obligation to pay real property taxes, including the tax-increment payments, and special assessments presents a significant risk to holders of the bonds,” according to the offering document. “Failure of the master developer to pay real property taxes and special assessments when due could result in the rapid, total depletion of the debt-service reserve funds.”

RCI, which is based in Miami Beach, didn’t respond to an interview request about the bond sale.

Tax-increment-financing bonds that depend on economically sensitive taxes and those that rely on developing an area tend to be riskier, said Lisa Washburn, a managing director at Municipal Market Analytics.

The sector has a default rate of 1.34%, similar to the aggregate default rates for riskier market sectors, she said. However, default rates among those sectors vary: It’s 0.8% for local housing and as high as 9.13% for retirement communities, Washburn said.

Bloomberg Markets

By Martin Z Braun and Nic Querolo

September 29, 2021, 4:00 AM PDT Updated on September 29, 2021, 11:10 AM PDT

Public Finance: Election Do's and Don'ts for Michigan School Districts


School district board members, administrators and employees are required to abide by the Michigan Campaign Finance Act. The Act prohibits the contribution of public funds or resources to a campaign for a candidate or ballot proposal while permitting the dissemination of objective factual information and permitting employees to volunteer services or express their views on their own time. Board members and policy-making administrators (at least the superintendent) may engage in advocacy at any time as long as no district resources are used to disseminate those views.

Section 57 of the Campaign Finance Act, in relevant part, states as follows:

(1) A public body or a person acting for a public body shall not use or authorize the use of funds, personnel, office space, computer hardware or software, property, stationery, postage, vehicles, equipment, supplies, or other public resources to make a contribution or expenditure or provide volunteer personal services that are excluded from the definition of contribution under section 4(3)(a)…This subsection does not apply to any of the following:

  1. The expression of views by an elected or appointed public official who has policy making responsibilities.
  2. Subject to subsection (3)*, the production or dissemination of factual information concerning issues relevant to the function of the public body.
  3. The production or dissemination of debates, interviews, commentary, or information by a broadcasting station, newspaper, magazine, or other periodical or publication in the regular course of broadcasting or publication.
  4. The use of a public facility owned or leased by, or on behalf of, a public body if any candidate or committee has an equal opportunity to use the public facility.
  5. The use of a public facility owned or leased by, or on behalf of, a public body if that facility is primarily used as a family dwelling and is not used to conduct a fund-raising event.
  6. An elected or appointed public official or an employee of a public body who, when not acting for a public body but is on his or her own personal time, is expressing his or her own personal views, is expending his or her own personal funds, or is providing his or her own personal volunteer services. The basic rule is that school district resources may not be used to advocate for a candidate or ballot proposal.

The basic rule is that school district resources may not be used to advocate for a candidate or ballot proposal.

The following “Do’s and Don’ts” cover commonly asked questions regarding compliance with the Act.




Information disseminated by a school district within 60 days before the general election or within 30 days before the primary election where a ballot question appears must contain certain identifying information if the communication is targeted to the relevant electorate. The identifying information included on the communication should generally be in the following form: “Paid for by ABC School District, 123 Anytown Avenue, Anytown, Michigan.” The identifying information included on printed material must be in a place and in a print clearly visible and readable by an observer. Prerecorded telephone messages (robocalls) should also include the school district’s telephone number.

© 2021 Miller, Canfield, Paddock and Stone PLC

Wednesday, September 22, 2021

S&P ESG U.S. Public Finance Report Card: Texas Governments And Not-For-Profit Enterprises

Key Takeaways

E (Elevated): With a large geographic area and vast Gulf coastline, Texas is susceptible to various acute and chronic physical risks, which elevates its environmental exposure when compared to many U.S. states. Furthermore, some areas are at risk for prolonged periods of drought that can pose unique operating challenges, particularly for utilities in the state. Compounding the physical risks are federal policy recommendations for energy transition to renewable from carbon-based generation sources. The oil and gas industry has, for generations, served as a hallmark of Texas’ economic development and supports core economic activity for many regions of the state. That said, the state is one the country’s leaders in renewable energy, which, in our view, provides a pathway for future economic and employment opportunities in a green economy.

S (neutral): The state’s significant population expansion over the last decade–the highest nominal growth in the country–-positions it to maintain robust economic productivity and activity compared to its peers. Its relatively younger demographic is also unlike most other U.S. states with large dependent populations, particularly with one of the highest percentages of uninsured residents resulting in higher costs for uncompensated care and Medicaid payer mix.

G (neutral): Texas has a well-established history of developing policies and executing on plans to address emerging material risks. However, our neutral view of governance reflects previous credit pressures from the state’s two largest pension systems–Teachers Retirement of Texas and Employees Retirement System of Texas–which have historically exhibited poor funding discipline, but with reform efforts and benefit changes long-term stability may improve. In addition, the severe winter event in February 2021 underscored risk management gaps related to Electricity Reliability Council of Texas’ (ERCOT) oversight of the state’s electric grid that may only be partially mitigated by recent legislative changes.

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23 Sep, 2021

Audit Warns CA Could Lose Over $330M in Rental Aid.

The way California defines whether or not emergency rental assistance has been “obligated” could put it at risk of forfeiting funds, a state watchdog says.

State and local governments administering emergency rental assistance programs may have to forfeit unspent funding if they do not get the money to renters by the end of the month.

While some programs have done better distributing the money than others, a recent audit of California rental assistance funds highlights a discrepancy between how the state and federal government classify the money as “obligated.” As a result of this issue, California could be at risk of losing $337 million in emergency rental aid, according to the report by California State Auditor Elaine Howle.

The U.S. Department of Treasury awarded jurisdictions in California $2.6 billion in emergency rental assistance in the first round of funding. Of that, California’s Department of Housing and Community Development is managing $1.8 billion.

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Route Fifty

By Andrea Noble

SEP 24, 2021

New Statutory Requirements if Local CA Agencies Want to Continue Teleconferenced Public Meetings with Social Distance Modifications.

During the COVID-19 pandemic, Governor Newsom authorized local agencies to conduct teleconference meetings without complying with certain Brown Act requirements to allow for social distancing during COVID-19, i.e., the following “Social Distance Modifications”:

The Governor’s authorization expires September 30, 2021. On October 1, 2021, urgency legislation AB 361 takes effect with new statutory protocols for local agencies to hold teleconference meetings with Social Distance Modifications.

Under AB 361, during a proclaimed state of emergency, a local legislative body can continue to utilize the Social Distance Modifications for teleconference meetings if, at least every 30 days, it makes findings that 1) it has reconsidered the circumstances of the state of emergency, and 2) the state of emergency continues to directly impact the ability of members to safely meet in person and/or state or local officials continue to impose or recommend social distancing measures. Alternatively, if the local agency is not utilizing the Social Distance Modifications, it can opt to meet in person and not provide a call-in or internet-based service option at all.

AB 361 imposes the following requirements to agencies who opt to continue to hold teleconference meetings utilizing the Social Distance Modifications:

Monchamp Meldrum LLP – Carlyn Drivdahl

September 21 2021

Puerto Rico House to Unveil Bond-Cutting Bill Next Week: Speaker

Puerto Rico lawmakers plan to file legislation next week that allows the commonwealth to sell new bonds to replace existing debt, a necessary step to help finalize the island’s record bankruptcy.

The commonwealth’s House of Representatives is set to file the bill as soon as Monday, Rafael “Tatito” Hernandez, speaker of the House, said in a telephone interview. The legislature plans to pass a debt-restructuring bill by Oct. 4 for Governor Pedro Pierluisi to consider, Hernandez said.

“We need to fix this and then focus on economic development and job growth,” Hernandez said. “This is a great step in the right direction for the future of Puerto Rico.”

Getting Puerto Rico lawmakers’ approval for a new bond sale to restructure $22 billion of general obligations and commonwealth-guaranteed debt is a key step before U.S. District Court Judge Laura Taylor Swain begins conformation hearings in early November on Puerto Rico’s debt adjustment plan.

To get enough votes to pass the House, the legislation will include issues beyond cutting Puerto Rico’s obligations, including programs for municipalities and retirees, Hernandez said. Lawmakers will be working on the legislation as bondholders wrap up voting on the debt adjustment plan that Puerto Rico’s financial oversight board submitted to the court earlier this year.

Island lawmakers are the final group to weigh in on restructuring the commonwealth’s debt after competing bondholder pools, insurance companies and unsecured creditors approved the debt adjustment plan earlier this year. Without legislative approval, the financial oversight board, which is overseeing the bankruptcy, may need to ask the court to authorize new bonds. That’s an unusual move in the $4 trillion municipal-bond market where state legislatures and local governments typically approve debt sales.

“Our takeaway from our recent conversations with the governor and the legislative leadership is that all parties involved are determined to get Puerto Rico out of bankruptcy as soon as reasonably possible,” said Matthias Rieker, spokesperson for the financial oversight board.

The legislation also involves how to repair Puerto Rico’s broke pension system, which owes current and future retirees an estimated $55 billion. The oversight board has proposed cutting some pensions by 8.5% and guaranteeing that no monthly pension falls below $1,500. The House bill would boost that threshold to $2,000, and also help restore any pension cuts with any future surplus revenue, Hernandez said.

“We will be disciplined,” Hernandez said. “We will do our work, but if there’s a surplus we will restore our pensions and invest in retirees.”

While the board is seeking the retirement changes, island lawmakers are reluctant to cut pensions. The governor has said he wouldn’t support legislation that reduces any retirement benefits.

Bloomberg Markets

By Michelle Kaske

September 21, 2021, 1:16 PM MDT

Lawsuit Over Harrisburg’s $360M Debt Debacle Can Proceed.

A Commonwealth Court panel refused Thursday to kill a lawsuit over the $360 million incinerator debt debacle that plunged Harrisburg into state receivership, but it did reduce the number of players involved in that fight.

In a 95-page opinion by Judge Michael H. Wojcik, the court removed Gov. Tom Wolf, the state and the Department of Community and Economic Development as plaintiffs in the suit.

That leaves the city, its state-appointed coordinator Marita Kelley and Capital Area Water, the successor to the Harrisburg Authority, to keep pursuing claims that financial and legal advisors and engineers misled city officials and others down a fiscal rabbit hole on a project that had no hope of paying its debts.

Wojcik’s court also removed Foreman & Foreman, the law firm that was solicitor to the Harrisburg Authority, the operator of the problem-plagued incinerator, as a defendant in the case. Wojcik found that firm did not commit any breaches of propriety in its representation of the Authority as that body sought funding and debt guarantees for the failed incinerator project.

Commonwealth Court directed the remaining defendants – RBC Capital Markets Corp.; Obermayer, Rebmann, Maxwell & Hippel, LLP; Buchanan Ingersoll & Rooney, P.C.; Eckert, Seamans, Cherin & Mellot, LLC; Public Financial Management, Inc.; and Buchart Horn, Inc., to answer the plaintiffs’ claims that the city is due unspecified financial damages for what they contend was bad and misleading advice given during the failed attempt to finance the incinerator project into becoming something other than an overly-expensive white elephant.

The city and authority plaintiffs contend the defendants, who were part of a working group advising officials on the incinerator project and its financing, should have told city officials and others that there was no hope the incinerator would be able to generate enough income to pay off the enormous debt it was amassing. City officials relied on the working group’s assurance that the incinerator debt would be self-liquidating when they agreed to use the city’s taxing power to guarantee the borrowing for the project, the suit which was filed in 2018 states.

Wojcik agreed with the defendants that Wolf, the state and DCED lacked legal standing to pursue the suit. He rejected the defendants’ arguments that city officials and the other plaintiffs failed to properly argue specifics of their allegations of impropriety, along with contentions that the city missed the statute of limitations deadline for filing suit over matters that occurred in the early to mid 2000s.

The city’s ultimate inability to pay for the incinerator debt pushed Harrisburg to the edge of bankruptcy. The situation was so bad that in 2012 then-Gov. Tom Corbett placed the city under state receivership to find a way out of the financial mess.

Harrisburg exited the receivership in 2014 but remained classified as a financially distressed municipality by the state. It still feels the after-shocks of the debt crisis.

By Matt Miller

Sep. 09, 2021

S&P ESG U.S. Public Finance Report Card: Florida Governments And Not-For-Profit Enterprises

Key Takeaways

E (elevated): Florida’s vast coastline, low elevation, and susceptibility to severe weather events increase its environmental risks when compared with those of most U.S. states. The chronic long-term effects of climate change and sea-level rise also elevate credit quality risk for Florida issuers, particularly absent comprehensive adaptation and resiliency planning.

S (neutral): We view the sustained population growth–generally outpacing that of the nation–as a social opportunity for Florida, driving economic and job growth. However, the state’s relatively high age-dependent population and potentially outsized exposure to disruptive macroeconomic health and safety events, given its large leisure and hospitality sector, are viewed as offsetting factors resulting in our overall neutral assessment.

G (neutral): While we view risk management, culture, and oversight positively due to the presence of state-level programs designed to help mitigate elevated environmental risks, we view the state’s governance structure that provides consistency and transparency as neutral, as it’s generally comparable with that of highly rated U.S. states.

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9 Sep, 2021

S&P State Brief: Montana

Read the brief.

14 Sep, 2021

Fitch: Utah and Idaho Stand Out as U.S. States’ Job Growth Strengthens in July; August Growth Slows

Fitch Ratings-New York-10 September 2021: State employment recovery notably strengthened in July with two states now seeing job growth significantly exceeding pandemic related job losses, according to Fitch Ratings in its latest U.S. States Labor Markets Tracker. State gains slowed considerably in August based on the most recent national report.

The median jobs recovery for states increased in July to 73% from 69% in June. As of July, 45 states have recovered over 50% of the jobs lost at the peak of the pandemic. Hawaii, New Mexico, Wyoming, Louisiana, and Alaska remain below 50% jobs recovered, despite some improvement over recent months.

Job growth in Idaho and Utah is far outpacing all other states. “Utah job growth is up 130% since February 2020 while Idaho job growth has outpaced pre-pandemic levels by over 120%, making them the only two states to have exceeded the pre-pandemic employment levels of last February,” said Senior Director Olu Sonola.

Conversely, Alaska, Wyoming and Kentucky remain notable job growth laggards. “Employment recovery in Alaska, Wyoming and Kentucky has declined between 1% and 3% from March of this year, a rather stark contrast to employment recovery rate for U.S. states as a whole, which is up by 10%,” said Sonola. Job growth also fell in Oklahoma and Tennessee.

More recent national data for August shows employment growth slowed, largely due to the impact of the delta variant on pandemic-sensitive sectors such as leisure and hospitality (L&H). “The flat growth in national L&H employment in August does signal more downside risk for this sector,” said Sonola. In July, gains in L&H had been the largest contributor to the employment recovery.

Fitch’s latest “U.S. States Labor Markets Tracker” is available at


Olu Sonola
Senior Director
+1-212 908-0583
Fitch Ratings, Inc.
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Kansas Cities Unlikely to Find Shortcut to Fast Growth Through STAR Bonds.

Kansas’s urban areas are the only part of the state that is growing in population; the results from the 2020 Census make that clear. Despite its own self-conception as part of the heartland of America, the Sunflower State is, increasingly, a pretty “citified” place.

This dynamic — a slowly growing and diversifying urban population within a state whose political elites still mostly embrace the values of rural conservatism — can explain a lot. It helps explain the persistence of an inferiority complex in many Kansas cities, with the people of Wichita or Kansas City, Kan., looking south or east, comparing themselves to cities in other states that aren’t as defined by the counties of red that surround them.

It may also help explain the push by these cities and their elected representatives to make use of whatever financing they can to change, innovate and most of all expand. And this is what leads us to STAR bonds.

Sales Tax and Revenue (STAR) bonds are a strange financial instrument. Only two other states — Illinois and Nevada — have allowed their creation, and even they haven’t made use of this fiscal slight of hand for over a decade.

In Kansas, however, urban governments have regularly sought permission to sacrifice the sales tax revenue that ought to go to Kansas’s state and municipal programs in order to raise funds for construction which they imagine will bring major corporate attractions to Kansas.

The Prairie Fire Entertainment District in Overland Park, the Sports Forum in Wichita, the Heartland Park Racetrack in Topeka — STAR bonds made them all.

But did it make them actually successful? A recent accounting of STAR bond programs concluded that only 3 of the 16 projects which the state has approved, at a cost of nearly $900 million in tax revenue, actually meet the economic requirements of the instrument. The auditors found little evidence of these projects drawing new tourism dollars to Kansas, and even less evidence that using these bonds to finance construction has led to economic development in areas that weren’t good candidates for ordinary capital investment anyway.

Defenders of the STAR program point to, among other things, the increased property tax values of the developed areas (though the unfunded maintenance liabilities these developments have brought with them usually goes unmentioned).

Often, though, the defenders fall back on a plaintive cry unfortunately common in the urban parts of Kansas: Business expansion is essential to the “general economic welfare” of the state. If we’re not willing to sacrifice the sales tax revenue normally used to fund voter-approved (and universal, rather than city-centric) government programs for the sake of attracting a new Topgolf franchise to Wichita or building a new speedway in Kansas City, then aren’t we showing a lack of confidence in our future?

These are complicated decisions, to be sure.

But still I wonder if urban Kansans sometimes exhibit a “build it and they will come” mentality, in the somewhat desperate hope that they can suddenly change into something other than slow-growth cities on the Great Plains.

If that is so, I would simply say: The work of making Kansas’s culture and economy reflect its increasing urban reality will be a long and necessarily local one. Using needed future tax revenue to build a new waterpark may has its merits, but such top-down decisions are unlikely to provide a shortcut.

The Topeka Capital-Journal

by Russell Arben Fox

Sept 12, 2021

Banks Vying to Hold City of Chicago Deposits Must Provide More Data on Mortgages, Home Equity Loans.

The City Council’s Finance Committee approved an ordinance that would require banks seeking to hold up to $400 million of the city’s money to post even more detailed information on the city’s open data portal.

Banks holding Chicago tax dollars or vying to becoming municipal depositories would be required to come more clean than ever about lending practices, under a stronger disclosure ordinance intended to reverse longstanding lending inequities.

The City Council’s Finance Committee on Monday approved an ordinance championed by Housing Committee Chairman Harry Osterman (48th) that would require banks seeking to hold up to $400 million in city money to post even more detailed information on the city’s open data portal.

Chicago’s “Responsible Banking Ordinance” would be revised to include:

• The amount of each home equity loan made in Chicago, by census tract.

• Denial reasons for home mortgages, by race, sex and census tract.

• The number and location of banks in Chicago.

• Employee demographics by job category from all banks with more than 500 employees.

Before voting to designate the city’s 13 municipal depositories, the ordinance would also require the Finance Committee to hold an annual hearing to discuss home lending trends.

Osterman said his goal is to “empower” aldermen with the information they need before they decide where to deposit Chicago’s tax dollars.

“This is not something that’s gonna solve the lending inequities overnight. But it’s a piece of a united front on the city, state, county and federal level to really make sure that we’re changing things and lifting people up,” Osterman said.

“The lenders have an ability every single day to help do that. We’re gonna be seeing how this goes with the information on where the loans are going. It’s all about an equitable recovery as we come out of COVID. … We are not in the business to regulate banks. But it is our business to ensure that we are stewards of the interests of the residents that we represent.”

City Comptroller Reshma Soni said the 500-employee benchmark for detailed personnel information was included for good reason.

The city is trying to reverse longstanding lending inequities by making it easier for smaller, local banks to become municipal depositories.

“We want to be able to balance the smaller banks. Encourage them to come in and do business with us. So we’re trying to ensure this is not unduly burdensome for them,” Soni said.

Soni said she hopes to implement the new disclosure requirements in time for the upcoming request for proposals on municipal depositories. But after talks with the Illinois Banking Association, she acknowledged: “There are gonna be some growing pains and some implementation delays. … They’re gonna do their best to get us as much as we can for this round with full implementation happening next year.”

Banks designated as “municipal depositories” have long been accused of investing far more money in majority-white neighborhoods than in communities of color.

Those discriminatory practices have made it more difficult for African Americans and Hispanics to secure home mortgages, business loans or loans for home improvements. That has perpetuated a wealth gap and the historic disinvestment in South and West Side neighborhoods.

The most recent study documenting those inequities was conducted by WBEZ-FM (91.5). It showed banks lend 12 cents in Black neighborhoods and 13 cents in Hispanic neighborhoods for every $1 loaned in white neighborhoods.

To promote “diversity, inclusion and equity” in lending, Chicago’s “Responsible Banking Ordinance” already requires banks receiving city deposits to submit detailed information about lending practices.

In a scathing audit released earlier this month, retiring Inspector General Joe Ferguson concluded the city continues to deposit millions of tax dollars in banks that engage in discriminatory lending practices.

Despite “rigorous collection” of information on lending practices, the audit concluded the Department of Finance conducted “no substantive evaluation” of that data.

Chicago Sun-Times

By Fran Spielman

Sep 13, 2021

California Sells $2.1 Billion of Munis Amid Newsom Recall.

California sold $2.1 billion of tax-exempt general-obligation bonds Tuesday, just as its citizens cast their ballots to decide the fate of Governor Gavin Newsom in a recall vote.

Despite the political tumult, the sale came on the heels of an outlook boost to positive from stable. Credit ratings for the state, which is the largest issuer of muni bonds, are at the highest levels in decades as demand for muni-bonds soars.

Ultimately, the vote may amount to little more than a blip for investors facing high taxes and the prospect of changes to the cap on federal state and local deductions on the horizon.

“It has definitely added a different facet to the deal, but when you’re looking at deals that are 10, 20, 30 years in maturity, investors should look long term and be prepared to hold a credit through multiple election cycles,” said Dora Lee, director of research at Belle Haven Investments.

The state sold bonds to investors at a yield of 0.06% for debt that matures in 2022 with a 5% coupon, 1 basis point less than top-rated benchmark securities, according to repricing data collected by Bloomberg. Longest dated securities priced with a 2.48% yield and a 2.4% coupon. Yields on most maturities dropped slightly from those offered to investors in preliminary pricing, indicating strong demand for the deal, the data shows.

Ten-year California general obligation bonds are trading at yields about 6.8 basis points more than benchmark securities, according to Bloomberg data. That’s slightly higher than the average spread of 5.6 basis points over the last three months, the data show.

The state’s credit is in “excellent shape, and absent the recall, we think worthy of tight spreads,” wrote John Ceffalio and Patrick Luby, municipal analysts at CreditSights in a report evaluating the bond sale published earlier this month. The state is flush with cash, reporting higher than expected revenue collections and receiving $27 billion from the American Rescue Plan.

Ceffalio and Luby said that a successful recall could push spreads “modestly” wider as investors fear that the state’s strong governance could slip. They said that some replacement candidates seem “ill-suited and lightly qualified” to manage the state’s budget.

Still, any spread widening could create an opportunity. “In our view, if California credit spreads widen in the aftermath of the election outcome, investors should consider it as a buying opportunity,” wrote Barclays Plc strategists Mikhail Foux, Clare Pickering and Mayur Patel in a Sept. 3 research note.

Bloomberg Markets

By Nic Querolo and Danielle Moran

September 14, 2021, 9:32 AM MDT Updated on September 14, 2021, 1:03 PM MDT

— With assistance by Natalia Lenkiewicz

5 Things Wrong with Illinois Holding 30% of U.S. Pension Bond Debt.

Pension obligation bonds, like payday loans, are a sign of mismanaged finances. Illinois not only leads the nation for using that risky debt, it owes the bulk of it.

It is bad Illinois has the nation’s worst pension crisis, but state politicians have made it worse by using risky debt to delay the day of reckoning, and done so to the point that Illinois now owes 30% of the nation’s pension obligation bonds.

Pension obligation bonds are a form of debt used by state or local governments to fund their pension deficits. Illinois holds $21.6 billion of the nation’s $72 billion pension obligation bond debt.

Continue reading.

Illinois Policy

by Adam Schuster & Aneesh Bafna

September 10, 2021

Chicago to Unveil Bank-Loan Data in Bid to Boost Home Ownership.

The Chicago City Council approved a measure on Tuesday to boost transparency around the lending practices of the city’s banks and help address home-ownership disparities in the nation’s third most-populous city.

The “Lending Equity Ordinance” will publicly share lending data and require an annual hearing on the information with the committee on finance, Alderman Harry Osterman, a chief sponsor, said on Twitter. The measure also collects data on home equity loans and reasons for denial of loans by the banks serving as municipal depositories for the city. Such banks held about $725.3 million of the city’s cash and certificates of deposit as of Dec. 31, according to Chicago’s annual comprehensive financial report.

“Transparency is needed to inform Chicagoans about the institutions where their public funds are being deposited,” according to the ordinance.

The measure publicizes data by Census tract such as home-loan amounts and interest rates that banks provide when they bid annually for the city’s business. Disclosures about consumer and commercial loans in the city are also required. In the past, the city’s finance department didn’t evaluate whether banks provided “inclusive and equitable financial services throughout Chicago” even though it collected data, according to an August report by the city’s inspector general.

Now that will change and banks’ lending practices may influence where the city deposits its funds, according to the ordinance.

The ordinance is “going to give us a better understanding of lending activity,” Alderman Scott Waguespack, head of the finance committee, said during the City Council meeting Tuesday. It will “hopefully break down some barriers,” he said.

Chicago is following cities with similar oversight like Pittsburgh and Cleveland. The move comes after recent reports showed lending practices have contributed to the city’s racial homeownership gap. Last year, local NPR affiliate WBEZ and the nonprofit newsroom City Bureau revealed that for every $1 banks loaned in Chicago’s White neighborhoods, 12 cents went into the city’s Black neighborhoods and 13 cents in Latino areas.

The gap in Chicago exemplifies the disparities across the country, which were only exacerbated during the pandemic. While U.S. White homeownership reached 74.2% in the second quarter of 2021, up from almost 70% in 1994, Black homeownership increased to 44.6% and the Hispanic level to 47.5% from under 42% for both in the same period, according to Census data.

Illinois bankers, however, have concerns about the new rules. The industry aims to improve mortgage access and address inequality in Chicago, particularly among Black and Latinx mortgage applicants, according to an emailed statement from the Illinois Bankers Association.

But “this ordinance creates more hurdles within an already daunting application process, which could further discourage small, community banks and minority-owned banks from applying and working with the city,” the statement said.


By Shruti Singh

September 14, 2021, 2:57 PM MDT

— With assistance by Alexandre Tanzi

Chicago Finally Getting Serious About Where It Deposits City Cash.

The city government of Chicago moves hundreds of millions of dollars in and out of the bank every few months. Taxes, fees, fines and bond sale proceeds come in; paychecks, contractor payments and other spending or investments go out.

Community Advocates Break Down Proposed Changes to Community Reinvestment Act Regs
As of December 31, 2020, Chicago had $725 million in the bank — multiple banks, actually, as the city typically designates more than a dozen banks every year as municipal depositories.

The City of Chicago requires banks seeking designation as municipal depositories to have an authorized representative sign a pledge every year that the bank will avoid discrimination in lending on the basis of neighborhood, race, national origin, sex, source of income, sexual orientation and other factors. The pledge notes that failure to comply can result in losing designation as a municipal depository. It’s been this way since 1974, when Chicago passed its Responsible Banking Ordinance, the first such ordinance of its kind. Many cities across the country have since passed their own responsible banking ordinances — some more stringent, some less so.

Continue reading.



SEPTEMBER 14, 2021

Javits Center Debt Downgraded as NYC Tourism Struggles to Revive.

New York’s Jacob K. Javits Convention Center, which was turned into an emergency hospital during the first wave of Covid-19, had about $1 billion of municipal bonds downgraded by Moody’s Investors Service as tourism struggles to recover from the pandemic.

Moody’s lowered ratings on $770 million of senior debt issued by the New York Convention Center Development Corporation one level to A2 from A1. The rating on $220 million of subordinate debt was lowered two levels to Baa2, the second-lowest investment grade, from A3. The outlook on the bonds is negative.

“The continuing impact of the coronavirus pandemic has created severe and ongoing disruptions in the New York City travel and tourism market and therefore pledged revenue receipts,” Moody’s said in a news release. “As the world continues to grapple with new virus variants, an uncertain recovery path faces travel and tourism as well as New York City’s office occupancy and business travel.”

Debt issued for the Javits Center is payable from a $1.50 per-night fee on occupied hotel rooms in New York City and the senior bonds also get backing from a state agency that finances mortgages. The city’s convention and visitors bureau projects tourism won’t return to pre-pandemic heights of 66.6 million visitors until 2025 In late July almost 100 were closed to tourism, according to Costar.

The New York International Automobile Show, normally held at Javits, was canceled this month for the second year in a row because of concerns about the Covid-19 delta variant.

Bloomberg Markets

By Martin Z Braun

September 1, 2021

S&P U.S. Local Governments Credit Brief: California School Districts


Despite the effects of the COVID-19 pandemic, California school districts demonstrated generally stable credit quality in fiscal years 2020 and 2021, and S&P Global Ratings expects this will continue in fiscal 2022. State revenue significantly outperformed budget during fiscal 2021, and the enacted budget for fiscal 2022 provides the highest funding per pupil in the state’s history. Nevertheless, if school districts that are more reliant on state funding and have experienced enrollment declines do not prepare accordingly, they could face budgetary challenges in fiscal 2023 with the expiration of provisions that have held them harmless against enrollment declines during the pandemic.

S&P Global Ratings maintains general obligation (GO) ratings on 662 school districts in California. Fifty-seven percent of California school districts are in the ‘A’ category, 42% are in the ‘AA’ category or above, and fewer than 1% are in the ‘BBB’ category or lower. In addition, 97% of the ratings have a stable outlook, while approximately 2% have a negative outlook. One school district has a positive outlook.

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30 Aug, 202

Muni-Bond Buyers Shrug Off California Governor’s Recall Peril.

Municipal-bond investors are seemingly unfazed by the prospect that voters this month may toss out the governor of California, the most prolific issuer of such debt, and replace him with a popular conservative talk-radio host.

In fact, California’s 10-year general-obligation bonds are yielding about 0.06 percentage point over benchmark munis, a smaller premium than the 0.11 percentage point seen at the beginning of the year. California’s credit ratings are at the highest in about 20 years and demand for munis is soaring, especially for the state’s debt as wealthy residents seek tax-exempt bonds.

Gavin Newsom, a first-term Democrat, is facing a rare recall election Sept. 14. While polls shows he’s got a good chance of keeping his seat, Democrats worry that he could lose and a political neophyte like Larry Elder, a Republican who’s opposed to mask and vaccine mandates, could end up in the governor’s office.

Though Elder or any of the other 45 candidates on the ballot could upend state policies through executive orders and political appointments, Democrats would still control both chambers of the legislature. And Newsom’s replacement would be up for election next year in a state where Democrats outnumber Republicans nearly two to one.

“We just don’t think it’s going to be a large impact on credit, even if the recall is successful,” said Jennifer Johnston, director of research for Franklin Templeton Fixed Income’s municipal bond team. “I don’t think there’s much damage, so to speak, that a new governor could do in this time frame.”

Propping up Wall Street’s confidence in the world’s fifth-largest economy are California’s booming technology industry and other lucrative sectors and its progressive tax system that have led it to notch a record $75.7 billion surplus. Revenue collections are again running ahead of projections this fiscal year. Not only has California weathered a gubernatorial recall election before, but its finances are even better than in 2003, when voters expelled Democrat Gray Davis and tapped Republican Arnold Schwarzenegger as his successor.

“The state’s credit is very strong. Revenue receipts this summer have exceeded expectations,” said Parker Colvin, a managing director at underwriter Raymond James. “The market is in need of large, liquid, benchmark transactions.”

In a testament to how little the political furor has impacted bonds, the California treasurer’s office has scheduled a sale of $2.1 billion of tax-exempt general-obligation bonds the day of the recall election.

Bloomberg Markets

By Romy Varghese

September 2, 2021

Visualizing Data for Residents of Los Angeles: GFOA

The Office of the Controller for the City of Los Angeles, California manages vast amounts of data—particularly open data and financial data. The team’s work is based on three Ts: Transparency, Trust and Transformation, with the goal of making Los Angeles the most transparent city in the United States. Years ago, organizations that rank the transparency of governments placed Los Angeles at the bottom of the list. Today, the city is ranked at the top. Greater transparency, which creates greater accountability, can help build the public’s trust, which is vital to continuing democracy. And then, of course, there’s transformation.

Thanks to technology, the daily activities of city departments have changed and are changing radically, increasing efficiency in operations and in the delivery of vital services. We must continue to be innovative and bring technology to city government, along with different ways of thinking about it.

Publication date: August 2021
Author: Ron Galperin


Michigan Supreme Court Rules Against Revenue Sharing Suit.

METRO DETROIT — On July 28, the Michigan Supreme Court ruled largely in favor of the state in a case that addressed Michigan’s Headlee Amendment, which, in part, requires that roughly half of the state’s spending from state revenue sources each year be paid as aid to local governments.

The minimum percentage required to satisfy Section 30 of the Headlee Amendment has been set at 48.97%. Plaintiffs, consisting primarily of municipal leaders from around the state, known as Taxpayers for Michigan Constitutional Government, argued the state of Michigan is shortchanging local governments because it counts payments directed to school districts, including charter schools, pursuant to Proposal A of 1994, as well as spending for state-mandated local services, as part of that 48.97%.

“We were obviously disappointed,” remarked Christopher Johnson, general counsel to the Michigan Municipal League, which was a plaintiff in the suit. “I think it really boils down to the interpretation between the interplay between Proposal A and the Headlee Amendment and how much money has been siphoned off from local communities to the state.”

Both Eastpointe and Roseville were parties in the suit. Roseville City Manager Scott Adkins said that municipalities like his have lost millions of dollars in the last two decades due to the 2008 recession slashing cities’ income while the Headlee Amendment and Proposal A severely limited how much they could then take in after the financial situation improved. He said that both measures also have reduced the amount of money coming into municipal governments from the state, which has amounted to a “one-two punch” that has left many cities struggling.

“We were party to the suit, along with many municipalities,” said Adkins. “When it comes to municipal finance, the state hasn’t always been consistent. There are two types of revenue sharing: constitutional revenue sharing, which is written in the Michigan Constitution. The other is statutory, which is determined by the Legislature and can be changed. They can both be difficult for communities, depending on how they are implemented.”

“You start to explain this thing to John Q. Citizen out there, and their eyes roll back in their head and they lose interest,” Johnson added. “They think it doesn’t make sense and no one would ever adopt something that crazy.”

The Supreme Court decision dictated that state payments from Proposal A revenues paid to public schools count under Headlee Section 30 as state aid to local governments; state payments to charter schools are not necessarily payments to local units of government, although some charter schools may still qualify as local units of government; and state payments to local units of government to cover state mandates required by Headlee Section 29 also must be counted under Headlee Section 30.

“This ruling is a win for the people of this state,” Michigan Attorney General Dana Nessel stated in a press release. “Public school funding is about 25% of the state’s annual budget, representing approximately 12-13 billion of state dollars each year. A significant portion of that annual funding was in question in this case — and could have resulted in higher taxes and/or fewer state-level services for Michigan’s residents if the court had determined the state was not providing enough money to local governments. This decision affirmed that the state’s decades-long treatment of these public school funds was proper under our Constitution. This was a complicated issue that demanded the best advocates on behalf of Michigan, and I am proud of the work done by my staff.”

However, those who brought the case forward said the goal is not to decrease the money going to schools but to increase the money going to municipal governments.

“What it really boils down to is the municipal finance system the state has is broken. The state needs to fix it. The decline in government spending at a local level has been devastating for communities all over Michigan. It’s not a system that can be fixed by throwing a few dollars at it here and there; it needs a more long-lasting and permanent solution,” said Johnson. “The Headlee Amendment was originally sold to voters as a way to make sure they wouldn’t be taxed out of their house, but it actually was a revenue cap on local taxes. Proposal A accomplished what the Headlee Amendment sold, which was limiting a tax increase for an individual.”

Adkins said this wasn’t a complete victory.

“Municipalities have consistently lost ground in past cases when changes were made, so we will take whatever victories we can get,” Adkins added. “What we were trying to do with this suit was a more fair and equitable manner of state finance. We were able to get an acknowledgment that the state hasn’t been fair in the distribution of revenue at least in certain components, but this isn’t a complete fix. We need them to look at the whole pie, not just one or two pieces.”

Adkins said that Headlee and Proposal A may have been good ideas when they were approved, but that the situation in Michigan has changed since then, citing the existence of charter schools as a key example.

“I think you have to look at both Headlee and Prop A,” he said. “Headlee is the constitutional amendment. When it was passed in 1978, you had a different economic platform. The same can be said for Prop A, which was passed in 1994. In both cases, you have a certain sort of economy in the 1970s and a certain sort in the mid ’90s. Neither has been adapted for 2021. While they might have been a good fit for the time they were passed, they weren’t built to be adapted as the situation changed. You weren’t paying the same price for a gallon of milk in 1978 (as) you are now. Now, municipalities have been losing ground while inflation kept going up.”

Adkins said that, until the state takes a full and comprehensive look at how revenue is being shared with local municipalities and how those municipalities are struggling, those communities will continue to struggle.

“We’re frustrated that many of the major issues still haven’t been fixed in the state’s finance system. We’re glad there’s more awareness and some small victories have been achieved, but municipalities are still struggling, so these issues have to be addressed and we still haven’t seen that happen.”

by Brendan Losinski

Chicago Gambled on Federal Stimulus and Will Now Use $500 million to Pay Off Short-Term Borrowing.

‘This fits the spirit of the American Rescue Plan,’ one analyst says, even as she finds the opacity troubling

Savvy cash management, or creative bookkeeping?

The city of Chicago recently announced plans to use funds from the federal American Rescue Plan stimulus to pay down about $500 million in short-term debt it took out in December. The step received scant attention until a public-finance expert published a blog post on the subject in August.

As Amanda Kass, associate director for the Chicago-based Government Finance Research Center, makes clear, the move isn’t improper — but she thinks it isn’t a prudent selection among possible steps, either. At best, Kass sees it as a financial Hail Mary that will probably work out for the city at the expense of transparency and public engagement.

Here’s what happened. Last November, facing a near $800 million fiscal 2020 budget deficit, due mostly to the pandemic, city managers decided to take on $450 million in short-term debt, plus interest. City managers reached out to several banks and found JPMorgan Chase & Co.  offered the best rate. The deal was finalized in December.

Continue reading.


By Andrea Riquier

Aug. 27, 2021

Michigan’s Overlapping Property Tax Limitations Create an Unsustainable Municipal Finance System.

Download Report.

AUGUST 10, 2021

Illinois to Sell Bonds After First Ratings Increase in Decades.

Illinois is returning to the $4 trillion municipal bond market after winning credit rating upgrades for the first time in more than two decades.

Why It’s Noteworthy

The state, which still has the lowest credit designation in the nation, plans to sell $130 million in junior obligation tax-exempt securities through a competitive auction for its Build Illinois program on Aug. 24. The bonds will help fund construction projects and are backed by Illinois sales tax revenue. The state’s share of sales tax increased 13% to $10.4 billion in fiscal 2021, according to bond documents.

The offering scheduled for next week is the first of three issues slated for over the next two months. The state plans to sell $210 million taxable debt and $160 million tax-exempt refunding bonds through negotiated sales in mid-September, according to a statement.

Illinois last came to market in March. That was before the economy began reopening from the Covid pandemic shutdown and when investors were still grasping the impact of President Joe Biden’s American Rescue Plan Act, which funnels $350 billion to state and local governments. Illinois is getting about $8.1 billion from the latest stimulus package.


While S&P Global Ratings and Fitch Ratings have assigned BBB+ ratings to the $130 million sales tax bonds to be sold next week, Illinois’s overall credit picture has brightened noticeably in the last six months. That’s largely given higher-than-projected revenue, billions more in federal aid and some fiscal discipline shown by the state government.

After raising their outlooks on the state in March to stable from negative, both S&P and Moody’s Investors Service lifted their ratings. Moody’s raised its designation to Baa2 from Baa3 on June 29 and S&P boosted to BBB from BBB- on July 8. Both increases were the first for the state in more than 20 years.

Fitch raised its outlook to positive from negative on June 23, but maintained its BBB- rating, which is still one notch above non-investment grade. The state remains the lowest rated, largely because of its heavy unpaid pension liability — which currently stands at about $144 billion, lack of a meaningful rainy day fund and ongoing structural deficits.

It had faced a string of outlook and rating cuts resulting from the budget impasse from 2015 through 2017 between the Democrat-controlled Illinois General Assembly and then Governor Bruce Rauner, a Republican. Plunging revenue in 2020 due to pandemic-spurred business closures had added to the pressure and put the state on the brink of a junk rating.

Now, S&P’s stable outlook for the Build Illinois bonds reflects sales tax resilience, liquidity strength and continued economic recovery, Geoff Buswick, an analyst for S&P, said in a report Aug. 13.

Market’s View

“For the first time in a long time the state is coming to market with the momentum of positive rating actions,” said Dora Lee, director of research for Belle Haven Investments, which holds $15 billion in muni assets including Illinois debt. “It really shows what the state is capable of with a bit of financial discipline and a supportive federal aid environment.”

The state’s yield spreads are still wider than other states but are historically low, said Dennis Derby, a portfolio manager for Wells Fargo Asset Management, which holds Illinois as part of $35 billion muni assets. The sales tax bonds are also “one of the strongest financing mechanisms for Illinois” and using them for capital projects makes sense, he said.

Illinois pays 70.8 basis points more to borrow than 10-year AAA benchmark securities, according to data compiled by Bloomberg. While that is slightly more than earlier this summer, it’s far less than the 4.4% in May 2020 at the height of investors’ anxiety about financial repercussion from the pandemic.

“Illinois continues to ride positive market momentum and improved ratings outlooks,” Derby said.

Bloomberg Markets

By Shruti Singh

August 20, 2021, 6:33 AM MDT

New Jersey’s American Dream Megamall Is Once Again Sinking in Debt.

Since its groundbreaking nearly two decades ago, the megamall built in New Jersey’s Meadowlands has done little except hemorrhage cash. Now, less than two years after its much-delayed opening, the complex known as American Dream is threatening to dash the lofty ambitions of yet another developer.

The Ghermezian family, which runs some of the biggest and most successful malls in North America, can’t keep up with the bills on the shopping and entertainment megaplex, which helped drive its original developer to the brink of bankruptcy and later was seized by lenders from the team that came next.

Revenue from the stores has been so scarce amid the surging pandemic that the Ghermezians have hired legal and financial advisers to help them ease the crushing $3 billion debt load, and perhaps retain some role in running the project, according to people with knowledge of the matter.

Continue reading.


By Eliza Ronalds-Hannon, John Gittelsohn, Lauren Coleman-Lochner, and Martin Z Braun

August 19, 2021, 5:00 AM MDT

HilltopSecurities Strengthens Footprint, Adds Key Professionals to Public Finance Division.

DALLAS, August 18, 2021–(BUSINESS WIRE)–Hilltop Securities Inc. (HilltopSecurities) recently welcomed a pair of key financial services leaders to its Public Finance division in Florida and Minnesota. John Pellicci will serve as senior managing director, head of municipal high yield underwriting and sales, while Yaffa Rattner will serve as senior managing director, head of municipal credit in the firm’s Public Finance division.

The two bring a combined 67 years of financial services experience to HilltopSecurities’ team of financial professionals and will report to Todd Bleakney, senior managing director, co-head of Debt Capital Markets.

“John and Yaffa will be wonderful additions to our Public Finance division,” said Bleakney. “They are both seasoned professionals and will only enhance our ability to serve our clients. I look forward to working with them.”

“With the addition of Yaffa and John, we continue to strengthen our capital markets effort across our platform,” said Mike Bartollota, Executive Managing Director, Co-Head of Public Finance/Debt Capital Markets at HilltopSecurities. “We are delighted to have such talented and experienced professionals join our team.”

Florida’s Brightline Train to Resume Service in November.

Brightline Holdings, the Florida luxury rail company backed by Fortress Investment Group, will resume running trains in November after suspending service in March 2020 because of the coronavirus pandemic.

In a briefing Tuesday, Brightline President Patrick Goddard said schedules and fares would be similar to those before the suspension. Among new features, riders, who must wear masks on board, will have the option of booking a car, shuttle or electric golf cart to get to the stations. The company will also require Covid vaccines for its employees. The state is reporting a three-day average of 18,795 new Covid cases, according to the Florida Department of Health, ranking it among the highest rates in the country.

With Florida drawing tourists and new residents, vehicle traffic has increased and the company anticipates demand for its service between Miami and West Palm Beach, Goddard said.

“As long as Florida continues to grow, we feel very resolute in our optimism for the future of the business,” Goddard said.

The country’s first new privately financed intercity passenger rail in a century, launched in 2018 along Florida’s east coast, missed passenger and revenue forecasts even before the onset of the Covid-19 outbreak. But over recent months, the company has notched several wins to boost ridership, such as reaching an agreement with Walt Disney World Resort to develop a station on its property. Brightline is also working on commuter rail initiatives with Miami-Dade and Broward counties.

New stations in Boca Raton and Aventura will come online next year, while the expansion to Orlando will wrap up construction at the end of 2022, Goodard said.

Municipal-bond investors have welcomed the developments. A bond due in 2049 traded Wednesday at an average yield of 5.3%, compared with a high of 7.75% in January, according to data compiled by Bloomberg.

Meanwhile, Brightline is pressing ahead with a plan to lay train tracks to Las Vegas from southern California. In July, it said it purchased a site in the gambling hub for its station.

Bloomberg Business

By Romy Varghese

August 10, 2021, 9:22 AM MDT Updated on August 10, 2021, 10:02 AM MDT

— With assistance by Nic Querolo

Defaulted California Plant Gets OK to Borrow More.

A defaulted California company trying to produce a unique kind of sustainable fiberboard won approval from the state to issue as much as $18 million of new debt.

California’s Debt Limit Allocation Committee, which provides access to the low-cost financing intended for private ventures serving the public interest, on Wednesday approved the request by CalPlant I LLC. The company has already borrowed $344 million since 2017 through sales of unrated tax-free debt, most of which is in default.

After years of delay and setbacks including the pandemic and a fire, CalPlant finally finished building a facility last year that it says is producing the world’s first medium-density fiberboard made from a rice-cultivation byproduct called rice straw. The company has equity backing from entities including a subsidiary of the Teachers Insurance & Annuity Association of America.

The plant, which began making panels in November, needs more money to fully scale up to commercial operations. Despite the dubious distinction of having the third-largest high-yield muni default of the past decade, according to Municipal Market Analytics, the company is likely to sell most of the new securities to existing bondholders.

“This allocation is the final piece of the puzzle for this plant,” said Nancee Robles, interim executive director of the debt committee, before the board approved the request.

Bloomberg Markets

By Romy Varghese

August 11, 2021

Treasurer Fiona Ma Announces First Sale of Revenue Bonds for Community College Housing.

California State Treasurer Fiona Ma and Chair, California School Finance Authority (CSFA), announced the successful completion of a $68.31 million College Housing Revenue Bond sale through the CSFA to finance first-ever student housing on the campus of Santa Rosa Junior College (SRJC). The Bonds priced on Thursday, July 15, 2021, and closed on July 29, 2021. This financing marks the inaugural issuance of community college student housing bonds by CSFA. This reflects Treasurer Ma’s commitment to bringing affordable housing to community college students and to bridge California’s resource and equity gaps.

“There is an urgent need for housing community college students,” said Treasurer Ma. “I am so pleased that the California School Finance Authority could find an innovative way to help by providing low-cost financing for this much-needed housing project at Santa Rosa Junior College. We see this sale as a model that could help other community colleges throughout the state.”

Santa Rosa Junior College serves over 20,000 students in nearly 300 degree and certificate programs on 80 acres on their Santa Rosa and Petaluma campuses. The housing project on the Santa Rosa campus will be SRJC’s first on-campus student housing, and it will provide safe, affordable, and accessible housing to the culturally and economically diverse SRJC student population. This 95,281-square-foot project will offer 352 total beds and will include living room and common areas; common kitchens with grab and go options; public restrooms; activity lounges; game rooms; study areas; quiet study areas; co-ed restrooms; 24-hour security; and a 92-space parking lot – all conveniently located on campus.

“Our service area suffered devastation from wildfires that destroyed thousands of homes and impacted many of our students and their families. Currently, one out of five Santa Rosa Junior College students are experiencing housing insecurity and homelessness. We are delighted to have access to this financing solution that will allow us to provide affordable on-campus housing for our students”, Dr. Pedro Avila, Assistant Superintendent at Santa Rosa Junior College District.

The bonds are rated ‘BB’ by S&P. Stifel, Nicolaus & Company served as the underwriter for this limited offering to Qualified Institutional Buyers and Institutional Accredited Investors. The bonds sold at an all-in true interest cost of 3.16%. The tax-exempt Series 2021A bonds consisted of 4 percent term bonds maturing in 2031, 2036, 2041, 2051, and 2055 yielding 2.01 percent, 2.18 percent, 2.32 percent, 2.45 percent, and 2.52 percent, respectively. A final term bond was added in 2060 that incorporated an extraordinary call provision and sold at a discount with a 2.75 percent coupon, yielding 2.9 percent. The extraordinary call will enable SRJC to prepay the bonds without penalty should it receive an external grant or charitable funding to offset the cost of the new student housing project. The taxable Series 2021B bonds consisted of a 3.50 percent term bond maturing in 2026, priced at par. The National Campus and Community Development Corporation, a non-profit corporation, serves as the borrower on behalf of the SRJC.

Conduit revenue bonds issued by CSFA are special, limited obligations payable solely from payments made by the underlying borrower pursuant to the transaction documents and from funds and accounts established under the transaction documents, and CSFA shall not be directly or indirectly or contingently or morally obligated to use any moneys or assets of CSFA for all or any portion of payment to be made pursuant to the bonds.

For more information about CSFA’s conduit financing program for student housing, please visit CSFA’s webpage at:

August 10, 2021

Las Vegas Train Bonds Will Go To California Housing.

California reallocated $200 million of tax-exempt private activity bonds formerly reserved for Fortress Investment Group’s Las Vegas tourist train to be used instead by affordable housing projects.

In January, the state’s Debt Limit Allocation Committee set aside that portion of California’s limited financing resource in anticipation that the firm’s Brightline Holdings would request it later in the year. Instead, the venture said in June it will seek an undisclosed amount of debt next year. The committee’s three-member board on Wednesday unanimously approved moving the bonds to housing.

This is the second time California had expected the train to use the bonds, only to give the resource to housing, with demands from housing developers far outstripping what’s available. Last year, California had given Fortress the ability to sell $600 million of private activity bonds, which are meant for ventures for the public interest that are capped annually in each state by the federal government.

But Fortress was unable to get enough investors on board for an unrated bond deal that would have financed construction for a 169-mile (272-kilometer) line connecting Las Vegas to the desert town of Apple Valley, 90 miles away from downtown Los Angeles. After the firm pulled the deal in October, California reallocated Fortress’s award to affordable housing needs.

In the latest iteration of the project, the line would move closer to Los Angeles by extending to Rancho Cucamonga, which is located along an existing commuter rail called Metrolink. In July, Brightline said it purchased a site in Las Vegas for its station.

Bloomberg Markets

By Romy Varghese

August 11, 2021, 2:11 PM MDT

Fitch: Midwest Metros Drive Job Growth While Other Regions Lag

Fitch Ratings-New York-12 August 2021: Metros in the Midwest drove employment growth during a flat month for the country overall, according to the latest U.S. Metro Labor Markets Tracker from Fitch Ratings.

The Midwest’s median recovery rate for major metros rose to 71% in June from 66% in May, with eight of nine major metros in the Midwest seeing employment recovery rates above 50%.

“Cleveland and Chicago were the only Midwestern major metros where recovery rates declined month-over-month from May to June,” said Senior Director Olu Sonola.

Additionally, Cleveland again saw the largest month-over-month decline among Midwestern major metros at 0.5%. While the Midwest’s median Fitch-adjusted unemployment rate fell to 7.8% in June from 8.8% in May, the same figure rose in three Midwestern metros in June: Indianapolis, Milwaukee, and Minneapolis.

Elsewhere throughout the country, the median share of jobs recovered by major metros in the West was 62% in June, the lowest regional median. Salt Lake City is the first major metro to have reached 100% of pre-pandemic employment since February 2020, having now regained 104% of pre-pandemic payroll figures by June.

The median jobs recovery rate for major Metropolitan statistical areas (MSAs) in the Northeast rose to 64% in June from 63% in May. A closer look at the region shows that New York City finally reached a recovery rate of 50% of jobs lost at the start of the pandemic. Hartford and Rochester are the only two major Northeastern MSAs to see a decline in recovery rates in June.

Fitch’s latest “U.S. Metro Labor Markets Tracker” is available at

Olu Sonola
Senior Director
Fitch Ratings, Inc.
Hearst Tower 300 W. 57th Street
New York, NY 10019

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Port of Miami to Sell $1.4 Billion in Muni Bonds.

Miami-Dade County will sell debt backed by revenue from Port of Miami, a pandemic high and a sign of investors’ demand for local-government debt

Florida officials announced the largest pandemic-era municipal-bond sale backed by port revenue, hoping to tap into investor demand for local-government debt tied to recovering sectors of the U.S. economy.

Miami-Dade County said Monday it is selling around $1.4 billion of bonds due 2050 and backed by revenue from the Port of Miami, or PortMiami—the county’s largest municipal bond sale ever. That is also the largest sale tied to a port since last March, beating a $1.1 billion bond issued by the Port Authority of New York and New Jersey during July 2020.

Miami is home to the largest port in Florida. It processed more than $45 billion worth of cargo during the fiscal year ending September 2020 and in normal times is home to over a fifth of the world’s cruise traffic.

The offering’s size is a sign of the strength of the overall municipal market. A stimulus- and vaccine-fueled recovery has sparked a rally in bond prices, dropped yields toward record lows and left many state and local governments flush with cash. Those improvements, plus increased prospects of a federal tax increase, have prompted more investors to buy municipal bonds, analysts say, after coronavirus fears sparked a sharp selloff last spring.

Investors, meanwhile, have been receptive to assets that benefit from a global shipping crunch, leading municipal bonds tied to ports to outperform other local debt. The S&P municipal-bond port index has returned over 2.4% to investors this year through Aug. 4, including price changes and interest payments. That compares with a 1.9% return on municipal bonds broadly and 0.2% on U.S. investment-grade corporate bonds.

Still, the Miami sale, which is being led by Wells Fargo, WFC -1.52% will occur against a backdrop of growing fears related to rising Delta variant infections. Questions remain about the cruise industry’s recovery following canceled cruise voyages over the past year. PortMiami officials are forecasting around 3.8 million cruise passengers during the next fiscal year starting in September, below pre-pandemic totals above six million.

So far, between fiscal years 2019 and 2020, cruise revenue at PortMiami has fallen more than 35% to $34 million, based on the port’s most recent audit. Other passenger fees such as parking revenue have declined by nearly half to around $6 million.

Recent support from the federal government has helped PortMiami make up lost revenue. The port received over $66 million through the American Rescue Plan, the second-largest recipient among ports in Florida, behind Port Canaveral.

Increased demand for shipping goods globally has also helped soften the blow from stranded cruises. Cargo volume at PortMiami this fiscal year is running at an annualized pace of 1.25 million 20-foot-equivalent units, or TEUs, port officials say. That is on pace to beat the port’s previous volume record from 2019 by 11%. Cargo revenue during the fiscal year ending September 2020 rose over 20% to $28.7 million.

Despite the challenges, analysts are optimistic about the offering’s prospects. While PortMiami relies more on cruise revenue than other U.S. ports, investors in search of yield have been willing to lend to shipping and travel-related municipal borrowers looking to refinance debt, said Howard Cure, director of municipal bond research at Evercore Wealth Management. “The market is pretty receptive to giving some relief as long as there’s a faith things will return to normal,” he said.

Cruise operators and port officials are expecting passenger volumes at PortMiami to recover as the world reopens. Construction of new boat-berthing spaces and ship terminals is expected to increase yearly passenger capacity to around 8.5 million people, officials say.

Moody’s Investors Service recently raised the credit outlook for PortMiami to stable from negative. It expects cruise operations will increase over the next year and that the port has sufficient liquidity to manage that transition.

The new bond will refinance most of PortMiami’s $1.6 billion in outstanding debt, some of which will be used for new construction. The deal will also extend the maturity of about $600 million in short-term debt, helping lower yearly interest costs.

Demand for municipal bonds has made such refinancings attractive to local officials. “Now is the right time to take advantage of historically low interest rates,” said Juan Kuryla, chief executive of PortMiami.

Daniella Levine Cara, mayor of Miami-Dade County, said the bond sale could have an added benefit: increasing confidence among county officials about the government’s ability to tap debt markets for future financing needs.

“We can take this to the bank,” she said.

The Wall Street Journal

By Sebastian Pellejero

Aug. 10, 2021 7:00 am ET

PSE Confirms Plans for Public-Private Partnership to Finance New Buffalo Bills Stadium.

Pegula Sports and Entertainment told Mayor Byron W. Brown this week that it will seek a “public-private partnership” with state and local government to build a new stadium for the Buffalo Bills in Orchard Park.

A PSE executive late Friday confirmed Brown’s account of his conversations over the past few days with officials “at the highest levels” of the company that indicated Bills ownership will not seek a deal totally financed with public money.

Ron Raccuia, executive vice president of PSE, offered his first public comments on the stadium proposal late Friday. He said “the Pegulas purchased the Bills with a commitment to build a championship caliber organization.”

“They want to win, and they have continued to provide the resources necessary to do so,” Raccuia said. “When it comes to the future new home of the Bills, they have always known that, like virtually all NFL stadiums, this will ultimately be some form of a public/private partnership.”

The mayor said he periodically speaks with the team about their plans, even though any public financing for a new facility would stem from state and county sources.

“They made it clear to me they are willing to be a financial partner in a new stadium and expect to be,” Brown said. “I’m sure they expect a public partnership as well. They see it as a public-private partnership.”

Multiple sources told The Buffalo News for an Aug. 1 story that the proposal centered around 100% public financing. The sources spoke on condition of anonymity due to the high sensitivity of the early stages of negotiations, noting that the Bills were seeking at least $1.1 billion in taxpayer assistance – grants, tax breaks and other possible funding streams. Sources later confirmed to The News that the actual amount the team offered in its first proposal was $1.4 billion.

The idea of total financing of a new stadium produced concern among Albany lawmakers, with several labeling the idea a “non-starter.” Assembly Majority Leader Crystal D. Peoples-Stokes, D-Buffalo, was among those dismissing the original plan as outlined to her. Late Friday, she reiterated that she always understood the PSE proposal involved total public financing, adding she was encouraged by the mayor’s comments.

“The way it was intimated to me by the governor’s people is that they wanted to build a new stadium, but there was no reference to a public-private partnership,” she said, adding that Brown’s version of the team’s position “was not the way it was given to me originally.”

The mayor, meanwhile, said he believes that the public-private relationship was “their position all along.” Brown said he spoke to PSE representatives because he was “concerned” about the situation.

“So we have the Pegulas and their representatives clarifying that they certainly will be a financial partner in this,” he said, “and that definitely made me feel good about this prospect.”

Representatives of New York State and Erie County, the main public entities expected to finance a new stadium, were not available for comment.

The News reported earlier this month that PSE had floated to the state and county officials an initial ask that the public pay for a new facility to be built in Orchard Park adjacent to the team’s existing facility. The proposal would negate any need to temporarily relocate to another city during a multi-year construction effort.

The team’s current lease for the county-owned Highmark Stadium expires in 2023. As a result, sources told The News that negotiations between PSE, the state and Erie County are taking on a more serious tone in recent weeks.

The concept also carries broad implications for the entire state beyond just financing. Other areas of New York could be expected to make their own proposals for Albany dollars to pay for new minor league baseball stadiums or downtown hockey arenas, as has occurred in the past whenever major league projects have been proposed for New York City or Buffalo.

All of this also occurs as Gov. Andrew Cuomo prepares to leave office following his announced resignation stemming from sexual harassment allegations. He will be succeeded by Lt. Gov. Kathy Hochul, who said this week that keeping the Bills in Buffalo is a “high priority.”

The Buffalo News

by Robert J. McCarthy

Aug 14, 2021

American Dream Mall Draws on Reserves to Make Bond Payment.

American Dream, a $5 billion super mall in New Jersey’s Meadowlands, had to tap into a reserve fund to make a bond payment as it copes with a cash flow crisis exacerbated by the coronavirus.

The 3.3 million-square-foot behemoth, which features an indoor ski slope, amusement park and water park, used the reserves to make a $9.3 million Aug. 2 payment on about $290 million of debt, according to a securities filing. American Dream has about $9.3 million left in the fund, enough to make its next debt payment on Feb. 1.

American Dream issued the municipal bonds, supported by a 75% pledge of sales tax receipts from purchases at the mall, in 2017. Developer Triple Five Group also sold $800 million of debt backed by payments the developers agreed to make to bondholders instead of paying property taxes, known as PILOTs.

Lisa Washburn, managing director at Municipal Market Analytics, said it “seemed inevitable” that American Dream would need to tap reserves on debt tied to mall sales.

“The economic shut-down and travel disruptions related to the pandemic could not have come at a worse time for the project, which had only partially opened and was already contending with a shifting retail landscape,” Washburn said in an email. “Now it needs to overcome concerns about congregating indoors with strangers.”

American Dream sales tax bonds due in 2024 last traded June 9 at 105 cents on the dollar, indicating that the cash crunch hasn’t fazed investors.

Nuveen LLC, the biggest holder of American Dream’s muni debt, wrote in a July note to investors that it expected reserves to fund a majority of the interest payment on the sales tax bonds. Triple Five Group is challenging its tax assessments for 2019, 2020 and 2021.

“Given space completion and tenant occupancy delays (18 to 24 months behind initial developer projections), sales tax receipts are anticipated to miss projections for the near term,” the Nuveen note said.

American Dream, located across the Hudson River from New York City, opened the doors of its entertainment complex in October 2019, almost two decades after a mall on the site was first proposed. Five months later, Covid-19 tore through New York and New Jersey, spurring lockdowns to contain the public health emergency and postponing the opening of the mall’s retail stores until October 2020.

American Dream also borrowed more than $1 billion in construction loans. As cash flow problems hit American Dream, senior construction loan holders seized minority stakes in Triple Five’s Mall of America and West Edmonton Mall, which were used as collateral for the American Dream loan.

This month American Dream reported $78.1 million in second quarter gross sales, a 27.4% increase compared with the first quarter, according to a securities filing. The mall was 76% leased for the three months ending June 30.

Bloomberg Markets

By Martin Z Braun

August 4, 2021, 3:26 PM PDT Updated on August 5, 2021, 5:24 AM PDT

Boarding School Attended by Tucker Carlson Joins in Muni Market Sales Boom.

Elite boarding schools are getting in on the boom of debt sales in the $4 trillion municipal-bond market.

Rhode Island’s St. George’s School, with a campus that overlooks the Atlantic Ocean and $66,950 annual price tag for boarding students, is planning to sell about $43.4 million of tax-exempt bonds to refinance higher interest-rate debt and fund new projects at the alma mater of Howard Dean, Billy Bush and Tucker Carlson. The offering with preliminary maturities ranging from 2026 to 2051 comes shortly after New Jersey’s Lawrenceville School sold bonds in July for a field house complex complete with a hockey rink and pool.

The boarding schools are among a plethora of borrowers that are seizing on ultra-low yields in the muni market, with the one-year AAA benchmark hovering at 0.04%, the lowest since at least 2015, according to Bloomberg BVAL. Long-term debt issuance has climbed nearly 9% year-over-year, according to data compiled by Bloomberg. Debt sales by private and religious schools are up 73% year-over-year, the data show.

Other K-12 schools are also tapping the market with sales to seize on low interest rates for capital projects or refinancing. Charter school bond issuance has also surged, with about $2.7 billion of debt sold, the data show.

St. George’s and other elite boarding schools typically have high credit ratings, which helps them easily raise money in the muni market. St. George’s School is selling bonds rated AA- by S&P Global Ratings, a credit ranking that’s in line with schools like George School in Pennsylvania and the Taft School in Connecticut.

St. George’s, founded in 1896, “ranks with the best private schools in the country,” bond documents say. Enrollment totaled about 380 students in the 2020-21 academic year, and has met or exceeded its budgeted target for the last decade. The school’s endowment had a market value of $209.3 million as of June 30.

St. George’s is known for its weeks-long sailing program on a 70-foot vessel, Geronimo, where students learn seamanship skills while taking a marine science course. That program helps in the school’s marketing to would-be students, bond documents note.

And the Lawrenceville School gave St. George’s some idea of what to expect in the bond market given the school had a similarly-high credit rating that was rated two steps below AAA by Moody’s Investors Service. It sold tax-exempt bonds that priced to yield 1.83% in 2051, about 48 basis points above AAA rated borrowers, according to data compiled by Bloomberg. The sale received about $325 million in orders from 17 different institutions, helping lower yields on the sale, according to Ben Hammond, the school’s chief financial officer.

St. George’s bond sale will be used in part to refinance debt sold in 2014, some of which has an effective interest rate of 3.11%, bond documents say.

Independent schools, which includes day schools, rated by S&P Global Ratings were able to reopen either fully in person or with hybrid learning in fall 2020, which helped them keep enrollments fairly stable and weather the pandemic, said Bobbi Gajwani, a director at S&P.

St. George’s received a record amount of applications for the upcoming school year and it expects the year to be its most selective in at least 20 years, with a selectivity rate of 21%. The school recorded a surplus in fiscal 2020 and another one expected in 2021.

Gajwani said St. George’s financial performance during the pandemic contrasts with initial expectations.

“We did expect most schools to see declines in operating margins given expected revenue impacts, particularly from boarding and international enrollment, and increased Covid-related expenses, but St. George’s is expecting surpluses — particularly impressive given its high percentage of boarding and some international enrollment,” she said.

Bloomberg Markets

By Amanda Albright

August 2, 2021, 10:30 AM PDT Updated on August 2, 2021, 10:56 AM PDT

— With assistance by Matthew Begley

Major League Baseball Visits Iowa’s Field of Dreams.

Next week, life imitates art when a bunch of big-league ballplayers walk through a cornfield to get to a characteristically beautiful if comparatively secluded diamond to play baseball.

On Aug. 12, the Chicago White Sox will be the “home” team, taking on the New York Yankees at the site of the 1989 movie, “Field of Dreams” in front of 8,000 fans in Dyersville, Iowa. It’ll be the first regular season Major League Baseball game in the state, and maybe not the last.

This is the kind of exposure public officials dream about when they’re bitten by the economic-development bug. But the municipal market hasn’t quite caught up. Not yet.

Dyersville, with a population of roughly 4,100, was incorporated in 1872. It sold $3.9 million in general-obligation bonds this week to pay for capital improvements and a new skid loader and fire truck. The unrated offering included tax-exempt bonds due in 2037 that priced 84 basis points above top-rated munis.

The only mention of the thing that draws thousands of tourists to the city each year is contained in a single sentence of the official statement to the bonds: “The City is home to the National Farm Toy Museum and the Field of Dreams Movie Site.”

Such modesty is likely to fade after MLB comes to town with a national broadcast, no doubt to be filled with excerpts from the movie and swelling musical accompaniment in addition to glimpses of the charms of Dyersville’s downtown. But this I only suspect. As the old banker’s saw suggests, Show me a revenue stream, and I’ll show you a bond issue.

`People Will Come’

The site has shown remarkable durability for the setting of a 32-year old movie. There’s not exactly a lot to do there. Visitors basically follow the script as laid out in the movie by James Earl Jones’s character, writer Terence Mann: “People will come, Ray. They’ll come to Iowa for reasons they can’t even fathom.” Right now, they come to soak up the atmosphere and maybe look to the surrounding cornfield in the hopes that Shoeless Joe Jackson and the other Black Sox will emerge, as they did in the film. And then maybe tour the farmhouse and buy a souvenir.

That’s it. And yet between 65,000 and 100,000 fans reportedly do this every year. That’s staying power, and a testament to the movie’s place in the culture.

A company called Go the Distance Baseball bought the parcel in 2011. A representative says it’s now waiting to acquire and confirm funding to start to build a complex of six fields for a youth sports center on the site. We have seen lots of municipal bond deals finance these projects. Sister company All-Star Ballpark Heaven now runs youth tournaments at city facilities.

The MLB game was originally scheduled for 2020, but the pandemic intervened, and the event was postponed to next week. The game isn’t being played on the actual field, but on a diamond constructed beside it, accessed by a pathway through the cornfield.

Mayor James Heavens of Dyersville has said the long-term goal is to make this an annual event, and I was curious about whether the city had tallied up the benefits of being home to the “Field of Dreams,” or assessed what the impact of the big game might be.

And the answer is no. Go the Distance referred inquiries on the economic impact to the Dyersville Area Chamber of Commerce. Karla Thompson, executive director of the Chamber, said no study has been done on the site’s economic impact — “would love to know that number!” she said in a Thursday email — or of the game’s financial ripple effect. She did say that the city has seen an increase in tourism traffic and retail sales. Mick Michel, the city administrator, said in a Thursday email, “Next week’s game being played in our community is priceless.”

But some fans apparently feel you can put a price on existential joy. On Friday, pairs of tickets — sold to Iowans by lottery for $375 apiece and also distributed to the two clubs — were being offered on StubHub, starting at $1,365 for each seat.

Bloomberg Markets

By Joseph Mysak Jr

August 6, 2021, 8:00 AM PDT

— With assistance by Philip Brian Tabuas

Citigroup to Take Over Atlantic City Water Park Bond Sale; Groundbreaking for Project This Fall.

ATLANTIC CITY — Citigroup Inc. will soon take over as the underwriter of the $95 million municipal bond sale that will finance the construction of a water park at the Showboat hotel, according to a report from Bloomberg.

The Atlantic County Improvement Authority, which voted 8-0 in March to authorize the issuance and sale of revenue bonds to finance the water park, will return to the issue at a meeting at 10 a.m. Thursday, according to an agenda on its website.

Jessica Prada, administrative assistant for the Improvement Authority, told Bloomberg it will hold a special session Thursday to vote on Citigroup’s appointment. The previous underwriter, Janney Montgomery Scott, is being replaced after failing to sell the unrated bonds, according to the report.

Bart Blatstein, CEO of Tower investments, developer of the water park, said Tuesday the project will break ground “around this fall.”

“We’re super excited about it,” Blatstein said. “The success of our arcade, The Lucky Snake, has shown there is a tremendous interest for nongaming and family activities in Atlantic City.”

In a presentation to the Improvement Authority board in February, Blatstein said the water park would be “best in class” and the first year-round family entertainment resort in Atlantic City.

Based on the resolution passed by the authority, the authority would issue the bonds for the project; repayment of the debt service would come through revenue generated by the water park and entertainment complex.

Before voting for the bonds though, the authority asked about the possible risks and downside of issuing the bonds. Blatstein and Tower Investments attorney Jeffrey Winitsky assured the board that neither the authority nor taxpayers faced any risk, according to the minutes of the Feb. 25 meeting.

The money being sought would cover construction costs and would also fund a debt-service reserve should revenue on the project be short or delayed, Winitsky told the board.

The Casino Reinvestment Development Authority granted site plan approval for the park in early 2021. The authority also granted the project an Entertainment Retail District designation. As part of the designation, the project will receive $2.5 million per year for 20 years in sales tax rebates.

Winitsky said a new underwriter would “give the transaction a fresh perspective and marketing effort,” the report said.

by Ahmad Austin

Jul 27, 2021

S&P Pension Brief: Single-Employer Pension Plans Are Straining Illinois Municipalities' Credit Quality

Key Takeaways

Continue reading.

27 Jul, 202

City of El Paso’s Use of Non-Voter Approved Debt Raises Concerns, Public Finance Experts Say.

As the city of El Paso prepares to issue another multimillion dollar round of non-voter approved debt, experts say the practice raises red flags and will have long-term impacts for generations of taxpayers.

The El Paso City Council recently approved beginning the process of issuing $96 million in certificates of obligation, or debt that can be issued without voter approval if the amount does not exceed $100 million. A public hearing is scheduled for Aug. 24, when the City Council will vote on whether to approve the issuance of the debt.

The council also approved issuing about $93 million in certificates of obligation in April, and since 2019 has issued two separate $100 million rounds of the debt for a variety of city projects and included funding for emergency vehicles for the police and fire departments.

Continue reading.

El Paso Matters

by Elida S. Perez

July 28, 2021

Santa Rosa Mulls Bond Offering to Knock Down Pension Liabilities.

Santa Rosa City Council is considering selling more than $100 million of bonds to raise cash for its growing pension debt, a step that could ease budgeting in years to come but carries enough risk that some municipal financing experts warn against it.

The costs of expensive earlier pension plans and losses the California Public Employees’ Retirement System accrued during the 2008 financial crisis will come to a head in the next 10 years, as annual payments Santa Rosa makes to the agency increase each year to peak at almost $43 million in 2031.

Paying off those debts affects daily life in the city. Every dollar dumped into pension debt is one less dollar city officials have for programs or for reacting to problems that range from crime to natural disasters.

To curb the payments, Santa Rosa’s chief finance officer Jan Mazyck has proposed the city use an investment mechanism known as pension obligation bonds. The bonds could raise cash at low interest rates and dump that cash into pension funds — a move that both lowers pension debt and increases the funds’ earning power by providing more money to invest.

At a July 20 city council study session, members expressed interest in the strategy and directed Mazyck to bring back a more specific proposal. The council will not need to go to voters with a ballot measure in order to issue the pension bond offering, which could go as high as $200 million and are likely to amount to at least $110 million, Mazyck said.

For success, the city will need the pension funds to outperform the interest rates paid to investors who buy the bonds. Given low interest rates that have persisted through the pandemic, Mazyck says chances of doing so are high. She has said the bonds could be issued at an average of 3.5% interest but well could be lower.

“It’s not fail proof but it is a reasonably fail proof environment,” she said in a Tuesday interview. While interest rates are low, financial markets have been performing well. CalPERS itself raked in a 21% return on its investment portfolio over the last fiscal year.

But issuing the bonds increases the city’s vulnerability to a market crash. Sustained stock market losses — from a fresh recession, for example — would leave the city owing not just the pension payments but also the interest payments on its bonds.

Failure would mean even more money going to pay off investment losses, and less money for government services.

Because of such eventualities, the Government Finance Officers Association, a trade group made up of more than 20,000 federal, state and local government public finance officers, suggests local governments stay away from pension obligation bonds.

Pension obligation bonds “are complex instruments that carry considerable risk,” the trade group’s committee on retirement and benefits administration said in February.

The Federal Reserve keeping interest rates at near rock bottom levels has led to a flurry of government entities issuing the bonds, prompting a written statement from government finance officers’ group. The risks “remain true regardless of economic cycles,” according to the statement.

The city pays around $30 million each year toward the unfunded portions of its pension funds. It pays about another $20 million annually toward the pension funds of its current employees.

Pension payments are for the most part an untouchable cost for governments — city officials can’t legally reduce the retirement benefits previous employees held.

Because of efforts by CalPERS to “smooth” out the repayment of losses accrued during the 2008 recession, city finance officials say that over the next 10 years Santa Rosa will pay another $110 million, above the $30 million in annual payments, to unfunded pension liabilities.

She would like to see the city sell bonds of at least that amount, she said. The city does not have to sell $110 million worth of bonds at once, however, Mazyck said, allowing it to be strategic with interest rates.

Selling the bonds in stages, and as part of a broader strategy to confront budget woes, reassured council members worried about too much risk through a complicated financial tool.

“There’s no magic solution, because if there were, other cities would be doing it,” council member Tom Schwedhelm said.



July 28, 2021

Jeffrey Baker, Municipal Bond Analyst for 43 Years, Dies at 71.

Jeffrey Baker, a municipal bond analyst for 43 years who spent his entire career with one firm and its successors, has died at the age of 71.

He died Monday of cancer at his home in River Edge, New Jersey, according to his wife of 46 years, Ann.

Baker joined Chase Manhattan Bank in 1972 and retired from JPMorgan Chase & Co. in 2015.

“It was his first job out of school,” said Ann Baker.

Baker was chairman of the Municipal Analysts Group of New York in 1993, and chairman of the National Federation of Municipal Analysts in 1997.

In 1994, he received the organization’s Industry Contribution Award, with Katherine Bateman and Bill Oliver, for their “active involvement as NFMA representatives with other industry groups and the SEC, as well as their development of the 15 recently released Secondary Market Disclosure Forms.”

Baker “gave freely of his time and expertise,” recalled Steve Schrager, a fellow municipal bond analyst and long-time friend. “He sought out and mentored younger analysts, contributing to their professional growth.”

Another friend, Mark Tenenhaus of RSW Investments, recalled Baker as a devoted fan of the New York Jets football team. “His tailgates were legendary.”

Baker majored in finance at New England College in Henniker, New Hampshire, and got his MBA from Fairleigh Dickinson University.

In addition to Ann, he is also survived by his daughter, Lynne, and son-in-law Matt Weber, and two grandchildren, Benjamin and Zoe. He was predeceased by a son, Scott, in 1996.

There will be a service for Baker on Thursday at 11 a.m. at Temple Avodat Shalom in River Edge.

Bloomberg Business

By Joseph Mysak Jr

July 28, 2021, 8:41 AM PDT

Citigroup Set to Take Over N.J. Water Park Bond Sale.

Citigroup Inc. is poised to take over as the underwriter of a $95 million municipal-bond sale that will finance the construction of an indoor water park in Atlantic City, New Jersey, replacing previous underwriter Janney Montgomery Scott.

The Atlantic County Improvement Authority, the agency that is issuing the debt on behalf of a private developer, is scheduled to meet in a special session on Thursday to vote on Citigroup’s appointment, according to Jessica Parada, administrative assistant at the authority.

The decision to replace Janney was made after the Philadelphia-based underwriter was unable to sell the unrated bonds despite surging investor demand for high-yield debt.

It’s rare for borrowers in the municipal-bond market to change underwriters just as a deal is set to price. At the time, developer Bart Blatstein’s counsel, Jeffrey Winitsky, a lawyer at Parker McCay, said that a new underwriter would “give the transaction a fresh perspective and marketing effort.”

Citigroup spokesperson Scott Helfman declined to comment. Blatstein said Janney is still going to be part of the transaction. A spokesperson for Janney declined to comment.

The planned 100,000-square-foot theme park, located adjacent to Blatstein’s Showboat hotel, marks an effort to draw more families to Atlantic City, whose tourism industry has struggled for years after other East Coast states legalized gambling.

The park will include a looping “lazy river,” multiple water slides, three pools and five bars, including a swim-up bar and a two-level treehouse bar. A feasibility study projected attendance at 626,523 in its first year of operation and 773,523 in year five. Admission would range from $99.99 for adults to $69.99 for children, with off-peak rates and hotel package discounts. The park was expected to be ready by May 31, 2022.

Bloomberg Markets

By Joseph Mysak Jr

July 26, 2021, 8:16 AM PDT Updated on July 26, 2021, 9:43 AM PDT

Fitch: Job Growth for California Metros May Stumble Due to Delta Variant

Fitch Ratings-New York-21 July 2021: Employment growth is positioned to spike for most metros throughout the country as vaccinations continue and social-distancing measures are rolled back, though Fitch Ratings latest U.S. Metro Labor Markets Tracker points to California as a potential hot spot in the coming weeks.

Monthly employment growth has been on a steady upward trajectory for California, where imposed lockdowns may have been more stringent. However, ‘the growing spread of the delta variant has led to the return of mask mandates in Los Angeles and is one to watch as further restrictions could slow the pace of employment recovery in the affected metros,’ said Senior Director Olu Sonola.

While most regions of the country showed notable growth in jobs, the Midwest’s median recovery rate for major metros fell to 66% in May from 68% in April. Cleveland was the Midwestern major metro with the largest decline in May at five percentage points below April. Eight out of nine major metros in the Midwest had employment recovery rates above 50%, with the exception being Chicago. The Midwest’s median Fitch-adjusted unemployment rate rose to 8.8% in May from 8% in April. All three Midwestern metros where Fitch-adjusted unemployment rates rose in May are in Ohio (Cincinnati, Cleveland, and Columbus).

Leisure and hospitality remain a lingering sore spot for job growth. Though cities like Miami and New Orleans are seeing relatively strong improvement from prior months, Miami has only recovered 62% of leisure and hospitality employment while New Orleans has recovered 42%. Interestingly, Las Vegas, which has the highest leisure and hospitality employment concentration among major metros, has seen job recovery stall lately compared to other cities.

Fitch’s latest ‘U.S. Metro Labor Markets Tracker’ is available at


Olu Sonola
Senior Director
+1 212 908-0583
Fitch Ratings, Inc. Hearst Tower 300 W. 57th Street New York, NY 10019

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

New Jersey Private School With $67,850-a-Year Tuition to Tap Tax-Free Bond Market.

An elite New Jersey boarding school is hitting the $4 trillion municipal-bond market with a bond deal that comes with a bit of prestige.

The Lawrenceville School is selling $56 million of tax-free and taxable debt next week to help finance a complex that will include a pool, hockey rink, dining facility and fitness center. Located just down the road from Princeton University in Lawrenceville, New Jersey, the school founded in 1810 boasts a $632.9 million endowment and a who’s who of trustees led by Jonathan Weiss, chief executive officer of corporate and investment banking at Wells Fargo & Co.

Lawrenceville, considered one of the best boarding schools in the U.S., is joining borrowers like a botanical garden in Pennsylvania and the territory of American Samoa by seizing on low interest rates and insatiable investor demand for muni bonds. The borrowing will help finance the $179 million complex dubbed the Tsai Field House, which was backed by donors like billionaire Joseph Tsai, executive vice chairman of Alibaba Group Holding Ltd., who is an alumnus of the school and trustee.

The complex on the 700-acre campus is “going to transform our school for decades and generations of students,” said Ben Hammond, the school’s chief financial officer. Other notable alumni include former Walt Disney Co. head Michael Eisner, late Salomon Brothers CEO John Gutfreund and musician Huey Lewis.

Elite boarding schools occasionally raise money in the muni market, which helps them finance projects on their picturesque campuses. They’re often armed with strong credit ratings thanks to strong demand from students, big endowments and alumni support. Lawrenceville, with just over 830 students during the 2020-21 school year, benefits from an “excellent brand” and exceptional donor support, according to a report by Moody’s Investors Service, which rated the bonds Aa2.

Roberto Roffo, a managing director and portfolio manager at SWBC Investment Company, said the school will do well in the muni market thanks to its strong credit and status as a “mini Harvard.”

“If I were looking for high-grade, this would be a beautiful bond to buy,” said Roffo, who said he’s looking to lower-rated credits instead.

The school is known for being an early adopter of the Harkness method in its classrooms, which emphasizes discussion among students. Bond documents note many of its students go on to attend top-tier colleges like Princeton, New York University and Georgetown University.

The majority of students board on campus at the school, which charged boarding tuition of $67,850 for the 2020-21 school year. In fall 2020, people of color comprised about 52% of the student body and about 30% of students received need-based financial aid.

Having such high-profile supporters helped the school during the pandemic. Bond documents note the school did not receive a loan through the Paycheck Protection Program, saying a benefactor “instead” offered a line of credit to avoid cutting staff.

While the school doesn’t name the donor, a financial statement included with bond documents says the Joe and Clara Tsai Foundation provided an $8 million line of credit to the school in November. A spokesperson for the school declined to comment.

Lawrenceville also launched a capital campaign in May with the goal of raising $425 million, and it’s already raised $367 million in cash and commitments as of June 30, bond documents note. As of June 2020, the school’s endowment per student was approximately $598,000, bond documents say.

The school is expecting to return to normal operations in the upcoming school year, and students and employees are required to be vaccinated against Covid-19. As of June 15, student applications are up 16% from the prior year.

The first phase of construction on the bond-financed field house is expected to be completed next year, according to the school. The next phase will renovate the existing one. Hammond said it helps to enter the bond market at a time when interest rates are low.

“We’re watching the markets like everyone else, feeling very fortunate about our timing, which feels lucky to us,” he said.

Bloomberg Markets

By Amanda Albright

July 22, 2021, 9:30 AM PDT

S&P Pension Spotlight: California

Key Takeaways

Continue reading.

13 Jul, 202

Alabama Weighs Covid Aid for Prisons After Wall Street’s Rebuff.

Alabama asked the U.S. Treasury Department whether Covid-19 relief aid can be used to fund correctional system projects, months after the state was unable to tap Wall Street for financing to build two new prisons.

The Alabama Department of Corrections asked Treasury to allow certain prison infrastructure projects as an eligible use of federal aid, according to a July 15 dated letter to the Treasury. The letter sent by Commissioner Jefferson S. Dunn was sent as part of a comment period on federal rules guiding how to spend the $350 billion American Rescue Plan aid that states and municipalities are receiving.

The request to the Treasury department comes months after the state attempted to borrow from the capital markets to raise funds for two new prisons to be owned by CoreCivic Inc. and leased to the state corrections department. The financing drew sharp rebuke from investors and activists and ultimately fell apart after Barclays Plc, the original underwriter, backed out.

It’s unclear whether the state wants to use its federal aid to fund those new prisons. Spokespeople at Governor Kay Ivey’s office and the corrections department did not respond to requests for comment.

After a multi-year investigation, the Alabama Department of Corrections and the state were sued by the Department of Justice in December for failing to protect male prisoners from violence and unsanitary conditions. Ivey, the architect of the CoreCivic partnership, said the new facilities would help the state improve its prison system.

The state is receiving $2.1 billion of aid as part of the Treasury’s Coronavirus State and Local Fiscal Recovery Funds, meant to help state and local governments fight the pandemic and foster economic recovery. The Treasury’s guidelines on how the money can be used is broad, allowing governments to fund everything from stimulus checks to water and sewer infrastructure projects.

The federal guidelines also emphasize using the money to promote equity and targeting the aid to underserved populations. The Alabama Department of Corrections letter said its prison population was disproportionately impacted by the pandemic, saying that Covid-19 stalled things like educational programs.

The state said that allowing certain infrastructure projects to be funded through federal aid would help it respond to the disproportional impact of the pandemic on correctional systems and people who are incarcerated.

After the original financing fell apart, lawmakers floated other options including selling bonds for new facilities that would be owned by the state and using federal stimulus funds to help finance the project, according to

“From ADOC’s perspective, any ambiguity associated with the Interim Rule should be clarified and additional guidance provided for correctional systems and incarcerated populations to ensure ADOC realizes the benefit and full use of State Fiscal Recovery Funds,” the state said in the letter.

Bloomberg Business

By Amanda Albright and Danielle Moran

July 16, 2021, 9:36 AM PDT

D.A. Davidson Closes Bonds on Second-Ever Limited Property Tax Public Infrastructure District.

Transit-Oriented Community to Support Sustainable and Balanced Growth in Payson City, Utah

SALT LAKE CITY–(BUSINESS WIRE)–D.A. Davidson is pleased to announce the company’s Special District Group has priced $24 million of tax-exempt bonds in the second-ever limited property tax Public Infrastructure District (PID) financing in Utah.

Red Bridge PID No. 1 will use the bond proceeds to finance critical water, sewer and road infrastructure to serve the Red Bridge Station community as well as key growth areas on the west side of Payson City, Utah. The community is planned for more than 1,000 homes, consisting of primarily multifamily residences. The site is also planned for a number of retail and other general commercial projects, including the potential expansion of the Mountainland Technical College (MTECH) and is in the long term planning for a new Utah Transit Authority Frontrunner and Bus Rapid Transit station (BRT).

“We are proud to partner with the Red Bridge Station development team in conjunction with the City of Payson on this financing. This transit-oriented community is a significant collaborative effort between the developer and Payson to create new zoning, higher density and a PID to finance the critical infrastructure that will get Red Bridge Station off the ground,” said Brennen Brown, managing director at D.A. Davidson, Special District Group. “As we continue our expansion in Utah, this landmark community is a perfect example of how public financing through Utah PIDs is an effective tool to unlock sustainable and balanced growth for communities statewide.”

D.A. Davidson’s Special District Group has experienced significant growth this past year in Utah and Colorado, successfully completing more than 100 transactions, totaling more than $2 billion to fund public infrastructure to support development projects.

“D.A. Davidson’s Special District Group made infrastructure funding of Red Bridge Station happen through their unmatched expertise and financial tools,” said Joe Spencer, project manager and chairman of Red Bridge PID. “Together we developed a unique financing structure and closely collaborated every step of the way. We simply could not have done it without the D.A. Davidson team and are looking forward to our vision becoming a reality.”

A nationally recognized market leader, the D.A. Davidson Special District Group is a team of capital markets professionals principally focused on financing public infrastructure for land development through the issuance of municipal bonds. Powered by decades of industry experience, the team drives groundbreaking solutions with hands-on partnership from project inception to completion.

Construction within the community is anticipated to commence in fall of 2021 and full buildout of the community is anticipated in 2026. For more information, please contact [email protected]

About D.A. Davidson Companies

D.A. Davidson Companies is an employee-owned financial services firm offering a range of financial services and advice to individuals, corporations, institutions and municipalities nationwide. Founded in 1935 and headquartered in Montana, with corporate offices in Denver, Los Angeles, Portland and Seattle, the company has approximately 1,400 employees and offices in 28 states.

Subsidiaries include: D.A. Davidson & Co., the largest full-service investment firm headquartered in the Northwest, providing wealth management, investment banking, equity and fixed income capital markets services, and advice; Davidson Investment Advisors, a professional asset management firm; D.A. Davidson Trust Company, a trust and wealth management company; and Davidson Fixed Income Management, a registered investment adviser providing fixed income portfolio and advisory services.

For more information, visit

July 13, 2021 11:54 AM Eastern Daylight Time

Preston Hollow Capital Completes Bond Funding for Farms of New Kent Development in Virginia.

DALLAS–(BUSINESS WIRE)–Preston Hollow Capital (“PHC”), an independent specialty municipal finance company based in Dallas, today announced the successful issuance of two new series of tax-exempt refunding bonds totaling $90 million, the proceeds of which cure the previously defaulted Series 2006 Bonds and adds new liquidity intended to fuel and accelerate residential and commercial growth within the Farms of New Kent Development (“the Development”). The Development is a planned, mixed-use community comprised of four separate land tracts situated on 2,113 acres of land within New Kent County, approximately 20 miles east of Richmond, Virginia and 25 miles west of Williamsburg. When complete, the Development is expected to contain 2,525 diverse residential units, including approximately 1,550 age-restricted units, commercial and retail space. The community is complemented by amenities in the Development, including the Viniterra Winery, Talleysville Brewing Company, and the Club at Viniterra – an 18-hole championship golf course designed by Rees Jones.

Ramiro Albarran, Managing Director at Preston Hollow Capital, said, “We are deeply gratified that our work with both the County and project homebuilders, Ryan Homes and DR Horton, has revived what was a stalled effort and catalyzed an exciting and vibrant community in New Kent County. The refunding we have announced today is a key milestone in our long-term commitment to the community, and we are excited to see the future continue to unfold.”

Additional development activity at The Development includes the following:

Patricia A. Page, who serves as a Member of the Board of Supervisors for District #3, which includes the Farms of New Kent, added, “I am extremely encouraged by the relationship with Preston Hollow and I’ll continue to work closely as The Arbors and The Groves move from a rendering to a beautiful community reality.”

In 2006, the original developers through Farms of New Kent Community Development Authority issued $85 million Series 2006 special assessment bonds to finance the construction of certain roads, water and sewer system extensions and other public improvements for the Development. The majority of this infrastructure was completed in 2009. Subsequently, some of the original developers defaulted on their payments of special assessments, ultimately leading to a default of the Series 2006 bonds in 2013 and eventual transfer of approximately 900 acres of the Development’s land to the Series 2006 bond trust.

PHC acquired all the defaulted Series 2006 bonds in 2017 and 2018 and instituted its plan to restart residential and commercial development. Since that time, PHC has worked with the Series 2006 Trustee, the Farms of New Kent Community Development Authority, New Kent County, Ryan Homes and D.R. Horton, among others, to reestablish land development and commence homebuilding throughout the community.

About Preston Hollow Capital

Preston Hollow Capital provides specialized impact financing solutions for projects of significant social and economic importance to local communities in the United States. As a team, we bring a decades-long track record of helping communities achieve their financial, sustainability and community impact goals. We do so through a unique partnership model, rigorous and disciplined credit underwriting and creative investment structuring built around delivering speed, certainty, and flexibility to our borrowers.

Greg May, Preston Hollow Capital
[email protected]

July 14, 2021 10:25 AM Eastern Daylight Time

Eaton Vance’s Trachtenberg to Retire After Decades Trading Munis.

When she was starting out in the 1970s, Debe Trachtenberg discovered she loved everything about working on bond-trading desks — but gaining a foothold in the male-dominated industry required a good bit of grunt work for young women at the time.

Now she’s set to retire in September after more than four decades in fixed income, having founded the municipal trading desk at Eaton Vance Management and earned a reputation as an advocate for women in finance and a mentor for younger colleagues.

Trachtenberg, 67, got her start in municipal debt helping United California Bank participate in local governments’ short-term note auctions. Back then, cities would advertise debt offerings in The Bond Buyer newspaper. But there was a catch: The sales took place in person, nationwide. So Trachtenberg’s job was to call local banks in various states to recruit someone willing to go to the auction and submit a bid in person.

That bank was where Trachtenberg first gained an appreciation for the buzz and pace of the trading desk.

“I just loved the sound of everything,” she said.

Trading appealed to Trachtenberg in part because of her aptitude with numbers and her memorization skills, something she honed playing Italian card games like Briscola with her family while growing up in Brooklyn, New York.

She found those talents came in handy in municipal trading given the need to remember figures like credit spreads and coupons, not to mention during volatile events like the 2020 pandemic-induced market chaos and the 2008 recession, she said.

Trachtenberg traded munis for dealers including Dean Witter Reynolds before moving to Fidelity Investments, and then Eaton Vance in 1997. She now oversees municipal trading for the firm, which manages $18 billion in municipal debt and about $176 billion overall.

Advocate for Women

The muni industry has changed dramatically from the days of in-person bond auctions, in terms of both process and culture.

At 22, Trachtenberg says she and other women at her bank were tasked with handing out lunch to coworkers. Then one day she decided she wouldn’t perform that chore anymore because she deemed other responsibilities to be more important.

“‘At some point,’ I said, ‘I have to put my foot down,’” she recalled.

She’s now known in the industry for being involved in groups like the Municipal Bond Women’s Forum. The group hosts an annual gathering that features networking events and panels at a time when women are still struggling to break into the top ranks in some areas of finance.

Trachtenberg was one of the forum’s early advocates while others expressed doubts that it would work, said Rachel Perlman, director of institutional sales at Boenning & Scattergood and chairwoman of the group.

“Debe kind of looked at me and said, ‘You just keep on moving. Tune them out,’” Perlman said. “She was a real cheerleader.”

Trachtenberg, the forum’s co-chairwoman, said she sees mentoring as key to helping diversify the industry. Over the years she says she’s mentored people like Kevin Dyer, a trader at MFS Investment Management, and Sara Chanda, a portfolio manager at Breckinridge Capital Advisors. Both previously worked at Eaton Vance.

She’s also passed her love of trading — and her affinity for numbers — down to her children: Her daughter trades municipals and her son trades cryptocurrency.

Looking Forward

After retirement, she’ll continue to be involved with the forum and work with organizations like the Matthew Larson Foundation for Pediatric Brain Tumors. She’s also looking forward to tending her garden at her home in Scituate, Massachusetts, and to a trip to Italy planned for soon after she leaves her job.

She’s confident that Eaton Vance’s state and local-debt group is in good hands with longstanding senior traders like Christopher Berry and Simone Santiago. The company this year also hired Alisa Fitzgerald and Don Schatz as senior traders on the municipals team. Cynthia Clemson and Craig Brandon are co-directors of municipal investments.

The team was excited about Fitzgerald’s hiring, because no woman had interviewed for a trading role that opened up previously.

“We were all over the moon,” Trachtenberg said. “Women have really come into their own in municipals.”


By Amanda Albright

July 6, 2021, 10:15 AM PDT

United States Municipal Bond Pricing Service 2021 -

DUBLIN–(BUSINESS WIRE)–The “US Municipal Bond Pricing” database has been added to’s offering.

The service provides daily end of day pricing for either select bonds or the entire database of 1.25 million US Municipal Bonds. Along with the daily data, the analyst supplies 8 years of historical data.

The method reduces risk by providing more market-driven evaluations than traditional methods (such as bootstrapping, interpolation, and matrix pricing).

Developed for the middle-market, regional dealer community and clients are provided with:offers transparency into the methods and data sourced to produce the valuations gives client and partners the ability to provide needed feedback during development phases is developed by experts specific to the market niche it serves is priced to fit the regional firms’ budgetary framework

For more information about this database visit

July 02, 2021

New California Budget Proposal Provides Massive Funding Boost to Higher Education: Nossaman

On May 14, Gov. Newsom unveiled his record-breaking $267 billion budget proposal to tackle some of the greatest challenges facing the state of California, kicking off what’s been described as the most ambitious era of government spending in the state since the mid-20th century. The new proposed budget comes exactly one year to the day after the governor announced spending cuts to schools, homeless services and health care in light of the state’s $54 billion budget shortfall and the worsening COVID-19 pandemic. Thanks to a booming stock market and greater than expected tax …


By Frank Liu on 05.26.2021

Nossaman LLP

S&P Bulletin: New Jersey’s Fiscal 2022 Budget Could Signal Improved Finances If Windfall Revenues Do Not Lead To Increased Deficits

NEW YORK (S&P Global Ratings) July 1, 2021–S&P Global Ratings said today that any improvement in New Jersey’s (BBB+/Stable) overall creditworthiness will depend on the state’s success in establishing structural budgetary balance following this year’s $46.4 billion budget.

As the 2022 fiscal year begins, S&P Global Ratings will be monitoring the following credit factors:

The enacted budget includes $1.5 billion of additional spending on top of increases in the governor’s proposed budget, raising total year-over-year spending by 2.3% from the fiscal 2021 adjusted budget. Although the state forecasts both income and sales taxes will improve, much of this spending is funded by a one-time reserve spend down of $4.3 billion in reserves or 9.2% of appropriations, which we view as an operating deficit. These reserve balances are largely the result of $4.3 billion in deficit bond proceeds, which were expected to fund revenue losses that did not materialize. Now, officials plan to spend the resulting surplus on a combination of one-time items and increased support for pensions and debt reduction, which could support an improved financial position for the state if future budgets find the means to continue funding. We believe certain items added, including more money for education, health, human services, and tax rebates, might prove difficult to reduce in future years. The increased spending appropriated in the fiscal 2022 budget is largely in addition to the $6 billion of American Rescue Plan (ARP) funding the state received and will spend over the next three years. Important in a state saddled with high costs from long-term liabilities, these funds cannot be used to shore up pension plans or to pay down debt. Given this, we will be watching what the state spends them on, as use of federal funding to offset state costs in the short term could lead to increased budget gaps when the money runs out. If the state can find the money to maintain increased recurring obligations in future budgets, without continued reliance on reserve or federal funds, its financial position could improve, bringing it more in line with that of higher-rated peers. However, should additional spending be maintained without sufficient recurring revenues to support it, the state’s structural deficit would persist, limiting upward rating potential. We will continue to monitor any potential effects funding decisions could have on our rating on the state as details emerge on ARP spending plans, pension funding, and debt defeasance.

One credit-favorable item to note in the enacted budget is additional pension funding, with the state not only fully funding its ADC for the first time in 25 years, but also adding about $500 million on top of the payment. This extra funding could lead to a modest reduction in long-term pension liabilities. To the extent future actuarial studies lead us to believe New Jersey will sustain a net pension ratio of more than 40%, this could have positive implications. However, the additional funding is intended to offset the increase in liabilities following a planned reduction in the plans’ discount rate. Critical to maintaining the rating is the ability to fund long-term obligations. At 38.4% as of July 1, 2020, New Jersey’s combined defined-benefit pension funded level is among the lowest in the country. Sustained improvement in funding discipline, as demonstrated by continued full payment of the ADC in future years from reoccurring resources, is necessary to reduce the risk that these obligations will pressure future budgets even more, forcing the state to cut services or dramatically increase revenues.

The other major funding included in the budget that we believe could improve New Jersey’s financial position is the commitment to reducing the state’s debt burden. New Jersey had the fourth-highest tax-supported debt burden in the U.S. at the end of fiscal 2020, which did not include the general obligation deficit bonds. The state is dedicating $3.7 billion to help reduce the financial impact of this debt burden through a debt-defeasance fund and pay-as-you go capital spending that would otherwise be funded by debt issuance. At this point, it is not clear what effect this will have on our view of the state’s debt profile because details are not yet available. However, given where debt per capita stood at the end of fiscal 2020, it is unlikely these programs alone will be enough to materially improve New Jersey’s debt profile, in our view.

1 Jul, 202

S&P Charter School Brief: New Jersey

As of June 28, 2021, S&P Global Ratings maintains seven public ratings on New Jersey charter schools. The state adopted charter school legislation in 1996, with the first school opening the following year. Based on the State of New Jersey Department of Education (DOE), more than 55,000 students (approximately 3.8% of the state’s kindergarten through 12th-grade population) are enrolled in more than 87 charter schools across 40 cities with an additional waitlist of 36,000 students. Charter schools are concentrated in urban districts such as Newark, Jersey City, Paterson, Camden, Trenton, and Plainfield.

Continue reading.

28 Jun, 2021

Preston Hollow Capital Completes Financing for The Highlander in a Public Private Partnership With Radford University, Virginia.

DALLAS–(BUSINESS WIRE)–Preston Hollow Capital, an independent specialty municipal finance company that supports local communities through creative, flexible and dependable infrastructure financing, today announced the successful execution of a $34 million financing to fund construction of The Highlander, a 124-room upper-upscale hotel that helps further Radford University’s academic mission with the advent of its Hospitality Program. The Highlander also provides much-needed amenity to the University and the surrounding community and features a rooftop restaurant and a 4,000-square-foot conference space, providing the University the ability to attract and host business conferences, expos, and University events.

Preston Hollow’s investment consists of a $34 million Sustainability Bond – a designation which allows investors to invest directly in obligations that finance socially beneficial and sustainable projects. Sustainability Bonds were adopted based upon sustainability framework guidance from the International Capital Markets Association and the United Nations Sustainable Development Goals. Preston Hollow worked hand in hand with Radford University and the Radford University Foundation to execute the financing.

“The Highlander represents a bold step forward for this University and community,” said Radford University President Brian Hemphill. “We identified a growing need for the University and began to think about solutions, which started with building a world class team to bring our vision for the hotel to reality. Preston Hollow Capital has been a true partner for the University, not only through its investment, but also through its expertise in assembling a team that ensures the long-term success of The Highlander.”

Radford University Foundation CEO John Cox said, “Breaking ground for The Highlander is a thrilling day for the Radford University Foundation. The vision for the hotel has been a focus for the University and Foundation since 2019, and the support from Preston Hollow Capital has been an essential part of this project. The Foundation is excited for The Highlander and the positive impact it will bring locally, regionally and beyond.”

“As financing solution provider for The Highlander, Preston Hollow Capital was committed to advance the social and community benefits of the project, and we appreciate the opportunity to work with Radford University, its foundation, and the other valued partners involved with the project,” added Preston Hollow Capital Chairman and CEO Jim Thompson. “The Preston Hollow team takes pride in its ability to execute complex transactions and close with certainty. We’re confident the addition of The Highlander will benefit not only Radford University, but also the surrounding area’s businesses and residents,” he added.

Formal groundbreaking for the project occurred on June 15th of this year, with completion expected in time for family move-in for the start of the 2022 school year.

Provident Resources Group serves as the not-for-profit owner of The Highlander. SB Ballard, Inc. is the general contractor, with Blur Group serving as the architect. The Highlander will be managed by Aimbridge Hospitality.

July 02, 2021

Debate Reignites Over San Francisco’s First Public Bank.

Prior to the COVID-19 pandemic, momentum was building for San Francisco to create its own public bank where The City could be in charge of its own finances and free from Wall Street influence.

Advocates argued that The City would be able to invest in key local areas like affordable housing and small businesses while being accountable to taxpayers as a public entity — something that became more desirable after the Great Recession banking scandals.

The push to create a public bank, of course, became another point of competition with Los Angeles, with city officials jockeying for San Francisco to be the first to apply for a banking license under a 2019 state law.

Continue reading.



Jun. 21, 202

White Plains Warned about Looming $1.7M Default on City Center Garage Bonds.

The city of White Plains has been warned of a projected $1.7 million shortfall in revenues from the City Center garage and a looming payment default on the municipal bonds that financed the garage.

If the bonds default when the next payment is due in October, the city’s financial reputation would be damaged, according to a letter sent to Mayor Thomas Roach and obtained by the Westchester County Business Journal.

Ratings agencies and capital markets “will penalize the city if it is seen as not taking seriously the looming payment default on the City Center bonds,” Steven J. Berkowitz, president and CEO of ACA Financial Guaranty Corp., states in the May 21 letter.

“The least onerous effect would be higher interest rates on future bond offerings. More severe consequences would be a … rating downgrade, to say nothing of a lack of buyers for the city’s bonds and notes.”

ACA Financial Guaranty, based in Rye, insured the bonds and is obligated to pay the bondholders if the bonds default.

A default could easily be averted, according to ACA spokeswoman Maria Cheng.

But White Plains does not accept responsibility.

It does not own the garage and is “not obligated on the bonds in any way,” Karen M. Pasquale, senior adviser to Mayor Roach, said in an email. “The city cannot allow its taxpayers to take on a burden that does not belong to them.”

ACA Financial Guaranty acknowledges that the bonds are not a general obligation of the city, but ultimately, according to the letter, the city must “pursue any and all revenue sources” to secure the bonds.

The garage is a part of the vast City Center urban renewal project, across the street from City Hall, at Main Street and Mamaroneck Avenue. In 2001, Cappelli Enterprises Inc. proposed a $42.37 million, 9-story 2,370-space garage as part of a $300 million retail and residential center.

In 2003, the Westchester County Industrial Development Agency issued nearly $27.25 million in bonds to finance the garage. White Plains issued a separate, $24 million bond to finance construction.

The city’s bond issue is almost paid off, Pasquale said, and “the city of White Plains has met all of its obligations” to support the larger bond issue.

Bond documents paint a more complicated picture of a public-private partnership between the developer and city agencies:

• the city acting through the nonprofit White Plains Center Local Development Corp.;
• the city’s Urban Renewal Agency, the White Plains Parking Authority;
• the Common Council; and
• LC White Plains, formerly controlled by Cappelli Enterprises and now owned primarily by Kite Realty Group of Indianapolis.

The city owned the site and deeded it to the urban renewal agency. The urban renewal agency leases 200 parking spaces to the city and the rest to LC White Plains.

The parking authority operates the garage, collects the parking fees and pays the operating expenses.

The city’s commissioner of finance is the fiscal agent. The city’s commissioner of public works is responsible for repairs. Common Council has sole authority to set parking rates.

LC White Plains is responsible for paying the bonds, but it is dependent on parking revenues collected by the city.

It all depends on parking revenues, Cheng said. But revenues have been declining as operational costs have increased.

In the past 5½ years, for instance, net income for the City Center garage has narrowed by 51%, according to documents filed with the Municipal Securities Rulemaking Board.

Several warnings also have been posted on the board’s public database. In September 2018, Wilmington Trust, the bond trustee, warned that a reserve fund that is supposed to have enough money to cover the annual bond payments was short by $1.6 million.

Wilmington Trust posted another notice this past February, citing ACA’s concerns about the depleted reserve fund.

Cheng said ACA has been trying to get the city’s attention for years.

“We’ve been unable to even engage in a conversation with them,” she said. “We’ve sent letter after letter since 2018. … Then the pandemic hit, and now it’s worse. It’s like hammering on a festering wound.”

One way to fix the problem, according to Berkowitz’s letter, is to raise parking rates, an action, according to the bond documents, that only the Common Council can take.

Pasquale said ACA had proposed a 75% parking fee hike, “which is unacceptable.”

Another solution is refinancing. The original bonds were issued at 6% to 6.25%. Now municipal bond interest rates are much lower, and the City of White Plains has a strong credit rating.

Cheng said the city could borrow money at 1.5% to 2%, saving more than enough to cover the shortfall and not have to raise parking rates.

The City Center garage bonds are already in default, Cheng said, for breaking covenants in the bond agreements. But failure to make the next semiannual payment in October would be more serious.

“A payment default,” she said, “is the Big D.”

She said ACA ultimately will not lose in a default. It would have to pay the bondholders, but then it could demand that LC White Plains cover the shortfall.

But a payment default would have serious implications for White Plains’ overall bond rating, the Berkowitz letter states, and “will ultimately hurt White Plains residents through increased borrowing costs that will have to be financed by taxpayers.”

“This is a moral obligation on the city,” Cheng said, and other municipalities that have walked away from moral obligations have seen their credit ratings worsen.

“The capital markets will say, ‘How come? … You could have addressed the problem.’”

If the problem is not addressed, Cheng said, “the city will hit a wall in October.”

By Bill Heltzel – June 24, 2021

S&P ESG U.S. Public Finance Report Card: California Governments And Not-For-Profit Enterprises

Key Takeaways

E (elevated): The state is broadly exposed to a wide range of environmental risks. Acute physical risks stemming from wildfires and droughts, as well as chronic issues resulting from hydrological volatility and sea level rise; energy transition risk; other hazards such as seismic events and mudslides; and natural capital stress related to water scarcity are heightened risks for some entities absent adaptation measures.

S (elevated): Housing affordability has resulted in demographic shifts and elevated social risks. In addition, the future cost of municipal services is expected to rise significantly given required infrastructure investment to meet demand and asset deficiencies including grid reliability associated with ambitious energy transition requirements.

G (neutral): The state has a long history of policy making aimed at preserving natural capital that mitigates or reduces climate risks, and improves socioeconomic inequities. While these policies advance ESG principles, there are also limitations on key revenue streams that have hindered infrastructure investment, creating meaningful challenges to adaptation efforts. Furthermore, the state provides limited oversight for distressed municipalities as represented in our local government institutional framework, while providing school districts with a high degree of state oversight and significant equalization funding, which we believe benefits the portfolio.

Continue reading.

16 Jun, 2021

Waking from Bankruptcy Shock, Stockton Comes Back to Life.

Stockton emerged from bankruptcy years ago, but a culture of caution lingered that wasn’t conducive to growth. Harry Black, its new city manager, aims to speed resurgence and innovation through data-based plans and programs.

When Stockton filed for bankruptcy in 2012, it was the largest municipality in the U.S. to be forced into this corner. A judge approved the city’s plan to exit bankruptcy in February 2015, and by 2016, Truth in Accounting had ranked Stockton second in its annual survey of fiscal solvency of the nation’s most heavily populated cities.

The city is still in the top five in the 2021 survey, with a surplus equivalent to $3,000 per citizen after all its bills are paid. In 2013, Detroit replaced Stockton as the largest city to seek bankruptcy protection, emerging in 2014. But it has not managed a similar resurgence.

Motor City currently has a “taxpayer burden” of $6,100 — the sum each citizen would have to pay to bring its bills current. It is ranked among “Sinkhole Cities” by Truth in Accounting.

Continue reading.

by Carl Smith

June 16, 2021

Texas Targets Wall Street in Fight Over ESG Investing.

Texas is drawing battle lines in a fight against investors and companies turning their backs on fossil fuels.

Governor Greg Abbott signed a bill into law on Monday banning state investments in businesses that cut ties with the oil and gas industry. The underlying message, according to one of the most powerful energy regulators in the state, is simple: Boycott Texas, and we’ll boycott you.

The new measure is Texas’ Republicans latest rebuke of ESG investing as the state clings to its status as America’s crude capital. Oil and gas companies, already under pressure to funnel more cash into dividends to please shareholders, are now having to reckon with major corporations from Wall Street banks to Silicon Valley tech giants deeming climate change as a top priority when determining investments.

Continue reading.

Bloomberg Finance

By Rachel Adams-Heard

June 14, 2021, 7:11 PM PDT Updated on June 15, 2021, 7:14 AM PDT

Michigan to Sell $604 Million of Debt for Flint Water Settlement.

Michigan is slated to sell $604 million of taxable bonds to help finance the state’s settlement payments to victims of the lead-contaminated water supply in the majority-Black city of Flint.

Why It’s Noteworthy

Flint’s water crisis began in 2014, when in an effort to cut costs, officials began sourcing the city’s drinking water from the Flint River. The river contained contaminants that leached lead from pipes, polluting the water for thousands of residents, including infants and children. Studies found the contamination may have been the cause of a Legionnaire’s disease outbreak and several deaths in the area. As a result, former Governor Rick Snyder was charged with two misdemeanor counts for his role in the crisis and eight others face criminal charges. The charges are “wholly without merit,” his lawyer has said.

The state has agreed to pay $600 million into a compensation fund, which will finance recovery awards for children and adults exposed to contaminated drinking water. The state made an initial payment of $5 million into the FWC Qualified Settlement Fund in February and will transfer the remaining $595 million of the bond proceeds. Michigan’s state legislature will then appropriate approximately $35 million of annual payments to pay debt service on the bonds.

Payments made from the settlement fund to the plaintiffs will “essentially extinguish” the state’s legal liability, according to a Fitch Ratings report. The bonds are being sold though the Michigan Strategic Fund, a state entity.

The deal is being underwritten by Citigroup and Siebert Williams Shank & Co. and is expected to price on June 22, according to investor roadshow documents.

‘Highly Essential’

The bonds are rated Aa2 by Moody’s Investors Service and AA- by Fitch, the third and fourth highest grades respectively. The debt service is payable from the state’s legislative appropriation and is rated one notch below Michigan’s general obligation rating by both companies.

“Although the transaction does not grant bondholders an interest in a physical asset, fulfillment of the state’s obligation to make these payments constitutes a highly essential purpose for Michigan’s government, given the pivotal role of various state agencies and officials in the catastrophic contamination of Flint’s water supply starting in April 2014,” wrote Moody’s analyst Edward Hampton in a report.

“Completion of the settlement payment is crucial not only to containing future financial claims against the state, but also to restoring and maintaining the government’s credibility with a large portion of its citizens,” he said.

The fact that the proceeds will ultimately go to residents who were harmed by the water crisis is a “distinct positive,” according to a report published in May by Activest, a racial justice investment research firm. Given the scale of the impact, the judgment “is a start, but it falls short of a fiscally-just investment,” according to the report from Activest co-founder Ryan Bowers and his team.

Market View

Jason Appleson, a portfolio manager at PT Asset Management said that the bonds could come to market at higher yields than other appropriation debt because of the unusual nature of settlement bonds.

“The size mixed together with the non-standard format, the fact that it’s a appropriation for a settlement, I think there will be some concession baked in there,” he said, adding that any price drop is likely to be minimized by the ample demand for municipal bonds.

“It will probably get strong numbers but will likely be a little weaker than an essential project that is normally financed with appropriations,” he said. “It is an ideal time to come to market.”

Bloomberg Markets

By Danielle Moran

June 15, 2021, 9:05 AM PDT

— With assistance by Fola Akinnibi

Puerto Rico’s Plan to Fix Its Power Grid Is Off to a Rocky Start.

Protests, a cyberattack, and a fire have marked the transition to a controversial public-private partnership.

Puerto Rico’s attempts to overhaul its troubled public power utility are off to a rough start.

Luma Energy LLC, the private consortium that began managing the grid for the Puerto Rico Electric Power Authority, or Prepa, on June 1, has been besieged by protests, a cyberattack, and a major fire that briefly knocked out power to 900,000 customers on the island of 3.3 million.

Improving the electrical system is key to pulling the U.S. territory out of a deep economic slump and stopping rampant population decline. Blackouts and appliance-frying voltage spikes are common, even as customers pay rates that are higher than on the U.S. mainland. Hurricane Maria in 2017 decimated the already weak grid, and this year’s Atlantic hurricane season began just as Luma took over.

Continue reading.

Bloomberg Businessweek

June 17, 2021,

Texas Student Housing Authority Files for Bankruptcy.

Texas Student Housing Authority filed for Chapter 9 bankruptcy protection, listing between $10 million and $50 million of liabilities.

The non-profit, state chartered corporation had assets of $1 million to $10 million, and as many as 199 creditors, according to a June 18 filing in U.S. Bankruptcy Court for the Northern District of Texas.

The Southlake, Texas-based organization was established in 1995 to purchase and manage student housing facilities located near the campuses of major colleges and universities, according to its website. It owns housing properties near the University of North Texas in Denton and Texas A&M University in College Station. Both projects offer premium facilities, equipped with resort-style swimming pools and fitness centers.

“Both schools have had troubled muni-financed private student housing projects for years,” said Matt Fabian, a partner at Municipal Market Analytics. “So while the pandemic has made student housing financial conditions more challenging generally, that’s not the whole story when it comes to these schools.”

Across the U.S., bondholders are betting on the resurrection of American campus life after a year of declining enrollment, online classes and vacant quads. Student housing bonds, which came under pressure during the pandemic, are now traded with “substantially more optimism,” Fabian said. “The sector has lingering issues, but we shouldn’t overstate the risks via this new bankruptcy.”

In April, the board of the Texas Student Housing Authority met to consider Chapter 9 bankruptcy proceedings for “The Cambridge,” its property in College Station. The organization didn’t respond to a request for comment on Saturday.

The purpose of Chapter 9 is to provide protections for financially-distressed municipalities from their creditors so they can develop and negotiate a plan for adjusting debt, according to the U.S. Courts website.

Bloomberg Markets

By Yueqi Yang and James Ludden

June 19, 2021, 9:35 AM PDT Updated on June 19, 2021, 1:17 PM PDT

Somerville Urban Renewal Taking Survives Challenge: Pierce Atwood

In Cobble Hill Center LLC v. Somerville Redevelopment Authority (pdf), the Massachusetts Supreme Judicial Court (SJC) upheld the eminent domain taking by the Somerville Redevelopment Authority (SRA) of 3.99 acres of land located at 90 Washington Street in Somerville.

Cobble Hill, the owner of the parcel, argued that the taking was improper because there was no approved urban renewal plan that covered its property, and the SRA could only take by eminent domain property that is included within an approved urban renewal plan. The SRA countered that the provisions of M.G.L. c. 121B, § 46(f) (§ 46(f)) authorized the taking.

Takings by the Boston Redevelopment Authority (BRA) under § 46(f) were the subject of a 2019 SJC opinion in Marchese v. Boston Redevelopment Authority, in which the court upheld the BRA’s taking of easement rights which rights were then transferred to the Boston Red Sox for use for Fenway Park. While Marchese was decided on standing grounds, Cobble Hill allowed the SJC to fully analyze and decide whether c. 121B authorizes eminent domain takings for projects undertaken pursuant to § 46(f). The court found only one 2002 Superior Court decision, Tremont on the Common Condominium Trust v. Boston Redevelopment Authority (pdf) (authored by then-Superior Court Justice Margot Botsford), that analyzed this issue. That decision determined that a BRA taking under § 46(f) was proper for the expansion of the Opera House in downtown Boston.

Urban renewal authorities are authorized by c. 121B § 46 (subsections b, c and d) to undertake urban renewal projects in accordance with urban renewal plans. Section 46(f) allows for urban renewal authorities to “carry out demonstrations for the prevention or elimination of slums and urban blight” and makes no mention of undertaking any such demonstration in accordance with an urban renewal plan. These projects are commonly known as “demonstration projects.” Cobble Hill argued that eminent domain powers granted to urban renewal authorities under c. 121B, § 11(d) could not be used for demonstration projects.

The court started its analysis with the statute and focused on the language of § 46(f) and other sections of c. 121B, especially § 11(d) with respect to the eminent domain powers of urban renewal authorities. “[I]t is clear that § 11(d) grants the SRA eminent domain power to effect demonstrations for the purposes articulated in § 46(f) itself…” The court went on to analyze c. 121B § 45 with respect to the purposes of urban renewal projects and found that nothing in this section prohibits the use of eminent domain for demonstration projects.

Cobble Hill also argued that the demonstration project utilized by the SRA in this instance (for a mixed-use project involving the construction of a public safety building and other private development) was flawed and was not a true “demonstration,” but instead was the type of project that should have been included in an urban renewal plan. The court analyzed the meaning of the word “demonstration,” including by looking to legislative history at both the federal and state levels regarding urban renewal. The court found that § 46(f) “clearly contemplates the development and testing of new or different projects that may lead to future use and improvement, which is consistent with the common understanding of a demonstration.” The court also reviewed the demonstration project plan put forth by the SRA and found that it is a valid demonstration project under § 46(f).

The court did note that future demonstration projects undertaken by urban renewal authorities “should identify with more specificity the unique or innovative nature of the demonstration, the difference in or improvement of the means used, and the manner in which reporting of the demonstration will be useful as a model for future plans.” Lastly, the court found that the taking was constitutional, relying on Kelo v. New London, Conn., 545 U.S. 469 (2005) and other Massachusetts takings cases.

This new decision, coupled with the SJC’s decision in Marchese, shows that urban renewal is alive and well for urban renewal authorities in the Commonwealth and remains an important tool to accomplish municipal planning goals.

Pierce Atwood LLP – Paula M. Devereaux

May 26 2021

S&P Credit FAQ: How Are California's Wildfire Risks Affecting Utility Credit Quality?

The 2020 California wildfire season was one of the more destructive wildfire seasons on record with more than 4 million acres burned and 10,000 structures damaged or destroyed. A relatively small percentage of the destruction was directly attributable to California’s investor-owned utilities (IOU) or public power utilities (POU) as opposed to the previous few years, and we believe this is in part a reflection of the efficacy of the utilities’ updated wildfire mitigation plans. While timing varies, we expect it will take upwards of three to five years for all utilities to fully implement their wildfire mitigation strategies. In the meantime, risks associated with catastrophic wildfires continue to weigh to varying degrees on our ratings on California’s IOUs and POUs, which remain exposed to onerous liability claims under the state’s inverse condemnation doctrine–whereby a California utility can be financially responsible for a wildfire if its facilities were a contributing cause of a wildfire, irrespective of negligence. While we view Assembly Bill (AB) 1054 that established an approximate $21 billion wildfire fund as supportive of the IOUs’ credit quality and most POUs, which cannot access the wildfire fund, are not highly susceptible to wildfires due to their urban service territories, undergrounding of power lines, or having power lines that run through areas with scant vegetation, we view wind-driven events as a key contributor to utility-caused wildfires. High wind conditions can spark a wildfire if trees and limbs come into contact with power lines or cause electrical lines to fall onto combustible material (dry brush and trees). California’s environment has been more prone to catastrophic wildfires as evidenced by 13 of the 20 most destructive wildfire having occurred since 2017, some of which were attributable to electric utility infrastructure.

In advance of this year’s wildfire season, S&P Global Ratings reviewed the 2020 wildfire season empirical data with many industry stakeholders. This FAQ updates our wildfire assumptions and analysis, answering investors’ frequently asked questions.

Continue reading.

June 3, 2021

California Lawmakers Pitch Early Debt Payment, a First For State.

California lawmakers are proposing paying $1 billion of debt service for general-obligation bonds early in what would be a first for the nation’s largest municipal-debt issuer.

The plan is included in the agreement announced Tuesday between the Senate and Assembly for next year’s budget. Paying a portion of the debt service that’s due in fiscal 2023 will save money in future years, according to legislative documents.

In a news conference, Assembly budget chair Phil Ting and his Senate counterpart, Nancy Skinner, said the proposal shows the fiscally prudent approach of the Democratic-controlled legislature.

“Responsible budgeting was one of our top priorities,” Skinner said. “Your cost pressures are reduced if you pay down debt.”

California has never before paid down debt early, according to legislative budget staff. Details are still being worked out. The state has about $71 billion of general-obligation bonds outstanding, according to its latest report.

Spokespeople for the finance department and treasurer’s office didn’t have immediate comments. Governor Gavin Newsom, a Democrat, must approve the budget by June 30.

Bloomberg Markets

By Romy Varghese

June 1, 2021, 4:01 PM PDT

Municipal Electricity Provider in California Files Bankruptcy.

Western Community Energy, a local government agency that sells electricity to six small towns in Southern California, filed bankruptcy blaming its financial woes in part on an inability to shut off service to customers who quit paying during the pandemic.

Western Community owed creditors as much as $100 million, but had less than $50 million of available assets, according to court papers filed Monday in U.S. Bankruptcy Court in Riverside, California. The agency buys power wholesale and resells it to residents of Eastvale, Hemet, Jurupa Valley, Norco, Perris, and Wildomar, which are cities in Riverside County on the edge of the desert.

“The ongoing impacts of Covid-19 severely limited the organization’s options moving forward and forced today’s action,” said Todd Rigby, chairperson of Western Community and a city council member for Eastvale, a former dairy farm turned suburb.

The agency said it has been unable to shut off customers for not paying their bills under an emergency order issued by California Gov. Gavin Newsom. Late bills have averaged ten-times higher than before the pandemic and have cost the agency millions of dollars, Western Community said in an emailed statement.

Higher than normal demand for air conditioning during a 2020 heat wave also forced the agency to incur $12 million in unexpected energy costs, the agency said.

A representative for Newsom did not immediately respond to a request for comment.

The Chapter 9 bankruptcy petition allows the agency to halt certain debt payments and reorganize itself and its finances.

Western Community was set up under state rules as a so-called community choice aggregator, which resells power using utility lines owned by traditional electric utilities. About two dozen aggregators have been set up in California, according to California Community Choice Association, an advocacy group for the power agencies.

The case is Western Community Energy, 6:21-bk-12821, U.S. Bankruptcy Court, Central District of California (Riverside)

Bloomberg Markets

By Steven Church

May 25, 2021, 12:02 PM PDT

— With assistance by Allison McNeely

S&P Pension Spotlight: Kentucky

Key Takeaways

Continue reading.

25 May, 2021

S&P Not-For-Profit Acute Health Care State Snapshot: Texas

S&P Global Ratings maintains 21 public ratings on Texas not-for-profit acute care providers. This includes health care systems, stand-alone hospitals, and hospital districts.

Given that the state and locality in which providers operate greatly influence health care delivery, from underlying demographic trends to the legislative and competitive environment, market-specific factors provide a critical backdrop for our analysis of an entity’s overall credit profile. This report is intended to provide greater insight into a sample of credits in comparison to their peers across the country and to supplement our top-level and national credit views on the not-for-profit health care sector (see “Outlook For U.S. Not-For-Profit Acute Health Care: Navigating The Bumps While Getting Back On Track,” published Jan. 12, 2021, on RatingsDirect).

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26 May, 2021

Rice-to-Fiberboard Plant in Default Seeks to Sell More Muni Debt.

A company that defaulted on municipal bonds sold to build a novel recycling factory in California is seeking to sell as much as $18 million of additional debt.

CalPlant I LLC, constructing the world’s first facility converting rice cultivation debris into fiberboard, has already made one preliminary application to sell the debt through the California Pollution Control Financing Authority and will make a final request by Friday, according to a company filing.

It would mark the company’s second return to the market since the default. It sold $42 million of unrated tax-exempt debt in October after skipping payments earlier in the year on a $228 million issue sold in 2017 and a $74 million deal in 2019.

Elizabeth Whalen, a spokesperson for CalPlant, didn’t return an email and phone call seeking comment. Bill Ainsworth, a spokesperson for the financing agency, confirmed it received the initial application but had no further comment.

The company may be able to take advantage of investors’ demand for high-yielding bonds. Over the past 10 weeks, municipal-bond funds devoted to the riskiest of securities have raked in $5.8 billion, according to Refinitiv Lipper US Fund Flows data.

Especially for unrated deals, demand has been “intense,” said Terry Goode, a senior portfolio manager at Wells Capital Management, which doesn’t hold CalPlant debt.

“The persistent low yields in AAA and AA bonds have pushed investors down in credit quality to find incremental yield,” he said. “Most high-yield deals are heavily oversubscribed, leading to yields being reduced.”

CalPlant has fielded many problems during construction and trial production runs and has repeatedly pushed back its opening date. In the latest report to bond holders, it said “with the continued struggles getting to a quality fiber and longer consistent runs, we do not expect Plant Acceptance to occur until July at the earliest, pushing commercial operations back accordingly.”

Bloomberg Markets

By Romy Varghese

May 18, 2021, 4:15 PM MDT

What To Expect When You’re Expecting (To Vote On) CO Municipal Bonds.

The city wants you to decide this fall whether to borrow $400 million to pay for multiple projects, though those projects have not yet been picked.

It happens every few years. You, dear voter, get to decide whether to let the city borrow millions and millions of dollars to pay for stuff like roads, buildings, parks, and other stuff you will end up using during the course of any given day. It helps build and maintain things, too.

If city leaders get their way and Denver City Council votes in their favor, you will end up deciding this fall whether to let the city borrow about $400 million to pay for several projects. This money will be borrowed through what’s called a general obligation bond, one of two types of municipal bonds used by cities and towns to pay for stuff (the other is called a municipal revenue bond).

Alex Fayman, assistant professor of finance at the Metropolitan State University of Denver, said general obligation bonds do not come with a tax increase.

Continue reading.

by Esteban L. Hernandez

May, 2021

Illinois Supreme Court Blocks Lawsuit Challenging State Bonds.

The Illinois Supreme Court on Thursday rejected a lawsuit that sought to challenge the constitutionality of $16 billion of the state’s general obligation bonds and threatened a massive default.

The high court reversed an August state appeals court decision permitting the so-called taxpayer lawsuit to move forward because it was not “frivolous or malicious,” and affirmed a 2019 district court ruling that blocked its filing.

In 2019, John Tillman, chief executive of the conservative Illinois Policy Institute, petitioned to file a lawsuit aimed at ending payments on about $14 billion of debt remaining from bond issues sold in 2003 and 2017.

In a unanimous opinion, justices cited an unreasonable delay by the plaintiff before challenging the bonds and raised concerns about a default.

“Enjoining the state from meeting its obligation to make payments on general obligation bonds will, at the very least, have a detrimental effect on the state’s credit rating,” the opinion stated.

Illinois is already the lowest-rated state at a notch above junk and it pays the biggest yield penalty among states in the U.S. municipal bond market. That penalty has eased as Illinois’ revenue rebounds from the coronavirus pandemic and federal stimulus money flows into the state’s coffers.

The spread for Illinois 10-year bonds over Municipal Market Data’s benchmark triple-A yield scale, which ended 2020 at 198 basis points, was only 85 basis points on Wednesday.

Tillman had claimed the bonds, backed by Illinois’ full-faith and credit pledge, violated the state constitution because the proceeds were not used to fund specific purposes like capital improvements. Illinois used proceeds from 2003’s $10 billion bond sale for its underfunded retirement system, while money from $6 billion of bonds sold in 2017 was used to pay overdue bills.


May 20, 2021

Intercontinental Exchange Makes Strategic Investment In BondLink.

Provides expanded data and analytics to the municipal bond issuer community

Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of data, technology and market infrastructure, today announced it has made a strategic investment in BondLink, a financial technology company that provides cloud-based debt management software solutions to governments financing infrastructure in the $4 trillion municipal bond market. The Series B investment is designed to accelerate BondLink’s growth and product development, including providing a variety of ICE’s market-leading data sets to municipalities as they prepare to issue bonds.

With approximately 75% of all public infrastructure in the U.S. financed by local governments and public utilities, the municipal bond market is critical to the nation’s economic growth, quality of life and safety. It is also very broad with an estimated 60,000 unique issuers, making it challenging and opaque for bond investors of all sizes.

“With issuers spread out across the U.S., the municipal bond market remains very fragmented, and is in need of transparency. Better access to information, data and analytics are essential,” said Lynn Martin, President of Fixed Income and Data Services at ICE. “Our investment in BondLink and the distribution of ICE data directly to the issuer community will provide municipalities with new tools to help efficiently manage the full lifecycle of debt issuance.”

BondLink’s online network connects municipal issuers with bond investors, advisors and other essential market participants. Its issuer platform helps governments engage and attract investors more efficiently, using digital channels to share financial reports, bond financing data, and other information in one central location. BondLink tools also help issuers gauge both market conditions and investor demand as they prepare for a bond sale. These resources will be enhanced with the ICE investment, allowing it to provide its users with critical data such as interest rate yield curves, secondary market trading data, changes in bond evaluations, and other analytics to help inform their debt financing decisions.

“Technology is transforming the bond market, and it’s providing the biggest impact for governments who are under-resourced and need it the most,” said Colin MacNaught, CEO & Co-Founder of BondLink. “We’re moving the bond market forward by working with issuers to help drive their bonds sales, and our technology brings cost efficiencies and additional transparency to the market. We are thrilled to work with ICE and the ICE team. By providing critical market data to issuers, they can better manage their bond programs and be more prepared as they finance new roads and bridges and schools.”

The transaction will not be material to ICE’s earnings or have an impact on capital allocation plans.

About BondLink

Led by founders Colin MacNaught, CEO, and Carl Query, CTO, BondLink’s cloud-based debt management software is the $4 trillion municipal bond market’s first fully-integrated operating platform for public sector CFOs to raise capital from institutional and retail investors. BondLink clients issued nearly $50 billion in 2020, and its network of issuers expands across more than 30 states, as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Headquartered in Boston, BondLink is backed by top investors, including Franklin Templeton Investments, one of the largest municipal bond fund managers in the country. For more information, please visit

About Intercontinental Exchange

Intercontinental Exchange, Inc. (NYSE: ICE) is a Fortune 500 company that designs, builds and operates digital networks to connect people to opportunity. We provide financial technology and data services across major asset classes that offer our customers access to mission-critical workflow tools that increase transparency and operational efficiencies. We operate exchanges, including the New York Stock Exchange, and clearing houses that help people invest, raise capital and manage risk across multiple asset classes. Our comprehensive fixed income data services and execution capabilities provide information, analytics and platforms that help our customers capitalize on opportunities and operate more efficiently. At ICE Mortgage Technology, we are transforming and digitizing the U.S. residential mortgage process, from consumer engagement through loan registration. Together, we transform, streamline and automate industries to connect our customers to opportunity.

Trademarks of ICE and/or its affiliates include Intercontinental Exchange, ICE, ICE block design, NYSE and New York Stock Exchange. Information regarding additional trademarks and intellectual property rights of Intercontinental Exchange, Inc. and/or its affiliates is located here. Key Information Documents for certain products covered by the EU Packaged Retail and Insurance-based Investment Products Regulation can be accessed on the relevant exchange website under the heading “Key Information Documents (KIDS).”

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 — Statements in this press release regarding ICE’s business that are not historical facts are “forward-looking statements” that involve risks and uncertainties. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see ICE’s Securities and Exchange Commission (SEC) filings, including, but not limited to, the risk factors in ICE’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 4, 2021.

May 19, 2021

Illinois Bonds Gain as Court Rejects Case to Invalidate Debt.

The Illinois Supreme Court on Thursday upheld a decision that shot down a conservative think tank leader’s effort to invalidate more than $14 billion of bonds sold by the state, promising to end a nearly two year legal saga.

John Tillman, the chief executive officer of the Illinois Policy Institute, a conservative think tank, filed a lawsuit in July 2019 claiming that pension bonds issued in 2003 and others sold in 2017 violated the state constitution because they weren’t issued for “specific purposes” but general expenses. The state argued that laws authorizing the 2003 and 2017 bonds satisfied that requirement.

Illinois bonds rose in active trading after the ruling, driving the average yield on some sold in 2017 to 1.12% from 1.4% and the price jumped to more than $1.20 from about $1.19 a day earlier. The case has been closely watched by investors in the $3.9 trillion municipal bond-market, where it was seen as a potential harbinger of potential lawsuits elsewhere if it prevailed.

“Even though the probability was low that the challenge was going to be successful, it wasn’t zero,” said Dan Solender, director of tax-free fixed income for Lord, Abbett & Co., which holds $34 billion in muni assets. “The expectation was this was not going to be a problem but still the bonds are moving up because there is now some definite resolution to the situation.”

In August 2019, a Sangamon County circuit associate judge denied Tillman’s petition to file the suit. The Supreme Court upheld that court’s decision, reversing a ruling from an appeals court.

“We hold that the circuit court did not abuse its discretion in denying the petition for leave to file a taxpayer action,” according to an opinion of the court delivered by Chief Justice Anne Burke that was posted on its website. “Accordingly, we reverse the judgment of the appellate court and affirm the judgment of the circuit court.”

A successful effort to invalidate the debt would have saddled investors with losses and potentially left the state facing higher interest rates to compensate for the risk of such challenges. The state already has $141 billion of unfunded pension liabilities, almost no money in its rainy day fund and expects deficits through at least 2026.

“I am of course disappointed in the Illinois Supreme Court’s ruling,” Tillman said in an emailed statement Thursday after the ruling. “We are evaluating our options as to how to proceed from here. In the interim, I continue to be profoundly concerned about Illinois’ reckless debt accumulation. All Illinoisans should care about this.”

Tillman added that if the state doesn’t push for pension reform now a fiscal crisis could pose a threat to taxpayers, people who depend on government services and retirees.

Illinois Governor J.B. Pritzker’s “administration is pleased that the Supreme Court sided with hardworking taxpayers over a frivolous lawsuit designed to grab headlines,” according to an emailed statement from spokesperson Emily Bittner. The court “rejected the plaintiff’s belated attempt to create unnecessary havoc in Illinois’ fiscal standing,” Illinois Attorney General Kwame Raoul’s office said in a statement.

The state’s top court focused on how long Tillman waited to file his action rather than the constitutional question, and in the opinion said “we find that this delay is unreasonable.”

With the outcome of the case now behind the state, it “can move forward in addressing the more pertinent fiscal issues,” said Dennis Derby, a portfolio manager for Wells Fargo Asset Management, which owns Illinois debt that was challenged as well as other bonds issued by the state as part of a $40 billion municipal-bond portfolio.

Bloomberg Markets

By Shruti Singh

May 20, 2021, 10:41 AM MDT Updated on May 20, 2021, 1:30 PM MDT

Illinois Withstands Legal Challenge to $14 Billion Bond Deals.

Court says free-market advocate waited too long to challenge 2003 and 2017 bond sales as unconstitutional

The highest court in Illinois rejected litigation seeking to block the state from making further payments on $14.3 billion in municipal debt, saying a free-market advocate waited too long after the bonds were sold to challenge their legality.

John Tillman, chief executive of the right-leaning Illinois Policy Institute, had “no excuse” for his delay in filing litigation claiming that Illinois breached its constitutional limits on debt issuance with bond sales in 2003 and 2017, the Illinois Supreme Court said in a unanimous ruling Thursday.

Mr. Tillman challenged the bonds in 2019, when he sought a court order declaring their issuance unconstitutional and prohibiting the state from making further payments.

Mr. Tillman said Thursday he was disappointed in the court ruling and is “evaluating options as to how to proceed from here.”

“In the interim, I continue to be profoundly concerned about Illinois’s reckless debt accumulation,” he said.

A foe of public-sector unions, Mr. Tillman in his lawsuit argued that the Illinois constitution bars the state from taking out long-term debt except for “specific purposes” or to refinance longer-term debt. He said the state went outside those limits when it borrowed in 2003 and 2017 to bridge deficits and fund pensions.

Illinois has the lowest credit rating of any U.S. state, largely due to its huge pension burden, and was the only state to tap the Federal Reserve’s emergency pandemic lending facility.

Yet despite the state’s financial woes, demand for municipal debt has been so intense that Illinois sold three-year bonds in mid-March at yields of near 1%.

Mr. Tillman was supported earlier in the litigation by an Illinois bondholder that had also purchased insurance that would pay out after a potential default. Other bondholders sided with the state, saying that letting activist investors challenge the validity of widely held bonds based on side bets would destabilize the municipal-bond market.

In Thursday’s ruling, the justices said that granting Mr. Tillman’s request “would amount to a de facto default on outstanding bonds that are backed by the full faith and credit of the state” or at least hurt its credit rating, the decision said.

Illinois Comptroller Susana A. Mendoza, a defendant in the litigation, praised the justices’ ruling and said the lawsuit was aimed at “tanking Illinois’s finances” so that “named or unnamed hedge funds” would profit.

“The taxpayers of Illinois should not have to suffer financial Armageddon just so rich people who bet against Illinois can profit,” Ms. Mendoza said.

No state has failed to pay bondholders since Arkansas in 1933, although the island territory of Puerto Rico defaulted in 2016 and was placed under a court-supervised bankruptcy.

Bankruptcy isn’t an option for states under current law. Illinois’s finances have been strained for years, pushing its bond rating to the brink of junk territory as pension obligations ballooned and a budget stalemate from 2015 to 2017 resulted in billions of dollars in unpaid bills.

“All Illinoisans should care about this,” Mr. Tillman said. “If the state doesn’t tackle pension reform now, it will slide into a fiscal crisis beyond repair that will threaten not only taxpayers and the people who depend on government services, but also people who are counting on their public-sector pension in retirement.”

The lawsuit had drawn fierce responses from state officials including Democratic Gov. J.B. Pritzker, who accused Mr. Tillman of a “pathological focus to drive Illinois into bankruptcy.”

The 2003 bond sale that Mr. Tillman challenged raised money to prop up Illinois pensions, in the hope that investment returns would exceed the interest payments to bondholders. The 2017 issuance funded back payments to stretched government vendors.

A trial-court judge initially dismissed the complaint in 2019, saying it risked “an unjustified interference with the application of public funds” and would draw the courts into political questions best left to lawmakers. An appeals court reinstated Mr. Tillman’s claim last year on the basis that it wasn’t frivolous or malicious, before its final dismissal Thursday.

The Wall Street Journal

By Andrew Scurria

Updated May 20, 2021 6:02 pm ET

As LA Emerges from Pandemic, City Council Backs Revisions to $11.2 billion ‘Recovery’ Budget.

The council approved revisions to the mayor’s spending plan that will restore parks programs, boost spending to address homelessness and come to the aid of those hardest hit by the novel coronavirus pandemic.

The Los Angeles City Council on Thursday approved an $11.2 billion budget for the fiscal year beginning July, that includes revisions made by the Budget and Finance Committee aimed at restoring parks services and spending on programs to help Angelenos recover from the effects of the novel coronavirus pandemic.

The revisions were made to a 2021-22 fiscal year budget that also includes just over $1 billion of spending to address homelessness, including funding for permanent supportive housing. The total spending plan also calls for funding for programs aimed at correcting racial inequities and coming to the aid of those hardest hit by the novel coronavirus pandemic.

Much of the spending put into the overall budget by council members and Mayor Eric Garcetti would not have been possible with out the infusion of $1.3 billion in federal aid that came in through the American Rescue Plan approved by Congress in January.

Only a few months ago, city officials were looking at a current-year revenue shortfall of around $700 million, and potentially more uncertainty in the coming fiscal year.

The first half of federal aid is expected to cover this year’s shortfall, while the other half is anticipated to arrive next fiscal year.

The aid caps off a roller-coaster budgeting year that prompted city leaders to offer retirement buyouts, which led to a shrinking of the city workforce, and proposed layoffs and furloughs that were eventually headed off through renegotiated labor agreements.

“It’s been quite a year,” the council’s budget chair, Paul Krekorian, said Thursday, during a special session of the City Council.

“We were facing furloughs layoffs and a potential disaster for the finances of the city,” he said. “Thankfully, with the investment of the Cares Act funding, and then the American Rescue Plan funding that we got from Washington, and the very, very difficult decisions that this council and the mayor had to make throughout the fiscal year … we were able to get through this budget year … with minimal impacts compared to what we expected that might take place.”

Under the council’s revisions that were approved as part of the budget, the recreation and parks department would get $75 million in funding for improvements that had been deferred at 75 recreation centers, and to restore 140 positions that had recently been eliminated.

These parks allocations also would lead to the re-opening of early childcare centers and restoring swim programs.

The budget also includes funding for enforcement of the city’s cannabis business regulations, civilian hiring in the police department, crossing guards and staffing needed to develop a wildlife corridor ordinance.

The spending plan also calls for enough funding to staff 26 sanitation teams, known as CARE and CARE+, that offer services at homeless encampments and enforce laws around when the storage of property in public areas and the setting up tents and makeshift shelters along sidewalks.

Funding being put toward an effort to phase out oil and gas extraction in the city, would pay for a study that could help speed up the shutdown wells, staff up a pilot compliance program and to hire more oil well inspectors.

The $1 billion in spending toward homelessness will include funding for:

Other programs funded by the budget include a pilot guaranteed basic-income program that will be rolled out to single parents, a homelessness crisis-response program, an unarmed 911 response team and an “al fresco” program to help restaurants set up outdoor dining.

The spending comes as community groups are calling for programs to invest toward helping families and vulnerable communities facing inequities to recover.

“We look forward to working with City leaders including the Mayor and Council President to ensure an equitable recovery for Los Angeles, especially in the most impacted communities,” said Maria Brenes, the executive Director of InnerCity Struggle, one of the community groups that is part of a coalition called Make Los Angeles Whole.

Councilman Mark Ridley-Thomas noted the effect of the federal aid, saying that it has allowed the city to turn “municipal despair into civic opportunity.”

“After a year that has left no family or sector unscathed, I am proud that the City’s FY21-22 budget sets us on a just path to recovery — allowing us to invest in unprecedented ways, and in the areas where help is most needed,” he said.


By ELIZABETH CHOU | [email protected] | Daily News

PUBLISHED: May 20, 2021 at 5:59 p.m. | UPDATED: May 20, 2021 at 6:02 p.m.

Is the Bank of Los Angeles Feasible?

LA WATCHDOG–The Economic Development and Jobs Committee of the Los Angeles City Council authorized the Chief Legislative Analyst to release a Request for Proposal (“RFP”) seeking consulting services needed to conduct policy, fiscal, and economic analyses related to the formation of a public bank serving the City of Los Angeles.

Retaining an independent consultant who understands the banking industry is an excellent idea, but one that should have been implemented in 2018 before the Herb Wesson led City Council placed Charter Amendment B on the November 2018 ballot at great cost to the City.

[This ballot measure to allow the City to establish a bank, described by the Los Angeles Times as “one of the most ill-conceived, half-baked measures to come out of City Hall in years, and that’s saying something,” was rejected by 56% of the voters despite the endorsement of Mayor Garcetti and twelve members of the City Council.]

Importantly, the consultant’s report will provide Angelenos with objective information so that we can make an informed decision when we vote on whether accept or reject the charter changes required to establish the municipally owned Bank of Los Angeles.

However, the proponents of the Bank of Los Angeles are claiming that voter approval is not required based on a memorandum prepared by the Kaufman Legal Group, the consigliere for many of our local politicians. But this issue was not discussed at committee meeting even though the CLA and City Attorney have stated that a popular vote is required.

Because the timeframe to establish a bank will take several years because of all the regulatory hurdles, the proponents of the Bank of Los Angeles requested that the City form a Municipal Finance Corporation that would be eligible to receive $100 million this summer from the $1.35 billion infusion to the City’s coffers pursuant to the American Rescue Plan. After leveraging these funds through borrowings or guarantees, the proponents claim that the MRC would be able to provide financing to save 10,000 businesses and help in the creation of 50,000 affordable housing units that would end up costing around $25 billion.

While the thought of providing $100 million to the yet to be formed MRC outside of the budget process was quickly dismissed by Councilmember Blumenfield, you have to wonder what the proponents were smoking to propose such a hare-brained scheme with such outlandish outcomes.

In the past, feasibility studies for public banks in Massachusetts and San Francisco indicated that a public bank would require a significant upfront investment of cash as well as continuing infusions of capital for at least ten years until the bank reached breakeven.

Should Los Angeles be the guinea pig? Or should other cities pave the way? An independent analysis will help us to determine whether the Bank of Los Angeles is feasible and in the best interests of Angelenos



20 MAY 2021

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. He can be reached at: [email protected])

How Kansas City Will Spend Its $195B Stimulus Windfall.

Kansas City is set to receive $195 million over two years from the American Rescue Plan.

The Kansas City Star has an instructive breakdown of how the city will spend the money:

A detailed spending plan emerged at City Hall this week for how it may end up spending that $195 million over the next two years. The plan illustrates how deeply the pandemic cut into City Hall’s revenues and the extent to which the American Rescue Plan spared Kansas City from difficult cuts to services.

More than half of ARP funds — $111 million — goes to replacing tax and fee revenue that was lost from the last year, which forced the Kansas City Council to spend out of its fund balances to avoid debilitating service and personnel cuts.

That leaves $83.86 million. From there, they city plans to spend $12 million for the Kansas City Health Department’s coronavirus response. Another $8.3 million is earmarked for housing and homelessness services.

Another sign of the pandemic’s effect on city finances: Kansas City is setting aside about $23 million over the next two years in anticipation of people requesting refunds on their earnings taxes.

by CivMetrics Staff | May 5, 2021

Five States Advance Bills Regulating Pole Attachment Rates.

This legislative session we’re witnessing similar types of bills that aim to level the playing field between pole attaching entities and pole owners—including cooperatives and municipalities—by capping rates and requiring equal treatment among attachers. We summarize five different states’ pending bills and recent enactments below.


In Arizona, the governor signed into law House Bill No. 2036, which amends Ariz. Rev. Stat. Ann. § 10-2085, governing electric cooperatives’ provision of broadband service. Specifically, the bill aims to level the playing field by requiring that if a cooperative starts providing broadband, the same pole attachment fees charged to unaffiliated providers “be equal to” the fees charged to affiliates on the same pole.


The Florida Legislature recently passed two bills that are now awaiting the governor’s signature, Senate Bill No. 1944 and House Bill No. 1239 (and companion Senate Bill No. 1592, which has passed in the Senate).

Senate Bill No. 1944 would give the Florida Public Service Commission (PSC) authority to regulate pole attachments and mediate disputes. Specifically, the proposed law would require the PSC to adopt rules, regulate and enforce rates, terms, and conditions for pole attachments when parties are unable to reach an agreement; and to regulate safety, vegetation management, repair, replacement, maintenance, relocation, emergency response, and storm restoration requirements for poles and pole attachments.

Further, the proposed law would direct the PSC to set cost-based rates, terms and conditions using Federal Communications Commission (FCC) formula orders “unless a pole owner or attaching entity establishes an alternative cost is appropriate and in the public interest.” The PSC would be required to adopt procedural rules by January 1, 2022.

House Bill No. 1239, which supports the expansion of broadband internet service to consumers without access to high-speed internet service, would create a program to award grants to applicants seeking to install or deploy infrastructure that expands broadband service to unserved areas. The bill would require municipal electric utilities to offer broadband service providers at discounted rates for any new pole attachment necessary to make broadband service available to unserved or underserved consumers, through July 1, 2024. This bill would also prohibit municipal electric utilities from raising current pole attachment rates for broadband service providers until July 31, 2022.


The governor of Indiana recently signed into law House Bill No. 1164, which is set to take effect on July 1, 2021. This new law establishes a formula for determining nondiscriminatory, just, and reasonable pole attachment rental rates that electric service cooperative and municipal pole owners can charge cable operators attached to their poles.

The new law also sets forth rights and duties of pole owners and attaching entities with respect to unauthorized pole attachments (including the fee pole owners can charge for such [$500] absent a contract between the parties), and pole attachment transfers and relocations. Finally, the bill also provides that a communications service provider may access public rights-of-way under the control of a county or municipality to the same extent as a public utility. The new law will not control if an existing contract provides differently, unless the parties otherwise agree.


Legislative Bill No. 455, the “Broadband Pole Attachment Act,” would provide access to Nebraska municipalities’ and cooperatives’ electric utility poles on terms that are similar to and in some cases better than FCC regulations. The bill also adopts FCC rates, terms and conditions, includes a 90-day make-ready timeframe, and bans pole owners from imposing construction standards that exceed the National Electrical Safety Code (NESC). This bill is still pending in the Nebraska Legislature.


In Oklahoma, there are three pending bills (House Bill Nos. 1122 and 1923, and Senate Bill No. 621, which are at various stages of bill progression) that would cap the rates that electric cooperatives may charge for pole attachments at $20 per pole per year, and prevent electric cooperatives from increasing such rate beyond what is permitted by the FCC rules and regulations adopted pursuant to 47 U.S.C. § 224(d). Further, these bills would require electric cooperative pole owners to pay for attachment relocations that they cause and would prohibit electric cooperatives from offering cable television or video services without first obtaining a franchise from the city or town. If passed and signed into law, these bills would take effect on November 1, 2021.

These are just a few of the bills flowing through a busy legislative session. We are seeing a clear trend of states capping municipality and cooperative pole attachment rates, tying rate increases to the FCC rules and regulations, as well as providing additional uniformity in treatment of communications providers and pole owners’ affiliates providing competing communications services. We are continuing to monitor these bills and related bills this session and will update this post as necessary.

Davis Wright Tremaine LLP – Soraya Mohamed

May 11 2021

Treasury Rescue Won’t Bail Out Chicago, New Jersey From Debt.

The U.S. Treasury Department is sending a message to states and cities that the billions in aid from the American Rescue Plan should provide relief to residents, not their governments’ debt burdens.

The department on Monday released guidance on how state and local governments can use $350 billion in funding from President Joe Biden’s $1.9 trillion rescue package. The funds are intended to help states and local governments make up for lost revenue, curb the pandemic, bolster economic recoveries, and support industries hit by Covid-19 restrictions. In a surprise to some, these funds can’t be used for debt payments, a potential complication for fiscally stressed governments that had already etched out plans to pay off loans.

“It does mean some state and local governments will have to rethink,” Eric Kim, an analyst for Fitch Ratings, said in an interview on Tuesday. While “$350 billion is a lot of money,” some of the restrictions “were maybe not anticipated.”

Biden’s rescue package seeks to shore up the finances of states and municipalities that have been on the front lines of the government response to the outbreak. While municipal tax collections initially plunged at the start of the pandemic, the majority of U.S. states have seen revenue recover to pre-pandemic levels. That’s left governors and mayors grappling with how to best spend the aid. Several officials, including leaders in Illinois, Chicago and New Jersey, had considered using the funds to pay back loans, but this week’s guidance muddles those plans.

“Expenses related to financing, including servicing or redeeming notes, would not address the needs of pandemic response or its negative economic impacts,” according to a document from the Treasury. “Such expenses would also not be considered provision of government services, as these financing expenses do not directly provide services or aid to citizens.”

Illinois Governor J.B. Pritzker had suggested using some of the state’s $8.1 billion in aid to repay the outstanding $3.2 billion in debt from the Federal Reserve’s emergency lending facility and to reduce unpaid bills. Illinois was the only state to borrow from the Fed last year, tapping it twice. On Tuesday, Jordan Abudayyeh, a Pritzker spokesperson, said the administration is “seeking clarification” from the Treasury on whether Illinois can use the aid to pay back the loan from the Fed.

“We need to act responsibly with these dollars,” Pritzker said during a press conference Tuesday. “I believe this is an important step toward putting our state’s fiscal house in order.”

Before the release of the guidance, Chicago Chief Financial Officer Jennie Huang Bennett had proposed using some of the city’s nearly $1.9 billion from the rescue package to pay off debt taken to close its 2020 deficit. The “guidance represents interim rules that have been put out for comment,” and the city plans to seek clarification and offer comment, according to an emailed statement from the city’s budget office.

“These regulations, if not a surprise, certainly make it more difficult for the state of Illinois and city of Chicago to pay down the borrowing,” said Laurence Msall, president of the Civic Federation, a local watchdog group.

The rule could also affect New Jersey, which sold nearly $3.7 billion of bonds last year to cover its shortfall during the pandemic. Assembly Republican Leader Jon Bramnick, a Republican, in April had called for Governor Phil Murphy, a Democrat, to use some of the federal aid to pay down the state’s debt.

“The guidance is interim and not yet final, and we will continue to evaluate the allowable uses of ARP funds in conjunction with State needs,” said Melinda Caliendo, a spokesperson for the state treasury.

The Treasury rules also restrict using the aid to replenish reserves or rainy day funds. Industry groups are taking a close look and planning to give feedback to the Treasury on its guidance and the department is asking for comments on its 151-page document on the interim rules for the funds.

“It’s a living, breathing document,” said Irma Esparza Diggs, director of federal advocacy at the National League of Cities, who said the group is looking at those restrictions and will be talking to its members throughout the coming weeks.

For states such as Illinois that want to use the money for debt repayment, the large amount of federal aid still gives them “ample” opportunity to do what investors want to improve creditworthiness, said Ty Schoback, a senior municipal research analyst for Columbia Threadneedle Investments.

“We know that within state and local budgets, sources and uses are fairly fungible,” Schoback said. Relieving budget pressure in one area with federal aid can open up resources for other items while remaining fully compliant for the intended use, he said. “I don’t think they will have any trouble.”

Bloomberg Markets

By Shruti Singh and Amanda Albright

May 11, 2021, 1:06 PM MDT Updated on May 11, 2021, 4:56 PM MDT

Can Puerto Rico Use New Hedge Fund Tax Dodgers?

The island’s plan for luring wealthy investors has always been iffy, but bond traders like the renewed interest.

Puerto Rico might be the new Florida for hedge funds. But should the island want that?

Throughout the Covid-19 pandemic, titans of the investing world have made clear that they’re not wedded to New York City, the financial capital of the world. By and large, they’ve targeted Florida, which boasts warm weather and, crucially, no state income tax. Goldman Sachs Group Inc. in December was considering a new hub in the Sunshine State to house its asset-management division; Steve Cohen’s Point72 Asset Management said in January that it would open an office in West Palm Beach; Dan Sundheim, who runs the $20 billion D1 Capital Partners, decided in March to open an office in Miami; and just in the past month, Bloomberg News reported that both Apollo Global Management Inc. and Millennium Management would set up more offices in Florida.

However, some hedge funds are starting to realize the best tax haven might just be a four-hour plane ride southeast of Miami in Puerto Rico. Bloomberg’s Miles Weiss and Jim Wyss reported that ExodusPoint Capital Management and Millennium have established subsidiaries on the island, aiming to take advantage of legislation from 2012 known as the “Act to Promote the Relocation of Individual Investors to Puerto Rico.” As it stands, at least for the next 15 years, money managers can effectively dodge U.S. taxes on capital gains and even performance fees as long as they’re considered by the Internal Revenue Service to be a “bona fide resident of Puerto Rico” and it’s considered “Puerto Rican source income.”

Continue reading.

Bloomberg Finance

By Brian Chappatta

May 11, 2021, 10:00 AM MDT

California Governor Proposes $100 Billion Recovery Package.

California Governor Gavin Newsom said he plans to use a massive tax-collection windfall to help finance a $100 billion economic recovery package, with the centerpiece a proposal to give $11.9 billion of direct cash payments to most Californians.

The plan would build on a previous program distributing $600 checks to qualifying low-income residents by expanding eligibility to the middle class. Two out of three Californians would receive a check of at least $600, with families with children receiving an additional $500. It would create the biggest state tax rebate on record, Newsom said Monday at a press conference in Oakland.

“We believe people are better suited than we are to make determinations for themselves on how best to use these dollars,” Newsom said.

The Democratic governor is seizing on an unprecedented $75 billion operating budget surplus, fueled by a surging economy and capital-gains taxes, to greatly expand the state’s role in the recovery just as he is facing a potential recall election later this year. The windfall leaves Newsom and lawmakers with $38 billion extra to spend as they see fit, since some of the money is already earmarked.

The state will get an estimated $27 billion from President Joe Biden’s stimulus plan, according to latest Treasury figures.

Newsom’s plan would also spend $5.2 billion on what he said would be the largest renter assistance package in the country and would allow low-income residents to cover their back-rent and their rent for several months into the future. It also spends $2 billion to cover overdue water and utility bills.

Excess Revenue

Newsom will spend the week highlighting parts of a package he billed the “California Comeback Plan.” He’s required to present a revised budget for the next fiscal year by the May 14 deadline.

The announcement underscores the improved financial picture of the most-populous U.S. state, which last May girded for deficits because of the pandemic-spurred recession. But the state, with a progressive tax system that rakes in more revenue when the income of the highest earners rises, has collected more than it expected from its wealthiest residents. That group has reaped the benefits of rising stock prices and stable employment even as lower-income workers lost their jobs in the pandemic.

The checks may satisfy a requirement being triggered for the first time since 1986 that excess revenue be returned to taxpayers. The voter-approved state appropriations limit is meant to keep inflation-adjusted per-person government spending under the 1979 level. Lawmakers are required to split excess revenue between taxpayer rebates and education funding.

Newsom said the rebate mandate isn’t driving his proposal, but the $11.9 billion in cash payments to taxpayers earning less than $75,000 a year is more than is required to fulfill it.

“The state is awash in cash,” John Ceffalio, senior municipal research analyst at CreditSights Inc, said before the announcement. “California came into the pandemic in good fiscal shape and it’s probably leaving it in even better fiscal shape.

Bloomberg Markets

By Romy Varghese

May 10, 2021, 7:00 AM MDT Updated on May 10, 2021, 12:50 PM MDT

— With assistance by Laura Mahoney

Kutak Rock Represents Smithsonian Institution in CREBA Sales Transaction of the Year.

Kutak Rock attorneys Seth Kirshenberg, Hans Ipson and Sisera Daniel represented the Smithsonian Institution (Smithsonian) in a complex air rights real estate transaction and separate bond financing.

On April 16, 2021, Commercial Real Estate Brokerage Association (CREBA) recognized the transaction, a $254M deal for Smithsonian to acquire space for its Capital Gallery headquarters from Boston Properties, at the CREBA Awards as the “Sales Transaction of the Year” in 2020.

The CREBA Awards ceremony is an annual event where Washington, D.C.’s commercial real estate industry comes together to celebrate the year’s best performers. This year, CREBA gave seven awards to the best transactions closed in 2020.

Seth Kirshenberg is the lead attorney for large complex public private partnerships, energy, real estate, structured finance and development projects. He advises governments, developers, financiers, investors in acquiring, selling, exchanging, structuring, developing, and operating private and governmental projects.

Hans Ipson has experience representing a wide range of clients in complex commercial real estate transactions throughout the country, including the acquisition, development and disposition of commercial properties, leasing and financing transactions, and matters involving zoning and land use.

Sisera Daniel is Chair of the Public Finance Department in the Washington, D.C. office. She counsels governmental entities, financial institutions and non-profit organizations on housing and other public finance transactions.

April 20, 2021

S&P State Brief: Nebraska

View the Brief.

May 4, 2021

Georgia’s HB 156, Requiring State Notice for Utility Cybersecurity Incidents, is Now In Effect.

Georgia’s governor has signed into law House Bill 156, creating specific notice requirements for state agencies and utilities that experience cybersecurity attacks, data breaches or malware and requiring notice to the state director of emergency management in Georgia within two hours of notifying the federal emergency management agencies.

In addition, the law requires the Georgia state director of emergency management and homeland security to develop additional rules and regulations related to the notice requirements.

HB 156 was signed into law on March 25, 2021 and is already in effect.

Scope of the law

The law applies to utilities and agencies in the state of Georgia. Both terms are defined broadly:

Key provisions: when reports are required

The law requires utilities and agencies to make reports to the Georgia director of emergency management and homeland security in two instances:

  1. Any agency must report any cyberattack incident, data breach, or identified use of malware on an agency or computer or network if the nature of the attack is determined to be of the type to “create a life-safety event, substantially impact the security of data and information systems, or affect critical systems, equipment, or service delivery.” The director must develop additional requirements specifying the reporting mechanism, required information and time frame for making a report.
  2. When an agency or utility is required to report a cyberattack incident, data breach, or identified use of malware on a utility or agency computer or network to the United States government or federal agency, the agency or utility must provide substantially the same information to the Georgia director of emergency management and homeland security within two hours of making a report to the United States government.

Where federal laws, rules or regulations prohibit disclosure of information that would otherwise be reportable under the law, the law permits a utility to provide the information only after the prohibition is lifted or expires.

Reports and records made under the law are exempt from state public record and FOIA laws, which proponents of the law and proposed House Bill 134 – which would permit closed government meetings when discussing cybersecurity plans and procedures – support as necessary to protect security and the interests of Georgians.

Detractors are concerned that the law and the proposed bill may erode the principles of open government. It is worth noting that the law as passed provides no specific enforcement mechanism for failure to meet the stated reporting requirements.

The trend

Although the Georgia legislature did not offer much in the way of significant commentary on this particular law, it seems likely that it was driven in part by recent high-profile cyber and ransomware attacks aimed at utilities and government agencies, including local city and country government operations.

The law appears very much in line with a federal executive order being drafted by the Biden Administration which would require both federal agencies and private entities working with the United States government to meet certain cybersecurity standards and which would mandate that private entities report any cyberattacks, breaches, or hacks to their federal government customers.

DLA Piper – Lael Bellamy and Emily Maus

May 12 2021

California Governor Proposes $7 Billion Investment in Public Broadband.

California Governor Gavin Newsom has laid out his plans for what to do with the state’s surplus and federal recovery funds, which includes $7 billion over three years to build out broadband infrastructure. If the state legislature approves the May revision budget proposal, California will get to work on one of the biggest public broadband fiber network projects in the US.

“[Universal] access to high-speed Internet is critical to the state’s economy, education, and basic health and well-being, and will be a key component of the state’s long-term recovery,” the budget reads. “The pandemic has underscored the importance of making broadband accessible and affordable for educational, employment, and health purposes.”

According to the budget, 83.4 percent of residents are using broadband but just over 52 percent are able to obtain speeds of 100 Mbps. It notes that 51.3 percent of rural households don’t have access to 100 Mbps service and nor do 28.4 percent of homes on tribal lands. The problem persists even in urban areas. Around half of the households lacking access to 100 Mbps broadband are located in those parts of the state.

The budget lays out a plan to build a “middle-mile” network, effectively a highway and main road broadband infrastructure. Providers have said that it’s cost prohibitive to connect some parts of the state to broadband networks, especially in rural areas. As such, California plans to create a $500 million Loan Loss Reserve Account to help non-profits, local governments and tribes to obtain private financing for municipal fiber networks (or the “local road” part of the infrastructure). Newsom also hopes to provide other incentives for providers to connect unserved or underserved households to the network.

Along with expanding the infrastructure, a key goal is to make high-speed broadband access more affordable for Californians. Newsom wrote on Twitter that the state “will be closing the digital divide.”

It’ll be several years before this network is fully up and running (assuming it’s approved). Those who have been struggling with iffy connections while working at home or remote schooling during the pandemic won’t benefit from this plan immediately. Still, upgraded public broadband infrastructure will improve internet access for millions of Californians in the long run and, according to the proposal, it will “create tens of thousands of quality jobs to help the state’s economy recover from the pandemic.”

Yahoo Finance

by Kris Holt – Contributing Writer

May 14, 2021

Detroit Showed What ‘Build Back Better’ Can Look Like.

The city’s 2013 bankruptcy ushered in a new era of problem-solving that could be a model for a national infrastructure push, says one philanthropic leader.

American cities stand at a precipice. Burdened by an overwhelming public health crisis, drained of resources by economic stagnation and torn apart by racial injustice and unrest, cities are confronting the reality that conventional formulas of municipal finance and practices of working cannot sustain our urban places.

The significance of this moment was not lost on the Biden-Harris administration, which quickly advanced an ambitious mandate commensurate with the challenge: a domestic Marshall Plan called Build Back Better. Already, the first prong — the $1.9 trillion American Rescue Plan — has helped shore up city budgets, restore desperately needed funding for public transportation and keep businesses open and families in homes. The second leg, the $2 trillion American Jobs Plan, represents a bold shift from short-term recovery to long-term transformation.

Significantly, the plan defines “infrastructure” broadly, encompassing more than the rebuilding of bridges, tunnels and roads or the replacement of dangerous lead-based pipes. It includes the expansion of newer technologies such as broadband and electric car charging stations that make cities more resilient to climate change. And it proposes investments in “soft infrastructure,” the reimagining of numerous forms of home, health and family care that, while every bit as essential to communities as hard infrastructure, is too often left out of the conversation.

Continue reading.

Bloomberg CityLab

by Rip Rapson

May 10, 2021, 8:02 AM PDT

Successful Sale of MA Green and Sustainability Bonds Takes Place.

The State Treasurer’s Office officials announced that the Massachusetts Clean Water Trust (the Trust) has successfully completed the sale of approximately $351.4 million in two series of new money Green and Sustainability Bonds. The Sustainability Bonds were the first such issuance from the Trust and the first in the nation for a state revolving fund. Additionally, it was the Trust’s sixth Green Bond issuance. The sale achieved a true interest cost of 2.099% with maturities ranging from 2022-2041.

The Series 23A Green Bonds and Series 23B Sustainability Bonds (AAA/Aaa/AAA) sold to retail investors on April 28 with an institutional investor order period on April 29. The sale saw strong participation, with $687 million in orders including five new investors and four ESG funds. Strong Massachusetts retail investor participation generated $93 million of orders.

“This sale illustrates the strong investor demand for municipal bonds with positive environmental and social impact,” said State Treasurer Deborah B. Goldberg, Chair of the Trust. “The Clean Water Trust team is leading the nation in the state revolving fund municipal markets. First, with their groundbreaking green bonds, and now with this sustainability bond issuance. We will continue to stress the importance of utilizing these opportunities in support of our local communities and our environment.”

The proceeds from the sale will finance projects that are selected based on criteria that identify the most relevant public health and environmental related projects while adhering to the standards of the federal Clean Water Act and the Safe Drinking Water Act. The Series 23A Bonds are designated by the Trust as “Green Bonds” and are expected to provide environmental benefits.

The Series 23B Bonds are designated by the Trust as “Sustainability Bonds” and are expected to provide both environmental and social benefits. The bond proceeds will finance projects in communities identified as the most disadvantaged, based upon affordability criteria developed by the Trust and support additional reductions in interest rates, mitigating the construction costs of these critical infrastructure projects. The criteria apply an Adjusted Per Capita Income (“APCI”) formula based on per capita income, employment rate, and population change. The communities selected are those with an APCI metric lower than sixty percent of the Commonwealth’s APCI.

The Trust’s State Revolving Fund Bonds, Series 23A and Series 23B underwriting syndicate was led by Morgan Stanley as the book-running senior manager and Jefferies and RBC Capital Markets as the co-senior managing underwriters.

Revere Journal

by Journal Staff • May 5, 2021

Texas Sees Deficit Disappear as Tax Revenue Surges on Reopening.

Texas anticipates an unexpected budget surplus as tax-collections rebound along with the nation’s economy, causing it to boost revenue forecasts for the next two years.

The state expects to end the current budget cycle in August with a $725 million surplus, a sharp reversal from the nearly $1 billion deficit it was expecting in January, according to estimates released Monday by Comptroller Glenn Hegar.

The state now projects it will have $115.7 billion of revenue available for general-purpose spending during the biennium that begins in September, about $3 billion more than estimated in January.

“The state’s economy is in better shape today than it was back in January,” Hegar told reporters, attributing the turnaround to the success of the vaccine roll-out and the decline of coronavirus cases. “It was a much more cautious outlook than it is today.”

Texas is among states across the U.S. whose finances are rapidly mending as the economy emerges from the pandemic, with rising stock prices and unprecedented federal stimulus efforts boosting tax revenue. On top of that, states are set to receive a massive influx of aid under President Joe Biden’s rescue plan.

Last week, Connecticut raised its revenue estimate for the next fiscal year by $593 million, while New York collected $3 billion more in revenue in the last fiscal year compared with earlier projections. California also saw a larger-than-expected windfall.

“The increase in Texas revenue estimates is consistent with what we’ve seen in other states and with the national economic improvement,” said John Ceffalio, senior municipal research analyst at CreditSights Inc.

Texas’s largest source of revenue is the sales tax because it doesn’t have an income tax. Those sales taxes have been propped up by residents shopping and dining out since virus-related restrictions were lifted. The state brought in $3.4 billion of sales taxes in April, a record and 31.4% more than April 2020, according to Hegar’s office.

Governor Greg Abbott lifted the state’s mask mandate and other anti-pandemic restrictions in early March, allowing businesses to open at full capacity.

“Spending this March affecting April tax collections was supported by widespread business reopenings and the lifting of capacity restrictions, greater consumer confidence in going out as the vaccine rollout progressed, federal stimulus checks and spending delayed from February into March due to the winter storm and power outage,” Hegar said in a statement Monday.

Bloomberg Economics

By Danielle Moran

May 3, 2021, 1:24 PM PDT

Citigroup, Nuveen Accused of Mishandling Evidence in Muni Brawl.

Citigroup Inc. and Nuveen LLC were accused of mishandling evidence that the municipal bond giant tried to strong-arm banks into blackballing its smaller rival Preston Hollow Capital.

Citigroup failed to turn over tapes of phone calls about alleged demands by Nuveen’s head of municipal investment, John Miller, that the bank cut off business with Preston Hollow, the smaller firm said in an April 27 court filing.

Preston Hollow is suing Nuveen in Delaware Superior Court for defamation over what it says was Nuveen’s intimidation campaign. Nuveen oversees more than $140 billion of municipal bonds and generates millions of dollars in revenue for Wall Street trading desks.

Meanwhile, in a separate court, Preston Hollow wants Delaware Chancery Court Judge Sam Glasscock III — who concluded last year that Nuveen’s campaign wrongfully interfered with Preston Hollow’s business — to sanction Citigroup for failing to hand over the tapes and penalize Nuveen for allegedly offering false testimony about Miller’s demands.

Latest Salvo in Long Battle

“The corruption of the judicial process perpetrated by Nuveen (with the active participation of Citi) threatens to undermine” the courts, according to the filing.

It’s the latest salvo in a three-year battle over Nuveen’s alleged attempt to use its market power as one of the biggest buyers of U.S. state and local government bonds to hammer the smaller firm, whose role in financing risky projects posed a competitive problem, Preston Hollow says.

Preston Hollow is seeking $100 million in damages from Nuveen over Miller’s alleged threats to pull tens of millions of dollars in business from banks that underwrote the smaller firm’s offerings and financed its loans. Although Glasscock ruled in its favor, for technical reasons he couldn’t award damages, so the bond firm filed the new suit in Superior Court, which allows such requests.

“Preston Hollow continues to make false and misleading statements seeking to assign blame to Nuveen and others,” Nuveen spokeswoman Jessica Greaney said in a statement.

Citigroup also denied the alleged wrongdoing.

“Preston Hollow’s allegations are meritless and irresponsible, and Citi looks forward to correcting the record,” said spokeswoman Danielle Romero-Apsilos.

Taped Calls

In a 2019 trial before Glasscock, Nuveen officials offered testimony from John Leahy, director of Citigroup’s institutional municipal bond sales, that Miller never asked the bank to stop doing business with Preston Hollow. As part of the suit filed in Superior Court last year, Citigroup turned over taped calls allegedly showing that Miller demanded the bank cut Preston Hollow off. Those tapes weren’t handed over in the Chancery Court case, Preston Hollow said in this week’s filing.

“Mr. Miller knew he had called Mr. Leahy and told him to stop doing business with PHC and therefore also knew that Mr. Leahy’s deposition testimony to the contrary was false,” Preston Hollow said in the filing. “Nevertheless, Mr. Miller and Nuveen presented that false testimony.”

Preston Hollow wants Glasscock to punish Citigroup and Nuveen over the tapes and the testimony so it can use that outcome against the companies in the current case, according to the filing.

The current case is Preston Hollow Capital LLC v. Nuveen LLC, N19C-10-107-MMJ, CCLD, Delaware Superior Court (Wilmington).

Bloomberg Business

By Jef Feeley and Martin Z Braun

April 29, 2021, 8:15 AM PDT

New York Beach Town Faces Millions in Bills for Mismanaged Past.

“If Long Beach was a business, it wouldn’t be in business.”

Long Beach is known for its raucous West End bars, Irish Day parade and two-mile boardwalk. Locally, the city of 34,000 on a barrier island 25 miles east of New York City, is also renowned for fiscal mismanagement.

Residents are still paying off more than $8 million in debt issued almost seven years ago to cover a budget deficit. An investigation last year by the Nassau County District Attorney found that for almost two decades Long Beach had improperly overpaid employees — including the former city manager — millions of dollars for unused vacation and sick days.

Now those long-simmering woes are only getting worse. A $131 million court judgment to a developer in a 30-year legal battle is threatening it with insolvency and Long Beach has hired advisers to craft a debt-cutting plan.

Continue reading.

Bloomberg CityLab

By Martin Z Braun

April 29, 2021, 5:00 AM PDT

Troubled Rural Texas Utility ‘Hopeful’ for State Rescue Bill.

Amid a wave of bankruptcies by Texas electricity providers following February’s crippling freeze, one cooperative says it can avoid Chapter 11 if state lawmakers pass legislation allowing it to pass on costs stemming from February’s crippling winter storm.

“We have pretty high confidence in what the legislature is doing,” David Naylor, chief executive officer of the Rayburn County Electric Cooperative Inc. said in a phone interview.

Texas lawmakers are advancing bills to reform the state’s power market and address exorbitant costs resulting from the freeze, which knocked out nearly half of the state’s power generation capacity, disrupted gas deliveries and pushed prices to unprecedented levels. Several power retailers and a large rural electric cooperative have already filed for bankruptcy under the crush of high bills.

The Electricity Reliability Council of Texas, the state’s grid operator, says Rayburn owes $641 million for electricity used during the storm.

The nonprofit utility, which serves 225,000 customers in Northeast Texas, disputes the amount and hasn’t paid any of it, according to lawyers at Dentons, which is advising the cooperative on its financial options. The cooperative has also been getting advice from investment bank Jefferies Financial Group Inc.

Securitize Costs

Measures under consideration in the legislature include requiring generators and gas facilities to winterize with taxpayer help and to allow the issuance of bonds backed by future payments on customer bills as a way to spread the costs the utilities incurred over time.

“That ten days created enough disruption for people to start to reconsider the present structure of the Texas power market,” said Colin Adams, senior managing director at M-III Partners in New York.

Rayburn expects the approval of a securitization bill by the end of May, when the current session ends, according to Clint Vince, an energy lawyer at Dentons. The utility is so confident that it will get some kind of help that it hasn’t looked at any external financing so far, contrary to a recent S&P report.

‘Last Resort’

Vince also said a Chapter 11 bankruptcy “would be an absolute last resort, and Rayburn is very hopeful that they don’t have to go down that path.”

In the mean time, the utility is working with Ercot, as the grid operator is known, to continue paying its post-storm bills, he said.

“Everyone has agreed that we’re going to see what happens with the state legislature and then make decisions at that point as to how to proceed,” Vince said. “In our view, this whole event screams to have a market-wide solution.”

S&P Global Ratings downgraded Rayburn from investment grade to low-rated junk last month on the expectation that it will default on its obligations to Ercot. It rates the utility CC due to a lack of liquidity to address its obligations.

Bloomberg Markets

By Allison McNeely and Eliza Ronalds-Hannon

April 27, 2021, 3:49 PM PDT Updated on April 28, 2021, 6:15 AM PDT

Northern Illinois University Borrows After Enrollment Gains.

Northern Illinois University sold about $99 million of federally tax-exempt, insured bonds on Tuesday to purchase two residence halls after the school’s enrollment gained slightly, reversing more than a decade of declines with a focus on recruiting more minority students.

Why It’s Noteworthy

U.S. colleges saw drops in undergraduate enrollment for the spring semester. That deepened the pandemic-related economic strains faced by schools that had to spend more on Covid-19 testing and Plexiglass as revenue fell because of less-full dorms and dining halls. Overall, college enrollment is running 2.9% below last year’s level, according the National Student Clearinghouse Research Center. Even before the pandemic, colleges had been bracing for projected enrollment drops — especially in the Midwest and Northeast– because of demographic trends that show fewer 18 year-olds.

Yet Northern Illinois University saw improved headcount in the current academic year, the first gain since 2009. The university said it’s partly due to greater retention of black, Latino and Asian students and its push to recruit more minority students. The freshman class for the 2020-2021 academic year grew 7.9% from a year earlier, and overall headcount, including undergraduate and graduate students, increased 1% to 16,769, according to bond documents.

It’s not only in contrast to the national trend. It’s a reversal from its own history: the university’s total enrollment fell nearly 13% from 2016 to 2019, bond documents show.

Increasing enrollment and keeping graduating high-school seniors in-state is important for Illinois, which on Monday lost a seat in the U.S. House of Representatives because of its ongoing population decline. The state has seen more and more college-bound students leave to earn degrees in neighboring states and not come back. Governor J.B. Pritzker on Monday said retaining more college students is a key to reversing the state’s outmigration.

Diversity and Population

About 44% of the students at Northern Illinois, one of 12 four-year public universities in the state, are minorities and 52% are first generation college students, according to the school. Northern has increased hiring of minority faculty to improve recruitment and retention of minority students. The school wants to boost undergraduate Hispanic students by at least 9% annually and reduce equity gaps, which measure differences in retention and graduation rates, for black freshmen to 10% or less by fall 2023, according to its five-year Student Enrollment Plan.

“I think they are trying to pitch some of the impact investors,” John Ceffalio, senior municipal research analyst for CreditSights Inc., said in an interview. “It’s smart that universities recruit from a growing demographic.”

Ceffalio cautioned that funds backing the bonds include gross revenues from facilities such as the student center and sports facilities; tuition also backs the bonds after paying operations and maintenance of the university.

The focus on minority student recruitment and retention “would certainly be viewed as a positive” factor for ESG-focused investors, said Eric Friedland, director of research for Lord Abbett & Co.

“Although there does not seem to be any meaningful pricing impact for those issuers that score high on ESG at this point, I believe that with more investors focused on ESG, that day will come,” Friedland said in an email Monday.

The deal was 16 times oversubscribed, exceeding internal expectations, Sarah Chinniah, the university’s chief financial officer, said in an interview on Tuesday. About $85 million of $1.59 billion of orders were from socially conscious ESG bond buyers, according to information underwriters provided to the university, located about 60 miles outside Chicago in a largely rural region.

“The interest was high,” Chinniah said. “That really speaks to our success.” Investors see value in a diverse student body that reflects the nation, she said.

The spread over benchmark AAA securities ranged from 45 basis points for debt due in 2025 to 77 basis points for debt due in 2043, according to the university. That’s lower than a preliminary pricing wire viewed earlier by Bloomberg. The true interest cost for the bonds is 2.7% and the sale will result in savings of about $77 million by reducing payments the university was making for the residence halls at higher interest rates.

Moody’s incorporates the university’s “ongoing credit challenges marked by continually narrow operating results, an intensely competitive student market and high reliance on state appropriations,” according to an April 13 report. But it also takes note of stable enrollment after the prolonged declines in student numbers.

Bloomberg Markets

By Shruti Singh

April 27, 2021, 11:48 AM PDT Updated on April 27, 2021, 2:40 PM PDT

— With assistance by Janet Lorin

N.Y. MTA Gives New Bondholders Haven From Subway Ridership Drop.

By one estimate, one-fifth of those who used to ride the New York Metropolitan Transportation Authority’s subways, buses and commuter trains everyday are unlikely to come back even after the pandemic as remote work catches on.

Yet that won’t be a major risk for the buyers of $1.3 billion of bonds the MTA is selling this week.

The long-term debt will be the agency’s first ever that’s repaid with the revenue it receives from a payroll tax imposed on employers in New York City and surrounding counties. That insulates investors from a potential decline in toll and fare receipts, giving the new bonds credit ratings that are as much as six steps higher than the agency’s debt backed by the revenue it receives from riders.

Others in the $3.9 trillion municipal-bond market have used a similar tactic to drive down their borrowing costs by providing extra security for investors. Chicago, whose credit rating was cut to junk by Moody’s Investors Service, steered a share of its sales-tax revenue directly to its bonds to insulate them from the city’s budget. Puerto Rico did the same.

In the MTA’s case, the step follows a steep drop in ridership since the pandemic struck, which has cast uncertainty over the financial outlook of the nation’s biggest public transit agency.

“It’s going to be a better pricing mechanism for the MTA versus issuing through their more traditional fare-box receipts,” said Howard Cure, director of municipal bond research at Evercore Wealth Management, which oversees $10.2 billion of assets, including MTA debt.

The MTA was among the hardest hit government agencies by the pandemic, which abruptly slashed its revenue as New York City became an early epicenter of the outbreak. Yields on the agency’s debt soared. An MTA bond maturing in 2045 traded in early May 2020 as high as 4.98%, 298 basis points more than top-rated municipals, according to data compiled by Bloomberg.

The bonds went on to rally, however, after the agency received an influx of federal funding that cushioned the hit, with President Joe Biden’s rescue plan boosting the total to about $14.5 billion. That 2045 bond traded Friday at an average yield of 2.3%, or 82 basis points above benchmark tax-exempts, Bloomberg data show.

The new payroll-tax bonds are expected to sell at lower yields than the farebox debt. A bond maturing in 2051 may price at a yield of 1.9%, according to the sale’s preliminary pricing wire dated Monday. That’s 34 basis points more than top-rated municipals, according to Bloomberg Barclays indexes.

MTA’s farebox collections shrunk by 62% last year, coming in at $2.39 billion in 2020 compared with $6.36 billion in 2019, according to bond documents. Subway ridership is about one-third what it was before the pandemic.

But the payroll tax has been far more resilient. The MTA in 2020 received $1.56 billion of revenue from it — the same amount as in 2019 — and $161 million more than a revised forecast, according to the bond sale’s offering documents.

The MTA’s Triborough Bridge and Tunnel Authority will sell the bonds, which will refinance the agency’s transportation revenue debt. The payroll bonds carry AA+ credit ratings and negative outlooks from S&P Global Ratings and Fitch Ratings. That’s six steps higher than S&P’s BBB+ grade and five levels above Fitch’s A- rating on MTA’s transportation revenue bonds, which are backed by fares and tolls.

The transaction will likely benefit from high demand in the overall tax-exempt market as investors continue to pour money into municipal-bond funds, said Matt Dalton, chief executive officer of Belle Haven Investments, which manages $14.5 billion of state and local debt, including MTA securities.

“Everything is so much tighter than if you look historically on a relative value between one credit and another,” Dalton said. “Everything’s crunched together because of the lack of availability of choices out there.”

Bloomberg Markets

By Michelle Kaske

April 19, 2021, 9:26 AM PDT

Texas Freeze Strands Municipalities With Sky-High Power Tabs.

The crippling winter freeze that sent gas and power prices skyrocketing across Texas in February is providing a warning to cities about the risks of global warming: The cost of some extreme weather events can stick around for years.

The municipal-bond market generally shrugs off natural disasters because they are usually offset by an influx of federal aid. But the electricity meltdown in the Lone Star state has left cities and local utilities on the hook for massive power bills.

Bay City, a small community of less than 20,000 people, says its tab for that one week dwarfs what it spends in an entire year. Denton’s utility spent $200 million over four days buying power. San Antonio’s utility plans to sell long-term bonds to spread out the $1 billion in charges it incurred.

“What happened in Texas will increase the scrutiny and the awareness of what climate risk means,” said Daniel Rabasco, head of municipal bonds at Mellon Investments Corp. “It’s a wakeup call in terms of the severity of what a climate change impact could be.”

While municipal-bond holders have been paying more attention to climate change in recent years, the Texas freeze is the latest in a series of disasters that have forced investors to rethink the way they evaluate bond portfolios that hold securities that don’t mature for decades.

“The Texas freeze revealed issues that probably most people never thought of,” said Chris Hamel, a senior fellow at Municipal Market Analytics and former head of municipal finance at RBC Capital.

The February storm knocked out almost half the state’s electric generating capacity, sending wholesale electricity prices to $9,000 a megawatt-hour and leaving millions without power for days. More than 100 people died in the crisis. Several power retailers and a large rural electric cooperative have already filed for bankruptcy under the crush of high power bills.

Issue Bonds

Bay City Mayor Robert Nelson said that while his $4 million power bill could be lowered through negotiation or legal claims, the city has had to hire attorneys to help navigate the thicket of lawsuits and legislation still swirling in the storm’s aftermath.

If that tab isn’t reduced, Nelson said he isn’t sure how his city will pay for it. The city might have to take a bank loan, work out a deal with their supplier, or issue bonds. That would be Nelson’s last choice, he said, because it handicaps the city’s ability to borrow for infrastructure improvements and services down the line.

“Everything is on the table,” Nelson said. “We don’t know what we can do.”

Bay City is far from alone. Denton’s utility had to issue $100 million of commercial paper notes to cover its tab, while San Antonio’s power agency has said it will sell long-term bonds to spread out the $670 million of natural gas charges and $365 million of power charges. Corpus Christi issued a $35 million bond through private placement to pay for power costs that were 27 times higher than average.

Unlike other states, Texas’s power grid is almost entirely disconnected from the rest of the country, meaning it’s exempt from federal regulations but also it’s unable to pull much power from neighboring jurisdictions during a crisis. And since the state’s energy infrastructure wasn’t built for such ultra cold temperatures, when the freeze blew through the state, natural gas wellheads, wind turbines and power plants suffered widespread malfunctions.

State Fix

The Electric Reliability Council of Texas, the state’s grid operator, is still owed nearly $3 billion in short payments from its customers. Fitch Ratings estimates some utilities could collectively be on the hook for as much as $4 billion, with a majority owed by San Antonio’s and the Brazos Electric Power Cooperative. Such high payments could force some to tap Wall Street for loans, delay capital projects, re-appropriate their general fund or spread costs by charging consumers for years.

The Texas legislature is advancing bills that would allow utilities to sell bonds backed by future payments on customer bills as a way to spread the costs over time.

While what happened in Texas two months ago is unlikely to happen elsewhere because of the state’s isolated generation and transmission structure, one-time disasters can happen anywhere. And municipal disclosure of climate-related risks is inconsistent at best.

“Munis are on the front lines of climate risk,” Rabasco said.

Bloomberg Green

By Danielle Moran and Nic Querolo

April 16, 2021, 6:30 AM MDT

— With assistance by Eric Roston

Orrick Advises Winning Consortium in Fresno State’s Energy Infrastructure Modernization P3.

Orrick advised Bulldog Infrastructure Group (“BIG”), a consortium comprising Meridiam (manager and sole equity investor), NORESCO (lead contractor and maintenance provider) and GLHN (lead engineer), as sponsors’ counsel in their successful bid for the 33-year public private partnership (“P3”) contract with California State University Board of Trustees, on behalf of California State University, Fresno Campus (“Fresno State”), to modernize and maintain Fresno State’s central utility infrastructure system. The concession is valued at US$600 million over its term.

As part of its representation of BIG, Orrick helped to structure an innovative US$122.5 million “sustainable development goals” impact bond financing for the project, which is the first use of Green Bond certification for a higher education P3 transaction.

In addition to achieving Green Bond certification, the financing is structured to directly incentivize achieving the project’s extra-financial sustainability impacts by imposing financial penalties throughout the life of the project if it fails to meet its ambitious energy savings goals.

The modernization project, which achieved financial close on February 26, 2021, focuses on constructing a new central utility plant, updating the hot- and chilled-water generation and distribution piping network on campus and building photovoltaic solar panels over existing campus parking lots. As part of the modernization project, BIG will implement renewable energy generation and energy conservation measures, with a target to provide significant energy savings to Fresno State during the term of the P3, including more than 30% of energy savings during the first year of operation.

Orrick advised the consortium on every aspect of the project, including diligence, concession review and analysis, drop-down design build and long-term maintenance contracts, debt and equity financing, permitting and tax. We are recognized globally in the U.S. infrastructure market for our work in complex, large-scale P3 projects as counsel to sponsors, private parties, both equity and debt, and governmental procuring authorities. We are actively involved in the growing trend among U.S. institutions of higher education of utilizing P3 partnerships and private capital to access financing as an alternative to traditional public funding to address critical aging campus infrastructure needs.

The team advising the consortium was led by Young Lee and included Susan Long, Matthew Neuringer, Joseph Lodico, Mariah Johnston, John Grant, Seth Norris, Eric Vanderhoef, Namratha Minupuri and Sue Cowell.


MarketAxess Completes Acquisition of MuniBrokers.

NEW YORK, April 12, 2021 (GLOBE NEWSWIRE) — MarketAxess Holdings Inc. (Nasdaq: MKTX), the operator of a leading electronic trading platform for fixed-income securities, and the provider of market data and post-trade services for the global fixed-income markets, completed its previously announced acquisition of MuniBrokers, a central electronic venue serving municipal bond inter-dealer brokers and dealers, on April 9, 2021.

Chris Concannon, President and Chief Operating Officer of MarketAxess, commented, “We’re excited to add the MuniBrokers community to our growing municipal bond trading marketplace. Our vision is to use innovative technology to create broader trading connections and therefore add more liquidity to the market, which MuniBrokers helps deliver for the broker and dealer community.”

About MarketAxess
MarketAxess operates a leading, institutional electronic trading platform delivering expanded liquidity opportunities, improved execution quality and significant cost savings across global fixed-income markets. A global network of over 1,800 firms, including the world’s leading asset managers and institutional broker-dealers, leverages MarketAxess’ patented trading technology to efficiently trade bonds. MarketAxess’ award-winning Open Trading™ marketplace is regarded as the preferred all-to-all trading solution in the global credit markets, creating a unique liquidity pool for a broad range of credit market participants. Drawing on its deep data and analytical resources, MarketAxess provides automated trading solutions, market data products and a range of pre- and post-trade services.

MarketAxess is headquartered in New York and has offices in London, Amsterdam, Boston, Chicago, Los Angeles, Miami, San Francisco, São Paulo, Hong Kong and Singapore. For more information, please visit

Illinois Wants to Use Federal Windfall to Reduce Debt, Bills.

Illinois, the U.S. state with the worst credit rating, wants to use some of its $7.5 billion of federal aid from the American Rescue Plan to chip away at unpaid bills and short-term debt racked up during the pandemic, according to Deputy Governor Dan Hynes.

The state’s unpaid bills stand at about $5.74 billion, and Illinois still has to pay back about $3 billion of the $3.2 billion it borrowed last year from the Federal Reserve’s Municipal Liquidity Facility. Governor J.B. Pritzker’s administration has “basic principles” for paying down some loans and bills but is awaiting specific federal rules and restrictions attached to the aid, Hynes said during a state senate appropriations committee hearing on Tuesday.

Illinois expects a “reasonable amount of flexibility” for the one-time money that will likely run out in a couple of years, Hynes said. The governor’s administration plans to work with state lawmakers on spending the federal aid to combat the spread of the virus, rebuild Illinois’s economy and improve the financial foundation of the state, he said.

“But we just want to be mindful of the fact that these will be one-time dollars,” Hynes said. “If we build up spending in an artificial way, it’s going to make our problems worse and our challenges more difficult in out years.”

Federal Rescue

Like Illinois, governments across the country are trying to draw up spending plans for their portion of the $350 billion for state and local governments earmarked in President Joe Biden’s $1.9 trillion relief plan. In neighboring Wisconsin, Governor Tony Evers, who vetoed a bill to give the legislature approval over the use of federal funds, said he plans to use most of the $3.2 billion his state stands to receive to spur an economic recovery. He plans to funnel aid to tourism, infrastructure, broadband access and the statewide pandemic response.

Vermont Governor Phil Scott said he wants to use $1 billion of federal aid for economic development, climate-change mitigation, broadband, water and sewer infrastructure, and housing, according to an April 6 statement.

While the coronavirus outbreak created similar challenges for local governments across the country, Illinois stands out as the only state that tapped the Fed for a loan after interest rates it faced in the bond market surged last year, partly because of fiscal problems that predated Covid-19. Yields on the state’s debt reached more than 6% for 10-year securities in March 2020, but have since tumbled to around 2% as the outlook for the state has improved.

Illinois still pays more than any other state to borrow in the $3.9 trillion municipal bond market because of its longstanding fiscal challenges. The state’s unfunded pension liabilities have grown to $141 billion, and Pritzker is seeking to cut spending and end some corporate tax breaks to balance the state budget for the coming fiscal year. Investors and analysts say they are closely watching how the state will use the forthcoming federal aid.

“There’s a healthy dose of skepticism that they make the right choices,” said John Ceffalio, senior municipal research analyst for CreditSights Inc. “The state historically has made a lot of bad decisions. The healthy skepticism is given historical precedent.”

Outlook Lift

The plans outlined by Hynes such as paying down debt and the bill backlog are “exactly the kind of thing that the bond market is looking for,” and the state has the opportunity to improve its credit standing, Ceffalio said.

S&P Global Ratings, Moody’s Investors Service and Fitch Ratings all rank Illinois at the lowest level of investment grade. In March, S&P and Moody’s lifted their outlooks on the state to stable from negative, partly because of the federal aid.

The aid “clearly seems to be a windfall” and washes away near-term credit concerns, said Ty Schoback, senior municipal research analyst at Columbia Threadneedle Investments, which owns Illinois debt as part of $18 billion in muni assets. Investors are watching to see if Illinois can show restraint, he said. The state’s revenue collections have exceeded expectations and that should also help, he said. Schoback described the early comments from Pritzker’s administration about spending the federal aid as “encouraging.”

“The only question that’s relevant is whether they use that in a prudent fashion,” Schoback said.

Bloomberg Markets

By Shruti Singh

April 6, 2021, 5:21 PM MDT Updated on April 7, 2021, 8:34 AM MDT

— With assistance by Amanda Albright

Puerto Rico Seizes on Junk-Bond Rally With $1.8 Billion Sale.

Puerto Rico, the U.S. territory still in the midst of a four-year-long bankruptcy, is seizing on demand for risky bonds.

The Puerto Rico Aqueduct and Sewer Authority, the island’s main water supplier, is planning to refinance as much as $1.8 billion of debt after the yield penalty it faces in the bond market tumbled. It would be the biggest high-yield municipal debt deal since Ohio’s sale of more than $3 billion tobacco-settlement bonds in February 2020, according to data compiled by Bloomberg.

The growing confidence among investors that the Federal Reserve is poised to keep interest rates low as the U.S. economy rebounds has fueled demand for high-yield securities across the world’s bond markets. The riskiest municipal securities are no exception, with junk-bond yields sliding from 3.72% in mid-March to 3.55%, not far from the lows seen before the pandemic shutdowns began in the U.S., according to a Bloomberg Barclays index.

High-yield municipal-debt funds picked up $821 million of cash from investors during the week ended Wednesday, the third largest on record, according to Refinitiv Lipper US Fund Flows data.

Puerto Rico has yet to determine the exact size of the refunding deal and when the bonds may price, Ivan Caraballo, a spokesperson for the commonwealth’s Fiscal Agency and Financial Advisory Authority, said in an email.

Prasa, as the utility is known, did a similar refinancing in December and the bonds have since rallied. Debt maturing in 2047 last traded on March 24 with an average yield of 3.03%, 130 basis points more than top-rated bonds, according to data compiled by Bloomberg. That yield spread — a key measure of perceived risk — is down from 276 basis points when the securities were first sold.

The Prasa securities have benefited from the limited supply of high-yield bonds, said Daniel Solender, head of municipal securities at Lord Abbett & Co., which holds $33 billion of state and local debt, including Puerto Rico’s.

High-yield municipal bonds have returned 2.65% this year, beating the overall market’s 0.7% loss, according to Bloomberg Barclays indexes.

“There’s just not a lot of options out there right now,” Solender said. “There’s a really good amount of money flowing into high-yield muni funds and supply is pretty thin.”

Prasa is one of the few Puerto Rico entities that has avoided bankruptcy and continues to pay bondholders on time. The anticipated refinancing will be the second major debt offering for Puerto Rico — after December’s sale — since the commonwealth sought bankruptcy in May 2017.

Puerto Rico and competing bondholder groups struck a tentative deal in February on how to reduce $18.8 billion of debt tied to the commonwealth’s central government, a major step that could resolve Puerto Rico’s bankruptcy this year. That headway benefits the water utility, Solender said.

“They’ve made it through this long period of time without defaulting, which is definitely a big positive,” Solender said about Prasa. “There’s progress being made. It seems like there could be an end in sight in the future.”

While Prasa has avoided restructuring its debt through bankruptcy, the securities have risk. The agency warned investors before its December sale that they faced potential losses, the bonds may have limited or no secondary market and Prasa will need to raise rates and cut expenses in order to repay bondholders in the future. In November, Fitch Ratings held the utility deeply in junk when it boosted the rating one notch to CCC, 8 steps below investment grade.

Even with those risks, Prasa could get enough interest from investors to execute the refinancing, Solender said.

“The high-yield spreads have come in this year, so they should be able to benefit from that,” he said.

Bloomberg Economics

By Michelle Kaske

April 8, 2021, 12:15 PM MDT Updated on April 8, 2021, 1:14 PM MDT

— With assistance by Romy Varghese, and Natalia Lenkiewicz

Mall Owner Explores Debt Restructuring for New York’s Largest Shopping Center.

The owner of the Destiny USA shopping complex in Syracuse has engaged restructuring advisers amid continued pressure from the pandemic

The owner of Destiny USA, the largest shopping center in New York, is exploring a possible restructuring of the struggling property’s municipal and mortgage-backed debt obligations, people familiar with the matter said.

Pyramid Management Group has hired financial adviser Houlihan Lokey Inc. and law firm Orrick Herrington & Sutcliffe LLP to look into restructuring options for Destiny USA as pandemic regulations continue to affect the mall’s bottom line, according to people familiar with the matter.

A six-story structure in Syracuse, N.Y., by Onondaga Lake, Destiny USA owes roughly $286 million in municipal bond debt and about $430 million in commercial mortgage-backed securities. Bond insurer Syncora Holdings Ltd. guarantees more than a quarter of the tax-exempt debt and is being advised by investment bank Moelis & Co. and law firm White & Case LLP on the mall’s financial troubles, the people said.

Discussions, which are in early stages, are expected to focus on how much debt the mall can support and on the timetable for repayment, the people said.

Pyramid, which is privately held, borrowed heavily to expand and to build entertainment extravaganzas at Destiny USA and another mall, Palisades Center in West Nyack, N.Y., hoping to draw foot traffic and reverse the yearslong struggles of mall operators battling online shopping

Pyramid declined to comment. Destiny USA was roughly 70% occupied as of February, down from as high as 97% in 2013, after a tough stretch for in-person shopping, owing to pandemic restrictions and shoppers’ fear of contagion.

J.C. Penney Co. used to be an anchor tenant for the mall, but shut down a department store location there last year after filing for bankruptcy. Lord & Taylor and Best Buy Co. are among other major retailers to have closed their outlets at Destiny.

Pyramid, which owns 14 malls, struggled to repay its mortgages last year as tenants withheld rent following government-mandated closures due to the pandemic. Entities that operate 11 of those malls, including Destiny USA and Palisades Center, two of Pyramid’s largest properties, missed repayments starting in April on $1.2 billion of their $1.6 billion in commercial mortgage-backed debt, according to real-estate data provider Trepp LLC. Destiny USA missed payments on the $430 million and later negotiated a maturity extension to mid-2022.

Pyramid made major bets in entertainment, investing hundreds of millions in entertainment attractions such as ropes courses to draw more people. During the pandemic, the strategy turned into a burden as government restrictions prevented many operators from opening their arcades and attractions. Customers also stayed away from these attractions out of concerns about getting Covid-19.

Many tenants, including retailers and entertainment operators, paid less rent as a result.

The Wall Street Journal

By Andrew Scurria and Alexander Gladstone

April 7, 2021

—Esther Fung contributed to this article.

S&P Pension Spotlight: Illinois

Key Takeaways

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30 Mar, 2021

New York MTA Ridership to See Permanent 20% Drop, Moody’s Says.

Ridership on New York’s Metropolitan Transportation Authority, the largest public transit system in the U.S., is expected to decline permanently by 20% as people will continue to work remotely, according to Moody’s Investors Service.

Demand for subways, buses and commuter rails will fail to rebound to pre-pandemic levels as commuting into New York City for work is expected to decrease over the long term, Moody’s analysts wrote in a report released Thursday. That could reduce revenue by 8%, according to the report, which also addressed the finances of the transit systems in London, Paris and Vancouver.

“The sharp increase in remote working during the pandemic is likely to result in a permanent shift in the labor force to more flexible working patterns, with fewer days spent in offices,” the Moody’s analysis said. “A relocation of some residents away from large cities and towards smaller cities and suburban areas” is also likely.

MTA’s subway ridership in recent days has hovered at around 35% of pre-outbreak levels, up from as low as 7% in April last year. The agency will receive a combined $14.5 billion of federal aid to help close budget gaps through 2024, but it has high fixed costs.

The agency had $48.2 billion of outstanding debt as of March 2, according to its website. Debt-service payments and pension contributions account for 30% of operating expenditures, compared with 20% for London’s system and less than 5% for Paris’s, according to Moody’s.

Investors have been demanding less compensation to hold MTA debt as the authority has received unprecedented federal aid and as more people get vaccinated against the coronavirus, raising the prospect that ridership could continue to recover.

An MTA revenue bond with a 4% coupon and maturing in 2045 traded Thursday at an average yield of 2.6%, or around 90 basis points more than top-rated municipal debt, according to data compiled by Bloomberg. That yield spread is down from above 200 basis points when the MTA sold the debt in October.

Bloomberg Markets

By Michelle Kaske

April 1, 2021, 1:24 PM MDT

Georgia Bets $440 Million That Conventions Won’t Be Gone Forever.

Atlanta’s convention center sold $440 million of municipal bonds to build a 975-room hotel next to its sprawling exhibit hall, wagering on a comeback for a business that’s been effectively shut down by the pandemic.

Investors demanded a steep premium to compensate for the risk. The securities were sold Thursday for yields of as much as 4.22% on those due 2054, more than twice the rate for the most risk-free municipal bonds, according to data compiled by Bloomberg.

The convention industry has been among the hardest hit by the pandemic, which shut down mass gatherings and caused work-related travel to grind to a halt. That forced at about a dozen government agencies that sold bonds for convention centers or hotels to draw on reserve funds or take other steps signaling financial distress, according to data compiled by Municipal Market Analytics.

Yet all of them continued to cover interest payments, in part because of large reserve funds or backing of local tax revenue.

“On the surface convention centers sound like a negative story — because who’s going to a convention anytime soon?,” said Cooper Howard, director of fixed-income strategy at the Schwab Center for Financial Research. “But many of them have some other type of support.”

The rollout of the vaccine and the prospect that American life may soon return to normal has helped some convention center bonds rebound. A Las Vegas convention center bond due in 2043, for example, traded for about 101 cents on the dollar in April for a yield of 4.9%. It’s now trading for about 118 cents, cutting the yield to 2.3%.

The Georgia World Congress Center is the nation’s fourth largest convention center. Since the pandemic struck, it has lost 104 events, with 57 re-scheduled through the next three years, the authority that oversees the center said in bond documents.

The new Hilton-brand hotel is expected to open in January 2024, when the lodging industry is slated to return to normal, according to a study contained in bond documents.

Part of bond funds were set aside to cover debt payments until after the hotel opens, reducing the near-term risk to bondholders. “Investors love capitalized interest,” said Lisa Washburn, a managing director at Municipal Market Analytics. “It gives you some buffer space. You have years before you have to worry whether or not the hotel industry is going to be back to normal.”

About $227 million of the debt with a first claim on the project’s revenue was rated BBB- by S&P Global Ratings, one step above junk. The rest were unrated.

Frank Poe, the executive director of the Georgia World Congress Center Authority, said that while it’s too early to speculate on when the center will return to normal operations, he is “seeing positive signs” and that the center’s “book of business for the next 10 years is strong.”

Yet it remains an open question about whether the convention business will fully bounce back.

Attendance at major convention center events was already on the decline before the pandemic, said Heywood Sanders, a professor of public administration at the University of Texas at San Antonio. Based on his research, attendance at events at the U.S.’s four largest exhibit centers totaled 3.84 million in 2019, down from a pre-recession peak of 4.74 million in 2006.

He’s skeptical attendance can rebound in a post-pandemic world after would-be attendees adjusted to a year of virtual sessions.

“Many of those virtual meetings will continue, either fully virtual or in parallel with in person events,” he said. “Those will have the effect of reducing attendance at regular annual events. It’s inevitable.”

Bloomberg Markets

By Danielle Moran

March 26, 2021, 10:30 AM PDT

Texas Freeze Forces Corpus Christi Bond Sale After Huge Gas Bill.

The city of Corpus Christi in South Texas usually spends about $18 million on gas annually, but its bill for February alone is more than double that after a deep freeze gripped the state, forcing the municipality into a bond sale.

February’s bill hit $40.7 million, or roughly 27 times higher than the average winter cost of $1.5 million a month, Constance Sanchez, Corpus Christi’s chief financial officer, said in an interview. The cost is also equal to more than 4% of the city’s entire annual expenditures budget.

As a result, the city plans to issue a $35 million bond by private placement. Corpus Christi acts as the gas utility for its residents, and is mandated to pass costs on. The money raised by the bond will allow residential and industrial consumers over the next decade to avoid spikes in their monthly bills.

“We’re calling it a short-term utility note, it’s going to be repaid by our gas utility customers over a 7-to-10-year time period,” Sanchez said. “That’s the most palatable avenue the city management presented to the city council in order to get over this crisis situation.”

While the aftermath of the Texas power crisis has already pushed some electricity providers into bankruptcy, the Corpus Christi bill is one of the first indications of what the surge in natural gas prices during the cold snap will mean for municipalities, utilities and ultimately residents. The fuel was in short supply after pipelines and equipment froze and power outages forced production slowdowns.

Even More Texans Are Set to Face Thousand-Dollar Power Bills

Corpus Christi’s gas costs began the month at about the average rate of $4.25 per thousand cubic feet. As the cold weather set in, they began rising quickly, first to $11, then to $20, Sanchez said. For two days mid-month during the worst of the crisis, the cost surged to $400, nearly 100 times the norm. By the end of the month, the average price was around $100.

“That would have created bills in the thousands of dollars for our customers because there was high usage for people trying to stay warm,” Sanchez said.

Bids for the Corpus Christi bond are due March 25, and the city expects to pay an annual interest rate of between 2% and 2.5%.

With bills for February only just being finalized, many other cities across Texas could be facing a similar, or worse, situation.

“From what I understand, the city of Corpus Christi did not see as negative an impact as other cities in Texas did,” Sanchez said. “We feel we’re very fortunate that we’re in a position to do this and get this behind us,” she said, referring to the bond sale.

Bloomberg Markets

By Kevin Crowley and Rachel Adams-Heard

March 22, 2021, 4:00 AM PDT

California Draws Wall Street Bond Pitches for Clean Car Goals.

JPMorgan Chase & Co. and Loop Capital Markets are angling for a piece of underwriting business that would help California put more electric vehicles on the road, as the most populous U.S. state tries to meet aggressive targets for the new cars.

Both banks submitted pitches to state Treasurer Fiona Ma suggesting ways to structure $1 billion of bonds that Governor Gavin Newsom proposed to build vehicle charging stations, public records obtained by Bloomberg News show.

In fact, JPMorgan bankers said the bonds could carry ratings higher than those on the state’s general-obligation debt, according to their presentation. That would further boost the appeal to prospective buyers.

The underwriters’ pitches illustrate how banks are eager to capitalize on the growing interest among investors in projects addressing climate change, even in the late-adopting state and local bond market. And California could tap into its solid base of municipal-bond buyers to finance its nation-leading environmental initiatives.

“Banks, as well as investors, are increasingly interested in getting involved with green proposals,” said Howard Cure, head of municipal research at Evercore Wealth Management. “Investors in California paper, a specialty state given the high state income tax, are always looking for newly secured debt issues, so demand would be great.”

JPMorgan spokesperson Jessica Francisco declined to comment. An email and a telephone call to Loop Capital’s media office weren’t returned. The Newsom administration anticipates selling the first round of the bonds in late 2021, said spokesperson H.D. Palmer. Ma said her office has yet to select an underwriter for the transactions.

Last year, Newsom signed an executive order mandating that California phase out sales of new, gasoline-powered cars by 2035, the first state to do so. His securitization idea, included in his January budget, would help make that target happen by building more electric-vehicle-charging and hydrogen-fueling stations for alternatives to gas guzzlers.

The JPMorgan presentation cited a McKinsey & Co. report saying that lack of access to such stations posed the third-most serious barrier for people to purchase the cleaner vehicles, after price and driving range.

Newsom proposed securitizing future revenue from existing vehicle registration fees that had been set to end in 2024, instead of just pledging the cash flow for revenue bonds. That kind of structure entails more protections for bond holders, said JPMorgan bankers, who sketched out the potential of “high AA ratings” for the debt. California is rated Aa2 by Moody’s Investors Service, AA- by S&P Global Ratings and AA by Fitch Ratings.

Loop also said it anticipates the bonds could earn credit ratings in the AA category. The bankers noted in their pitch that they have done a “deep dive” on the governor’s proposal and that they “stand ready to assist” the various state agencies “to develop the concept into a viable plan of finance.”

Bloomberg Markets

By Romy Varghese

March 23, 2021, 6:00 AM PDT

S&P: Winter Storm In Texas Will Continue To Be Felt In Utilities' Credit Profiles

Key Takeaways

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Illinois Lowers Yields, Accelerates $1.26 Billion Bond Sale.

Illinois moved up its $1.26 billion bond sale by one day and cut the yields being offered to investors, a sign of strong demand as President Joe Biden’s economic relief package promises to ease the fiscal strain on the lowest-rated U.S. state.

The tax-exempt sale had been expected to price Wednesday but was closed ahead of schedule by Morgan Stanley, the lead underwriter. The yields on an $850 million portion of the securities ranged from 0.69% for those due in 2022 to 2.81% on 2041 bonds, down from the 0.81% to 3% initially offered, according to data compiled by Bloomberg.

The yields on bonds due in 2024 were 1.09%, about one-third of the 3.42% Illinois paid when it borrowed $2 billion from the Federal Reserve’s emergency lending facility in December.

The drop in yields shows how much investors expect Illinois to benefit from the aid package signed into law by President Joe Biden last week. S&P Global Ratings lifted the state’s credit outlook to stable from negative, indicating little near-term risk that it could be cut to junk, in part because of the $7.5 billion in relief funding Illinois stands to receive.

The high demand for the debt also reflects the strong inflows into high-yield muni mutual funds and a relative dearth of new bond issues form states and cities, said Dan Solender, director of tax free fixed income at Lord, Abbett & Co., which holds the state’s debt as part of $33 billion of municipal securities.

“There is a lot of interest,” Solender said. “They still have long-term issues but are definitely doing better than expected a year ago.”

The bond sale was accelerated given “strong demand,” Paul Chatalas, the state’s director of capital markets, said in an emailed statement. Illinois received more than 700 orders from more than 130 different investors, including names that have not invested in the state for a decade, which led spreads to contract to the lowest in several years for the longest maturing debt, he said.

“Investors recognize the state is emerging from a period of unprecedented turbulence due to a global pandemic,” Chatalas said.

Illinois still faces significant fiscal challenges that started even before the Covid-19 pandemic. The state’s unfunded pension liabilities have grown to $141 billion. S&P rates the state BBB-, one step above junk. Moody’s Investors Service and Fitch Ratings also rank Illinois at the lowest-level of investment grade but still have a negative outlook.

But like other states, Illinois has seen its tax collections fare better than initially feared when the pandemic struck last year. Illinois’s general fund revenue for fiscal 2021 through February rose 18.1% to $29.8 billion from the same period a year earlier, according to a report by the state’s Commission on Government Forecasting and Accountability.

“I expect the deal came earlier because of generally favorable technical factors combined with the beneficial effects of a strong stimulus plan, and better than expected revenues,” said Dennis Derby, a portfolio manager for Wells Fargo Asset Management, which holds Illinois debt as part of about $40 billion in muni assets.

Bloomberg Markets

By Shruti Singh

March 16, 2021, 1:39 PM PDT Updated on March 16, 2021, 3:55 PM PDT

New York Mall Owner Tries to Hang On With Debt Storm Swirling.

The pandemic has hit few mall operators harder than Pyramid Management Group, a family-run owner of 14 U.S. shopping centers worth $4 billion before lockdowns hammered property values.

Reappraisals — triggered last year amid the firm’s mounting mortgage delinquencies — slashed valuations on eight of Pyramid’s malls by 59% on average, leaving those centers worth less than their debt.

Even with that burden, Chief Executive Officer Stephen J. Congel is optimistic his company can withstand the crisis that has pushed other mall owners to file for bankruptcy.

Continue reading.

Bloomberg Markets

By John Gittelsohn

March 18, 2021, 8:00 AM PDT

S&P Medians And Credit Factors: Wisconsin Municipalities And Counties


Overall, municipal credit ratings in Wisconsin remain resilient with strong overall credit fundamentals, as exemplified by stable tax bases, favorable income and wealth levels, and maintenance of typically very strong reserves.

S&P Global Ratings maintains 130 ratings on municipalities and counties in Wisconsin. Currently, about 71% of Wisconsin municipalities and counties are highly rated (‘AA-‘ or above), and 29% are rated ‘A+’ or below. Additionally, most of the portfolio’s ratings have stable outlooks; only five entities have non-stable outlooks, and all are negative.

We anticipate continued overall stability in the Wisconsin municipal portfolio for the coming year. Most Wisconsin municipalities and counties continue to see stable and growing tax bases. We are monitoring the effects of the COVID-19 pandemic on local economies across the state. However, up to this point, the underlying economic metrics have not been materially affected by the COVID-19 pandemic or its related recessionary pressures as there was not any significant business interruption over the past year. This benefits their financial operations, given that property taxes play an important role in the revenue stream. Health and human service funds can put some pressure on county budgets, but we typically observe ample cash in the general fund to offset some of the unpredictability in those services. Intergovernmental revenue, mainly from state funding, comprises a large share of most municipalities’ budgets, typically over 40%.

Wisconsin municipalities and counties contribute to Wisconsin Retirement System, a cost-sharing, multiple-employer, defined-benefit plan for retiree pension benefits. As of fiscal 2020, the system is 103% funded on a statewide basis, and it continues to be among the top funded state pension systems. Issuers typically fund their other postemployment benefits (OPEBs) on a pay-as-you-go basis. As a result, we believe Wisconsin municipalities and counties continue to have manageable fixed pension & OPEB costs.

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16 Mar, 2021

S&P Tennessee Valley Authority In Review: How The TVA's Relationship With Local Power Companies Is Evolving

Key Takeaways

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18 Mar, 202

Near-Junk Illinois Set to Sell Bonds With Stimulus as ‘Tailwind.’

Illinois plans to tap the municipal-bond market next week, just days after passage of President Joe Biden’s $1.9 trillion stimulus plan promises to help the lowest-rated state with some near-term financial stress.

The state is expected to sell $1.26 billion tax-exempt bonds on March 17. That follows S&P Global Ratings’s decision to pull Illinois back from the brink of a junk rating by lifting the outlook on the state’s BBB- rating to stable from negative on Tuesday, citing more federal aid and the start of an economic recovery. The proceeds from the sale will be for capital projects, accelerated pension payments and refunding.

The outlook change and revenue improvement should bolster Illinois’s position when it comes to market, said Dennis Derby, a portfolio manager for Wells Fargo Asset Management, which holds Illinois debt as part of about $40 billion in muni assets.

“I expect they would do well given that they will have a substantial tailwind from the recent stimulus,” Derby said.

Illinois is expected to get about $7.5 billion from the more than $350 billion in state and local government aid earmarked in Biden’s American Rescue Plan, according to bond documents. The aid “could provide an immediate boost to the state’s fiscal resilience,” Fitch Ratings said in a report.

Illinois still faces significant self-inflicted fiscal challenges it had before the pandemic as the state tries to recover from the covid recession. Its unfunded pension liability, which has weighed on its credit rating, has grown to $141 billion.

“Federal aid is clearly providing a substantial buffer to help absorb the pandemic’s fiscal effects, but the longterm pension funding challenges will remain in place,” Moody’s Investors Service said in a report on Monday.

Illinois also owes vendors $5.5 billion in unpaid bills, according to state data. Plus, it was the only state to tap the Federal Reserve’s Municipal Liquidity Facility last year, taking out short-term loans in June and December totaling $3.2 billion.

When the pandemic first hit, yields on Illinois’s 10-year bonds surged to above 6% in March 2020, more than twice as high as New York, another large borrower. On Wednesday, the rate was 2.4% for Illinois compared with 1.2% for New York.

“Federal government support is mitigating direct fiscal burdens, but the state also has relied on short-term deficit financing that increases its liabilities and near-term fixed costs,” according to Moody’s, which Monday affirmed Illinois’s Baa3 rating and negative outlook.

Bloomberg Markets

By Shruti Singh

March 10, 2021, 11:40 AM PST

Mairs & Power Launches an ETF Tied to the Bonds of Minnesota's Towns.

Mairs and Power says the new fund is designed to be low-cost and low-risk.

Mairs and Power, the St. Paul firm known for developing Minnesota- and Midwest-focused investment funds, is launching an exchange-traded fund tied to Minnesota municipal bonds.

The Minnesota Municipal Bond ETF will have the ticker symbol MINN and trade on the Chicago Board of Options Exchange (CBOE) starting Friday. The fund will be priced at $25 per share and, as an ETF, investors can buy as little as one share.

“We believe this ETF presents a distinct opportunity for investors, particularly Minnesota residents, who are looking to add fixed income to their portfolios,” Mark Henneman, CEO of Mairs and Power, said in statement. “Unlike most ETFs, our fund is actively managed. This means we are constantly evaluating and making decisions about the securities in the portfolio.”

The lead portfolio manager of the new fund will be Brent Miller, a Minnesota native who is also president of the Minnesota Society of Municipal Analysts. Miller helped create the fund with Robert Thompson, head of fixed income at Mairs & Power, who will be a co-manager of the fund. Heidi Lynch, a fixed-income trader, will be active in daily operations of the fund.

“As a firm we decided together that there is need out there for a lower-cost, high-quality product. We made it as something we want to invest in, too,” Miller said. “That’s how we design all of our products: ‘Is it something you yourself would want to invest in?’ ”

Municipal bonds are issued by city, county, state and other government entities to pay for public projects. There are other Minnesota bond mutual funds out there, some locally managed, but many are managed from outside the state.

By Patrick Kennedy Star Tribune MARCH 11, 2021

St. Paul Investment Firm Unveils MINN: Municipal Bond Funds Day-Traded Like Stocks.

Want to own a share of a local road or government building in Minnesota? There’s a day trade for that.

Mairs and Power, an employee-owned investment advisory firm that has been based in downtown St. Paul since 1931, is marketing a new way for everyday investors to capitalize on public projects in Minnesota. For the first time, investors can buy into tax-exempt, Minnesota-based municipal bonds through its Minnesota Municipal Bond ETF (or “exchange traded fund”); the bonds are pooled like securities in a mutual funds but shares are traded throughout the day like stocks.

Mairs and Power says it is the first exchange-traded fund in the country invested primarily in Minnesota-based municipal bonds. It carries the ticker MINN and will be traded on the Chicago Board Options Exchange. MINN, which goes on the market Friday, can be purchased through an online broker or financial adviser.

The starting price for the ETF — which operates like stock — is $25. “You’ll have to buy at least one share, so theoretically the minimum will be $25,” said Brent Miller, MINN portfolio manager for Mairs and Power. “It democratizes the space a little bit more by bringing the expense ratio down. We’ll be the cheapest widely-available fund in this space, and we’ll have a low minimum entry point. If you look at most of the municipal mutual funds, the minimum entry can be in the thousands of dollars.”

MINN dividends, which are to be paid monthly, will be exempt from both federal and state taxes.

“We believe this ETF presents a distinct opportunity for investors, particularly Minnesota residents, who are looking to add fixed income to their portfolios,” said Mairs and Power CEO Mark Henneman, in a written statement. “Unlike most ETFs, our fund is actively managed. This means we are constantly evaluating and making decisions about the securities in the portfolio.”

Municipal bonds — whether general obligation bonds or revenue bonds backed by fees-for-service — are issued by state, city, county and other government entities to finance capital projects, from new roads and bridges to parking ramps, utilities and school buildings. Experts call municipal bonds historically among the lowest-risk securities, though lower risk sometimes means lower gain. The nation’s 39 major municipal bond ETFs have under-performed the stock market for the past year.

“It’s a steadier product,” Miller said. “It’s designed to produce income for people who want a more stable portion of their portfolio.”

By FREDERICK MELO | [email protected] | Pioneer Press

March 12, 2021 at 5:00 a.m.

San Antonio Says Texas Storm Left It With $1 Billion Power Bill.

San Antonio’s municipal-owned utility said it racked up an estimated $1 billion in energy costs in the winter storm that sacked Texas in February, a tally that could take residents a decade to pay.

CPS Energy Chief Executive Officer Paula Gold-Williams saying during a board meeting Monday that it likely incurred $200 million in charges from the state’s grid operator and $800 million for fuel.

The utility has said that it will look to spread the cost of the storm over at least 10 years. Gold-Williams said that CPS Energy is continuing to negotiate to bring those costs down. She said that despite the unprecedented winter bill, it’s better equipped to weather the financial hit from the storm that some other Texas towns.

“We do have great credit. We do have good tools,” Gold-Williams said. “We have the ability to manage through this process.”

Brazos Electric Power Cooperative, the largest power generation and transmission co-op in the state, filed for bankruptcy Sunday after racking up an estimated $2.1 billion in charges over seven days of the freeze. Denton, a city of 140,000 northwest of Dallas, racked up at least $207 million in power purchases over the span of a few days, more than triple its entire electrical power costs for fiscal year 2020.

To shore up its finances, CPS Energy asked trustees for approval for financing from a bank or a consortium of banks for as much as $500 million.

Bloomberg Green

By Kriston Capps

March 1, 2021, 2:22 PM PST

University of Chicago to Refinance Debt as Yields Edge Up.

The University of Chicago is set to issue $828 million of debt, joining colleges that have rushed to the bond market to refinance before an acceleration in economic growth threatens to drive interest rates higher.

The school is set to sell about $610 million of taxable bonds — which don’t carry the restrictions of traditional municipal securities — and $218 million of tax-exempt debt through the Illinois Finance Authority, according to data compiled by Bloomberg. The sale may be priced as soon as Wednesday.

The size of the issuance has not been finalized, according to an emailed statement from the university last week.

“It will depend in part on interest rates, which have risen in recent weeks,” according to the statement. The university expects savings on a net present value basis of more than 20% of the refunded bonds.

Colleges and universities sold more than $40 billion of bonds in the municipal- and corporate-securities markets last year, seizing on the lowest interest rates in decades to soften the financial toll of the pandemic that shut down campuses last year and left many holding only online classes. While benchmark interest rates have jumped higher over the past several weeks, yields in both the corporate and municipal markets remain not far from the more than four-decade lows hit in recent months, according to Bloomberg Barclays indexes.

The University of Chicago, one of the nation’s most prestigious and selective schools, has seen enrollment rise to 17,857 this school year from 17,599 despite the coronavirus, according to bond documents. Its endowment has also swelled to $8.6 billion, thanks to surging stock prices, data compiled by Bloomberg shows. S&P Global Ratings grades its bonds AA-, the fourth-highest investment grade, with Moody’s Investors Service rating it one step higher.

Bloomberg Markets

By Shruti Singh

March 2, 2021, 8:04 AM PST Updated on March 2, 2021, 8:53 AM PST

New York City Bonds Belie Pandemic Toll With Investors Unfazed.

New York City is still reeling from the impacts of the pandemic, but there’s little sign of that in the price of its bonds.

Interest rates have tumbled so steeply that the city’s 10-year debt is yielding just 1.41%, less than it was at the start of 2020 even after the market’s selloff last month, according to Bloomberg BVAL indexes. That’s about 30 basis points more than what the highest-rated states and cities pay, a jump of just 20 basis points from before the pandemic shut down New York City, eliminated hundreds of thousands of jobs and triggered the first drop in property-tax collections in a quarter century.

To the analysts at CreditSights, that’s not enough to compensate investors for the risks.

“The city has suffered economic dislocation that may be somewhat obscured by federal stimulus pulsing through the economy,” John Ceffalio and Patrick Luby wrote in a report, placing a “market underperform” rating on New York City’s debt ahead of its $1.45 billion debt sale Wednesday. “There are myriad uncertainties to the recovery, notably two Manhattan staples: tourists and commuters. We expect both to return, but how soon and how many of each are open to questions.”

New York is still staggering from the loss of more than 570,000 jobs last year, the steepest in the city’s history, and employment isn’t forecast to return to pre-pandemic levels until 2023. Office buildings are struggling with record vacancy rates with only a small fraction so far returning to the office. Some residents appear to have left for good and property tax revenue is forecast to decline by $2.5 billion, the first drop in 25 years.

The city’s recovery is closely tied to the success of public health efforts to slow the spread of Covid-19 and new, more contagious variants. New York remains below the national average for the percentage of the population vaccinated, suggesting recovery will be “slow and fragile,” until the vaccination rate increases, wrote the city’s Independent Budget Office on Monday. New York City has administered more than 2 million doses of the vaccine, including 76,000 on Friday, Mayor Bill de Blasio said Tuesday.

Before last month’s bond market selloff, strong demand for municipal bonds, coupled with scant new issues and an improving economic picture, had driven spreads on risker municipal bonds close to pre-pandemic levels. Despite economic uncertainty, investors are confident that New York City will navigate through the pandemic storm as it has in the past, said Ben Pease, head of municipal trading at Breckinridge Capital Advisors, Inc.

New York City stands to receive $5.6 billion as part of the Biden administration’s proposed $350 billion additional aid to states and cities.

When New York sold general obligation bonds in October, 10-year debt was priced to yield 0.8 percentage point more than AAA rated bonds. The city priced 10-year debt in a retail order period at a spread of 0.5 percentage point, according to a person who received pricing information on this week’s sale.

“Despite recent volatility, there remains an appetite for bonds with spread inside fifteen years,” Pease said.

Bloomberg Markets

By Martin Z Braun

March 2, 2021, 10:57 AM PST

S&P Wisconsin Schools Means And Medians.


Wisconsin school districts have demonstrated stable credit quality in recent years and S&P Global Ratings expects credit quality for this portfolio to remain stable in the near term. This stability is supported by a recently steady state revenue climate, expected economic growth, and districts with traditionally very strong financial flexibility.

S&P Global Ratings maintains ratings on approximately 205 Wisconsin school districts. Overall, ratings were stable, with only 3% experiencing movement since January of 2020. Wisconsin school districts have had one positive rating action and four negative rating actions on their general obligation debt. Additionally, 99.5%, the ratings have a stable outlook, while none have positive and only 0.5% a negative outlook.

Continue reading.

5 Mar, 2021

S&P: Is Fiscal Stabilization On The Horizon For Illinois?

Key Takeaways

Continue reading.

25 Feb, 2021

S&P: Massachusetts’ Proposed Fiscal 2022 Executive Budget Projects Surprisingly Stable Revenues

Key Takeaways

Continue reading.

22 Feb, 2021

University of Chicago to Refinance Debt as Yields Edge Up.

The school is set to issue $828 million of debt, joining colleges that have rushed to the bond market to refinance before an acceleration in economic growth threatens to drive interest rates higher.

(Bloomberg)—The University of Chicago is set to issue $828 million of debt, joining colleges that have rushed to the bond market to refinance before an acceleration in economic growth threatens to drive interest rates higher.

The school is set to sell about $610 million of taxable bonds—which don’t carry the restrictions of traditional municipal securities—and $218 million of tax-exempt debt through the Illinois Finance Authority, according to data compiled by Bloomberg. The sale may be priced as soon as Wednesday.

“It will depend in part on interest rates, which have risen in recent weeks,” according to the statement. The university expects savings on a net present value basis of more than 20% of the refunded bonds.

Colleges and universities sold more than $40 billion of bonds in the municipal- and corporate-securities markets last year, seizing on the lowest interest rates in decades to soften the financial toll of the pandemic that shut down campuses last year and left many holding only online classes. While benchmark interest rates have jumped higher over the past several weeks, yields in both the corporate and municipal markets remain not far from the more than four-decade lows hit in recent months, according to Bloomberg Barclays indexes.

The University of Chicago, one of the nation’s most prestigious and selective schools, has seen enrollment rise to 17,857 this school year from 17,599 despite the coronavirus, according to bond documents. Its endowment has also swelled to $8.6 billion, thanks to surging stock prices, data compiled by Bloomberg shows. S&P Global Ratings grades its bonds AA-, the fourth-highest investment grade, with Moody’s Investors Service rating it one step higher.

Crain’s Chicago Business

March 02, 2021 05:31 PM

Pennsylvania Public Utility Commission Rules Two Municipal Permitting Fees Are Preempted by State Law.

The Pennsylvania Public Utility Code (Code) gives the Pennsylvania Public Utility Commission (PUC) extensive authority to regulate public utilities in Pennsylvania. The Supreme Court of Pennsylvania has held that the General Assembly intended that the Code would create a uniform, statewide regulatory scheme.1 To avoid overlaying this statewide scheme with a crazy quilt of local regulations, municipalities are generally preempted from regulating public utilities.

Nevertheless, disputes frequently arise between public utilities and municipalities over the authority of municipalities to regulate public utility facilities in public rights-of-way (ROWs). This is partly because the Pennsylvania Business Corporations Law of 1988 states that public utilities have the right to enter into and occupy ROWs, but “[b]efore entering upon any street, highway, or other public way, the public utility corporation shall obtain such permits as may be required by law and shall comply with the lawful and reasonable regulations of the governmental authority having responsibility for the maintenance thereof.”2

A recent PUC proceeding involved a dispute over a municipality’s authority to charge permitting fees for placing public utility facilities in a municipal ROW.3 Armstrong Telecommunications Inc. (Armstrong), a certificated telecommunications utility, asked the PUC to issue a declaratory order that Armstrong did not need to pay certain permitting fees levied on it by Waterford Township, Erie County (Waterford).4 A divided PUC5 resolved only some of the issues in the case. Additional litigation (possibly in a civil court) will be needed to answer the remaining issues.


When deciding a petition for declaratory order, the PUC accepts the facts as described by the parties.6 Armstrong explained that it was installing fiber optic cable in public ROWs inside and outside the municipal boundaries of Waterford. That cable will be used to provide telecommunications services subject to the PUC’s jurisdiction.

Waterford imposed the following permitting fees on Armstrong: (1) inspection fees (including a “location site inspection fee,” a “utility pole inspection fee” and an “outside of shoulder and pavement inspection fee”), (2) application fees, and (3) refundable and non-refundable bonding fees. Waterford noted that it had amended its ordinance, at Armstrong’s request, to eliminate a fee per linear foot, reducing the nonrefundable permit fees to be charged.


Armstrong requested a broad ruling that a municipality cannot charge a public utility any fees for placing public utility facilities in a municipal ROW. According to Armstrong, Waterford’s imposition of multiple permitting fees was burdensome,7 effectively denying the utility its right to occupy the municipal ROW. If every municipality would charge similar fees, it argued, fiber optic projects would not be undertaken, to the detriment of the commonwealth. Armstrong also argued that the fees charged were unreasonably high.

Waterford argued that 15 Pa. C.S. § 1511(e) gives it the right to charge fees for a public utility to enter into a municipal ROW. It distinguished its permitting fees from the continuing maintenance fees that were struck down in City of Lancaster. Waterford argued that the fees charged are reasonable because they are consistent with similar fees charged by the Pennsylvania Department of Transportation and because the fees defray the municipality’s costs to inspect the site of the facilities.


The PUC analyzed each municipal permitting fee separately. With respect to the “location site inspection fee” and the “pole inspection fee,” based on City of Lancaster, the PUC found that the inspection of public utilities is subject to the PUC’s exclusive jurisdiction. The PUC reasoned that fees related to the inspection of such facilities are also within the PUC’s exclusive jurisdiction.8 The PUC wanted to avoid a patchwork of municipal inspection fees for public utilities, which would run contrary to the goal of providing a uniform statewide regulatory framework for public utilities. Consequently, the PUC ruled that municipal inspection fees relating to the inspection of public utility facilities are preempted by the Code.

The PUC explicitly distinguished municipal inspections related to roadway disturbances (e.g., inspections to determine compliance with municipal backfill and road re-surfacing requirements) from municipal inspections relating to public utility facilities (e.g., inspections to determine the safety of public utility facilities). The PUC did not address whether the PUC has jurisdiction over inspections or fees related to roadway disturbances.

Similarly, the PUC did not address the reasonableness of the amounts that Waterford charged for municipal inspections. According to the PUC, jurisdiction over the reasonableness of fees lies with a court of competent jurisdiction.

For the same reason, the PUC refused to address Waterford’s “application fee.” The PUC determined that Armstrong solely challenged this fee based on the amount of the fee, not the imposition of the fee itself. The PUC concluded that it does not have jurisdiction to determine the reasonableness of a municipal permitting fee.

The PUC concluded that it did not have sufficient facts to determine whether the “outside of shoulder and pavement inspection fee” involves an inspection of a public utility facility, so it did not rule on whether that fee is preempted. Similarly, the PUC concluded that it did not have sufficient information regarding the purpose of the bonding fee and the conditions under which it is refundable. Consequently, it refused to determine whether the refundable bonding fees are preempted by the Code. Finally, the PUC did not discuss the non-refundable bonding fees charged by Waterford. Apparently, the PUC concluded that Armstrong was not contesting these fees.


The PUC’s decision was entered on February 19, 2021. Consequently, the 15-day period for Waterford to file a petition for reconsideration9 has not yet expired. Similarly, the period for filing an appeal with the Commonwealth Court of Pennsylvania has not yet expired. Consequently, it is too soon to determine if additional proceedings will be necessary in this case. Even if the PUC’s February 19, 2021, declaratory order is the final order in this proceeding, it is clear that additional litigation will be needed to resolve some of the issues raised in this case. As the chairman recognized in her concurring and dissenting statement, “this matter is complex and will have long-ranging impacts.”10

1 See, PPL Elect. Util. Corp. v. City of Lancaster, 214 A.3d 639 (Pa. 2019) (City of Lancaster) and cases cited therein.

2 15 Pa. C.S. § 1511(e).

3 Armstrong Telecommunications Inc. Petition for Declaratory Order, Docket No. P-2019-3014239 (Order entered Feb. 19, 2021).

4 The PUC has authority to issue declaratory orders to terminate controversies or remove uncertainty. 66 Pa. C.S. § 331(f) and 52 Pa. Code § 5.42.

5 The PUC is composed of five commissioners. Three commissioners voted in favor of the ruling. The chairman of the PUC voted to concur in part and dissent in part, indicating that she would have denied the petition and remanded the matter for an investigation to get additional input from multiple affected stakeholders. One seat on the PUC is currently vacant.

6 The PUC has discretion to issue a declaratory order. It may exercise its discretion not to issue a declaratory order if there are material issues of fact in the case. In this case, the parties disputed some facts, but they were not material to the PUC’s ultimate decision. For example, Waterford characterized its fees as “ordinary permitting fees” allowed by Section 1511(e), whereas Armstrong claimed this was the first time that these fees were imposed on a telecommunications utility.

7 Armstrong alleged that Waterford had advised it that the fees imposed would exceed $200,000, but later provided Armstrong with permitting forms that appeared to charge a total of $12,190. Armstrong averred that it was not certain of the amount of the disputed fees, but argued that even $12,190 was excessive.

8 The PUC charges utilities an annual assessment for the costs of operating the PUC, including the cost of inspections.

9 52 Pa. Code § 5.572(c).

10 Armstrong Telecommunications Inc. Petition for Declaratory Order, Docket No. P-2019-3014239 (concurring and dissenting statement of Chairman Gladys Brown Dutrieuille) p. 1.

Cozen O’Connor – Jonathan Nase

February 24 2021

Sixth Circuit Concludes That the Kentucky Billboard Act Violates the First Amendment: Squire Patton Boggs

The Kentucky Billboard Act requires a permit for billboards that advertise off-site activities—but no permit is required for on-site billboard advertising. Lion’s Den, an “adult superstore” that sought to advertise to interstate drivers with a billboard on a neighbor’s property, challenged the law as a violation of its rights under the First and Fourteenth Amendments. The district court agreed with Lion’s Den and enjoined enforcement of the Act. Recently, the Sixth Circuit affirmed.

Judge Sutton’s opinion for the court proceeded from the proposition that government regulation of speech based on its content is constitutional only if the regulation satisfies strict scrutiny. The on-site/off-site distinction is content-based: to know which rules apply to a billboard, one has to know the message on the billboard.

And the Act could not satisfy strict scrutiny. Under circuit precedent, Kentucky’s proffered interests in safety and aesthetics did not qualify as compelling, but “even if these interests sufficed in the abstract, the Act leaves untouched other billboards with similar qualities,” and underinclusive laws are not narrowly tailored.

The court rejected Kentucky’s argument that only intermediate scrutiny for commercial speech was appropriate. Although Lion’s Den’s billboard did contain commercial speech, the Act treated commercial and non-commercial speech alike. Finally, the court noted that in a 2020 decision, the Fifth Circuit had reached essentially the same conclusions “that a billboard law like this one must satisfy strict scrutiny” and that “this kind of law fails the test.”

For whatever reason, on-site/off-site distinctions are somewhat common in state and municipal laws regulating billboards. The Sixth Circuit’s decision will be helpful to those bringing First Amendment challenges to such laws.

Squire Patton Boggs – Benjamin Glassman

March 1 2021

Texas Power Market Is Short $2.1 Billion in Payments After Freeze.

Electric retailers failed to make payments for power purchased when prices skyrocketed during the freeze, state grid operator says

The financial consequences of the Texas blackouts are beginning to emerge in the state’s electricity market, with some players failing to pay for power they purchased last week and others disclosing sizable losses.

The Electric Reliability Council of Texas, which operates the state’s power grid, said Friday electric retailers had failed to make $2.12 billion in required payments, about 17% of the total amount owed for a stretch of last week.

Ercot, which collects that money and uses it to pay operators of power plants, said it would use $800 million in a revenue account to pay them for some of what they are owed but would be $1.32 billion short.

Continue reading.

The Wall Street Journal

By Russell Gold

Feb. 26, 2021 7:49 pm ET

Amid Blackouts, Texas Scrapped Its Power Market and Raised Prices. It Didn’t Work.

The Texas Public Utility Commission hoped its move would spur generation. Retail providers say all it did was generate billions in added bills.

The heads of two of Texas’ largest power generation companies, Vistra Corp. and NRG Energy Inc., told members of the Texas House of Representatives on Thursday that the promise of high prices couldn’t help resurrect power plants that had difficulty operating in extreme cold or securing gas supplies.

Vistra Chief Executive Curt Morgan said gas supply constraints were one of the company’s biggest challenges, forcing it to take plants offline or run them at lower capacity levels.

“We had power plants ready to produce power that could not produce any,” he said. “The gas system, in my opinion, did not work in tandem with the electric system.”

As a result of the PUC’s decision, power prices remained at elevated levels until Friday morning, when the PUC rescinded its order, after Ercot said the grid was again stable. Typically, the Ercot grid hits peak prices for a few hours, at most.

Many residential, commercial and industrial customers as well as retail providers and municipal power companies had to pay extraordinary prices for several days, and some have complained to the PUC that its action had raised prices without improving the supply situation, with devastating financial consequences.

Griddy Energy LLC, a small retailer that gives customers access to wholesale power prices in exchange for a flat monthly charge, has faced the most criticism of any retailer as its customers face enormous bills.

Griddy CEO Michael Fallquist said in an interview that the company lost roughly two-thirds of 30,000 customers last week, giving it a fraction of 1% of the Ercot market. Those who remain collectively owe millions of dollars. Mr. Fallquist said believes the total would have been substantially less if the PUC hadn’t moved to elevate prices. “The material impact on our customers would have been so different,” he said.

Others said the high prices did little to encourage generators to quickly come back online.

“Generation could not magically appear, and the price signals did not stabilize the situation,” wrote Patrick Woodson, chief executive of Green Energy Exchange, a retail electricity provider in Texas. “Quite the opposite, the imposition of price caps during these extraordinary times is creating instability in the markets.”

In an interview, Mr. Woodson added that retail providers were hurt by the PUC’s decision to keep prices high all week, which essentially transferred money from consumers to power generators and gas providers.

“You want to penalize people? Great. But don’t penalize the people who didn’t cause the crisis,” he said.

NRG Chief Executive Mauricio Gutierrez told lawmakers that his company, which offers fixed-price retail contracts, would have to eat the higher wholesale costs. He advocated for eliminating contracts tied to wholesale prices because it may be difficult for customers to understand the risk of extreme market swings.

“We don’t offer any of those products,” he said. “We believe they shouldn’t be available to customers in our market.”

The Texas governor promised in a statewide address on Wednesday to find answers to what went wrong and ensure state lawmakers enact fixes. “You deserve answers. You will get those answers,” said Mr. Abbott, a Republican.

Rob Cantrell, the chief executive of retail electricity provider Pulse Power LLC, said that while generators unable to deliver were the cause of the crisis, it is retailers and customers who are set to pay the price. He estimates Pulse will lose up to $2,000 for each of its 100,000 customers, even though many of them were without power.

In a filing to the PUC, Mr. Cantrell suggested replacing the $9,000 pricing with fines “for generators that a postmortem reveals…were not following the minimum reliability protocols.” Those fines could be used to help cover exorbitant power bills, he added.

Power generators “should not benefit as an industry from their failure, to the detriment of Texas retail choice and consumers alike,” he wrote.

The Wall Street Journal

By Russell Gold and Katherine Blunt

Updated Feb. 25, 2021 7:19 pm ET

Texas Cities Fret as Power Bills Mount in Wake of Blackouts.

The power supply shortages that slammed Texas last week drove spot electricity prices sky-high for some locally owned utilities, with one town on the hook for more than $200 million and other municipalities anxiously awaiting their bills.

Denton, northwest of Dallas, racked up at least $207 million in power purchases over the span of a few days, more than triple its entire electrical power costs for fiscal year 2020. It left the city of 140,000 without enough cash to keep buying power at market rates and said in regulatory filing it may need to borrow more money to cover the costs.

Across the state, local utilities that were forced to buy power at prices as high as $9,000 a megawatt-hour when a deep freeze hobbled the state’s power grid are potentially facing outsize debts that could wreck their credit rating and linger on their balance sheets for years.

“I continue to wait for other shoes to drop,” said Kit Konolige, a senior utilities analyst at Bloomberg Intelligence.

CPS Energy, a municipally owned utility in San Antonio, said it expects its costs from the winter storm to be “substantial” and is considering ways to limit the impact on its 840,750 electric customers.

“While fuel charges are normally passed on to customers, our team will pursue every financing tool within our ability to spread the financial impact over years,” the utility said in a statement. “Spreading out the costs, if approved, will minimize the impact to customer affordability, which is important since the community has already been through a very difficult time.”

Fitch Ratings on Wednesday placed all retail and wholesale electric utilities operating within the Electric Reliability Council of Texas, the grid operator known as Ercot, on rating watch negative. It cited concerns regarding funding requirements and liquidity in the near term, and cost recovery and the potential for increased financial leverage over the medium term.

The Kerrville Public Utility Board, a community-owned, not-for-profit electric company that serves 23,000 customers northwest of San Antonio, also said it is facing “significant and unexpected” energy costs.

“KPUB is working to fully calculate the financial impact we are facing due to these events,” the utility said in a statement. “However, the exposure is very significant even though our utility has reasonable hedges in place to mitigate such cost spikes.”

S&P Global Ratings placed Rayburn Country Electric Cooperative Inc. on watch for downgrade after it fully drew its $250 million syndicated line of credit, and entered into a $300 million bilateral line of credit with National Rural Utilities Cooperative Finance Corp.

Some utilities, however, managed to dodge unexpected costs. San Angelo, a West Texas town on the outskirts of the Chihuahuan Desert saw a record-shattering 10.1 inches of snow on Feb. 1. But it had fixed price contracts before the storm hit. “The good news is, we were a city who did have a guaranteed contract,” San Angelo Mayor Brenda Gunter said.

Still, many other local utilities remain unsure what the disaster cost them. Officials in Bridgeport northwest of Dallas said they have yet to received a power bill. The city owns its utility but has no generating capacity, so it buys its power from a unit of Exelon Corp.

“Right now, I guess we’re in the dark,” said Chester Nolen, the city manager. “I don’t know if that’s good or bad.”

Bloomberg Green

By Nic Querolo and Kriston Capps

February 25, 2021, 11:43 AM PST

Texas’s Power Market Is $1.3 Billion Short After Energy Crisis.

Texas’s grid operator needs to come up with $1.3 billion to pay power plants for energy they supplied during last week’s historic blackouts, raising the prospect it may require a state bailout.

The Electric Reliability Council of Texas, which manages most of the state’s grid, said it’s still waiting on more than $2 billion in payments from retail power providers and others after a deep winter freeze caused energy prices to skyrocket. The grid operator, known as Ercot, managed to cover part of that debt by transferring $800 million in revenues from another market but remains $1.3 billion short, according to a notice.

If Ercot can’t come up with the rest, the debt could end being shared by everyone in the market — even consumers. That may prompt lawmakers to step in and make up the difference, said Evan Caron, chief strategy officer of energy technology firm ClearTrace and a former Ercot trader.

“Someone is going to need to pay,” Caron said in an interview. “I’ve never seen anything like this before.”

Ercot did not immediately respond to an inquiry into whether it plans to ask for a state bailout.

The shortfall comes after this month’s Arctic blast knocked nearly half of the state’s power generating capacity offline, causing electricity prices to jump to $9,000 a megawatt-hour and leaving some buyers unable to pay. The crisis plunged more than 4 million homes and businesses into darkness for days. Dozens died in the cold.

The $1.3 billion shortfall that Ercot now faces is unprecedented, said Adam Sinn, power trader and owner of Aspire Commodities LLC.

“In the past I have only seen a million-dollar shortfall — so a billion dollar one is not even in the ballpark,” Sinn said.

In addition to managing the grid, Ercot is a middleman for transactions between power plant owners and retail energy providers that buy their electricity. Under typical conditions, those transactions are settled every day. But the organization warned Wednesday that several retailers were in “payment breach” and that more could default. As a result, some generators haven’t been paid in full.

“If there are massive bankruptcies among utilities, then there might be a need for a state intervention of some sort, like a bailout,” said Michael Webber, a professor at the University of Texas at Austin who serves as chief science and technology officer at French utility Engie SA. “The total tally will certainly be higher than $2 billion, and no one knows what the ultimate consequences will be because this is new territory for us.”

Two public utilities told Texas lawmakers during hearings Friday that Ercot owed them money for power they produced during the crisis.

“We are concerned that because of potential bankruptcy of retail providers we will not be paid,” said Terry Naulty, assistant general manager of Denton Municipal Electric.

Several retail electricity providers, including Young Energy LLC and Spark Energy Inc., are disputing Ercot charges they incurred for so-called ancillary services, which help the grid operator maintain reliability on the system.

Because the real-time price of electricity was set at $9,000-a-megawatt-hour for several days during the grid emergency, the cost of ancillary services skyrocketed, costing some companies tens of millions of dollars. Some retailers have asked the Public Utility Commission of Texas to waive their obligation to pay those charges while their challenges are ongoing.

Freepoint Commodities LLC has also appealed to the commission, saying they intend to challenge Ercot’s ancillary service charges and are concerned the grid operator lacks the liquidity to return any successfully disputed payments.

On Friday, the grid operator announced it would cover part of the shortfall with $800 million in congestion revenues, money generated from trading bottlenecks on the grid that is supposed to be returned to consumers. Using congestion revenues will likely hit retailer margins, according to Caron.

“They are going to have to figure out how to recoup those margins and if they are still alive and standing after this, anticipate the fixed-rate price contracts to go up for customers,” he said.

Bloomberg Markets

By Naureen S Malik, Catherine Traywick, David R Baker, and Mark Chediak

February 26, 2021, 4:45 PM PST Updated on February 27, 2021, 4:00 AM PST

— With assistance by Joe Carroll

Ercot Still Short $1.3 Billion in Energy Payments: Texas Update.

A second day of marathon hearings on Texas’s unprecedented energy crisis raised concerns about the liquidity of the state’s power market, and who will ultimately pay for the disaster as some companies face bankruptcy.

Several utilities told Texas lawmakers Friday that they were still awaiting payment from the grid operator, known as Ercot, for power they provided during the grid emergency, with at least one worrying whether they would be paid at all. As the hearings continued into the evening, Ercot issued a notice saying they remain $1.3 billion short of what they need to pay generators, due to nonpayment from other market participants.

The historic outage left more than four million homes and businesses without heat, light and water during a deep winter freeze, causing as much as $129 billion in economic losses. Dozens of people died. The impact to individual companies is only starting to emerge, with some wracking up huge losses while oil and gas producers saw their output halted. Seven members of Ercot’s board have resigned in the aftermath.

Continue reading.

Bloomberg Green

By Mark Chediak, David Wethe, Joe Carroll, and Naureen S Malik

February 26, 2021, 6:41 AM PST Updated on February 26, 2021, 2:54 PM PST

Texans Will Pay for Decades as Crisis Tacks Billions Onto Bills.

Now that the lights are back on in Texas, the state has to figure out who’s going to pay for the energy crisis that plunged millions into darkness last week. It will likely be ordinary Texans.

The price tag so far: $50.6 billion, the cost of electricity sold from early Monday, when the blackouts began, to Friday morning, according to BloombergNEF estimates. That compares with $4.2 billion for the prior week.

Some of those costs have already fallen onto consumers as electricity customers exposed to wholesale prices wracked up power bills as high as $8,000 last week. Other customers won’t know what they’re in for until they receive their gas and power bills at the end of the month. Ultimately, the financial pain will probably be shared by ratepayers and taxpayers alike, said Michael Webber, a professor at the University of Texas at Austin and chief science officer for French power company Engie SA.

If prior U.S. power market failures are any guide, Texans could be on the hook for decades. Californians, for example, have spent about 20 years paying for the 2000-2001 Enron-era power crisis, via surcharges on utility bills.

CPS Energy, which is owned and run by the city of San Antonio, said on Twitter it was looking into ways to spread costs for the last week over the next 10 years. That didn’t sit well with its customers, who railed against the company’s proposal during a board meeting on Monday.

“Spreading the cost of this event over a decade is unacceptable,” said Aaron Arguello, an organizer with Move Texas. “Customers are already in debt with student loans, mortgages and other payments.”

But companies that ran up huge losses as the cost of electricity skyrocketed last week will inevitably try to recoup those through their customers, taxpayers or bonds. How quickly Texans pay depends on who their provider is.

Gas utilities usually pass the costs onto customers at the end of the monthly billing cycle, said Toby Shea, a senior credit officer at Moody’s Investors Service. Municipal utilities, co-ops and regulated power providers have the ability to spread out costs over a longer time-frame. “It’s very easy for a government to spread this out for many years and even a few months,” he said.

CPS Chief Executive Officer Paula Gold-Williams said last week the company may also issue bonds to help pay for the natural gas it bought at inflated prices.

Some utilities are looking to secure hundreds of millions of dollars in liquidity to spread out costs for 10 to 20 years, said Scott Sagen, an associate director in U.S. public finance at S&P Global Ratings. Rayburn Country Electric Cooperative Inc., for example, has fully drawn its $250 million syndicated line of credit and has recently entered into a $300 million bilateral line of credit with National Rural Utilities Cooperative Finance Corp. for one year, according to an S&P report published Monday.

A number of utilities are in talks with their banks to get liquidity to pay off their current debts so they can then take out a bridge loan that they’ll convert to long-term bonds. “They’re trying to smooth out these costs as much as possible and provide cover for their customers,” Sagen said.

But small retailers who tend to be more thinly capitalized and less robustly hedged have limited options. One such company, Griddy, said last week it would challenge the prices set by the grid operator during the crisis, in an apparent bid to recoup losses for itself and its customers. Another company, Octopus Energy, said Monday it would forgive any energy bill in excess of the average price of electricity for the week, and eat the resulting losses which could be millions of dollars.

The state’s utility regulator on Sunday blocked power sellers from disconnecting customers for non-payment, saying the governor and lawmakers need time to come up with a plan to address sky-high bills, first. Texas lawmakers will likely take up the discussion of consumer relief as part of their committee hearings on the crisis which will begin this week, a spokesman for the Public Utility Commission of Texas said.

In theory, the legislature could pass an emergency bill that could cover the excessive costs charged by generators during the crisis, said Julie Cohn, an energy historian with affiliations at Rice University’s Center for Energy Studies and the University of Houston’s Center for Public History. “Another piece would be to say you can have a competitive power market that we have, but prohibit the provider from linking the price directly to the wholesale price, as Griddy does.”

That would be easier to do in a state that takes a more heavy-handed regulatory approach to its electricity market, according to Webber. But Texas decided to take a more hands off approach with its deregulated system, he said.

“The question is where is the money going to come from?” Shea said. “Will Texas go and bail out certain customers? That’s not their attitude toward how they manage their market or manage their economy.”

Bloomberg Green

By Mark Chediak, Naureen S Malik, and Josh Saul

February 22, 2021, 2:38 PM PST Updated on February 23, 2021, 4:00 AM PST

— With assistance by Rachel Adams-Heard, and Sergio Chapa

Fitch: Texas Public Power Utilities Ratings Pressured Amid Cost Surge

Fitch Ratings-New York-25 February 2021: Operating challenges and significantly higher prices for power and natural gas triggered by severe winter weather has led to a surge in costs for public power utilities in Texas. Early indications are that cost increases for utilities forced to rely on market purchases could be in the hundreds of millions of dollars, potentially straining liquidity and margins, Fitch Ratings says. Fitch has placed all Electric Reliability Council of Texas (ERCOT)-based municipal and cooperative utility ratings on Rating Watch Negative.

Texas’s municipal and cooperative utilities are usually able to maintain sufficient resources to meet customer demand and are generally exempt from the state’s competitive supply market. However, the unprecedented winter weather that swept through Texas earlier this month led to electricity demand well beyond what the state’s utilities and grid operator, ERCOT, anticipated.

Extreme cold weather conditions froze generating equipment and limited gas supplies, rendering some units inoperable. Public utilities were then forced to purchase power and gas on the market at an exorbitant cost, as energy prices reached ERCOT’s market price cap of $9,000/MWh and spot gas at the Houston Ship Channel pricing point averaging more than $200 per million British Thermal Units (MMBTU). Prices for those commodities hovered around $20/MWh and $3/MMBTU, respectively, earlier this year and have since returned to similar levels.

Public power issuers typically maintain robust cash balances and enjoy local rate autonomy. However, the unprecedented costs threaten liquidity and timely cost recovery. Utilities may need to increase borrowings over the medium term to support operations, increasing leverage and weakening credit quality. If funds are borrowed from local governments, other municipal utility systems or affiliated cooperatives, credit pressures could also mount for these related entities.

It remains to be seen if the state legislature will reform the Texas power grid and marketplace, and therefore the effect of any potential changes on public power and cooperative utilities is uncertain. Changes requiring infrastructure to store energy in reserve, reserves/excess capacity, and greater interconnectivity with other parts of the national grid to provide support in an emergency are all possible, but could prove challenging given the complexity and disaggregated nature of the Texas marketplace.

Fitch previously noted the risks associated with declining reserve margins in ERCOT and a reliance on purchased power. ERCOT targets a system-wide planning reserve margin of 13.75%, although utilities are not required to provide capacity or reserve margins on an individual basis, as is the case in other organized US electric markets.

Public power systems in the states surrounding Texas, including Oklahoma and Missouri, are also reporting higher costs, but the amounts are lower and appear more manageable. In cases where the cost burden strains financial performance and liquidity, and timely recovery is unlikely, credit metrics and ratings for public utilities in these surrounding states could also be pressured.


Dennis Pidherny
Managing Director, US Public Finance
+1 212 908-0738
Fitch Ratings, Inc.
Hearst Tower
300 W. 57th Street
New York, NY 10019

Sarah Repucci
Senior Director, Fitch Wire
+1 212 908-0726

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings.

Puerto Rico Bonds, MBIA Stock Jump on Restructuring Settlement.

Yield on 30-year U.S. Treasury bond hits pre-pandemic level

A settlement between creditors in Puerto Rico’s bankruptcy case lifted prices of the commonwealth’s municipal bonds and shares of insurance companies that guaranteed payments on the bonds.

Traders have driven up prices of the island’s benchmark $3.5 billion general obligation bond due 2035 by 3.3% to around 78 cents on the dollar after the Tuesday deal removed one of the last logjams in Puerto Rico’s nearly four-year journey through bankruptcy court. Roughly $400 million face amount of the bond changed hands Tuesday and Wednesday, making it one of the most actively traded securities in the municipal-bond market, according to data from Electronic Municipal Market Access.

Shares of the insurers that guaranteed payments on billions of dollars of Puerto Rico’s defaulted bonds also rose as the settlement removed some uncertainty about the amount of claims they would need to pay. MBIA Inc.’s stock has jumped around 13% this week, while Ambac Financial Group Inc.’s shares have gained about 7.2%.

Continue reading.

The Wall Street Journal

By Matt Wirz

Feb. 24, 2021 10:12 am ET

Puerto Rico Rides Muni-Bond Rally to Bankruptcy Deal.

Creditors owed roughly $11.7 billion agreed to settle with Puerto Rico, expecting that its court-supervised bankruptcy is nearing an end

Puerto Rico moved closer to resolving the largest municipal-debt default in U.S. history as creditors owed $11.7 billion coalesced around a settlement, the most Wall Street support yet amassed for a restructuring of the territory’s core public debts.

Creditors agreed to cut $18.8 billion in general obligation debt by around three-fifths to $7.4 billion, wagering that booming market demand for risky municipal debt will help generate profits for them while easing Puerto Rico’s exit from bankruptcy.

The proposed settlement released Tuesday would lower Puerto Rico’s interest payments to bondholders to levels that its financial supervisors believe it can support after years of population loss and economic decline.

“We achieved a fair, sustainable, and consensual agreement that puts Puerto Rico on a path to recovery and is an important tool to lift the weight of bankruptcy from the people and businesses of Puerto Rico,” said David Skeel, chairman of the financial oversight board that steered negotiations.

Some bonds covered by the deal have gained value in recent months, buoyed by fixed-income investors’ appetite for high-yielding municipal debt and expectations that Puerto Rico’s court-supervised bankruptcy is nearing its end. The agreement marks the culmination of months of private talks between finance officials and creditors to assess the long-term damage to key economic sectors like tourism and hospitality stemming from Covid-19.

Emerging from bankruptcy will remove the uncertainty hanging over Puerto Rico about how much legacy debt will need to be repaid and on what terms, Mr. Skeel said.

Investment firms that participate would exchange their claims for a mix of $7 billion in cash, $7.4 billion in restructured bonds and tradable securities known as contingent value instruments that only pay out if sales-tax collections exceed certain projections. Large bondholders including GoldenTree Asset Management LP and Autonomy Capital are backing the settlement, along with bond guarantors Assured Guaranty Ltd. and MBIA Inc.

A sustained rally in high-yield municipal bonds, including Puerto Rico’s, helped to ease the deal, according to bondholders and advisers involved in negotiations. Yield-hungry investors have been drawn to risky municipal bonds in part due to the U.S. Federal Reserve’s commitment to ultralow rates, which make fixed-income returns hard to find.

Expectations that federal support for Puerto Rico will increase with the White House and both houses of Congress under Democratic control are also fueling the rally in debt from the territory, according to analysts and investors. The S&P Municipal Bond Puerto Rico Index has returned 5.65% over the past year even after a post-pandemic selloff, outperforming other baskets of risky municipals maintained by S&P Dow Jones Indices.

The stronger the market demand for Puerto Rico bonds, the more the restructured debt will be worth, the less of it that needs to be issued to compensate bondholders, and the stronger the incentive for them to sign on to a settlement.

“It’s been a seller’s market, so any municipal bond that’s out there is gobbled up, much less a municipal bond that’s going to have a little bit of extra yield,” said Tom Kozlik, head of municipal strategy and credit at HilltopSecurities Inc. “It’s going to be very well accepted.”

While Puerto Rico debt was largely held before its bankruptcy by traditional municipal holders and individual investors, many bonds migrated over time into the hands of hedge funds that bought at depressed prices in hopes of profiting from a deal.

Any restructuring requires approval from the federal judge overseeing Puerto Rico’s bankruptcy case and still faces obstacles, including objections by Gov. Pedro Pierluisi and other elected leaders to reducing pension benefits of public employees.

The agreement was finalized under the oversight board that has been supervising Puerto Rico’s finances since the territory defaulted. Former President Donald Trump in his final months in office overhauled the board’s membership, installing several of his own selections at a critical juncture in the restructuring.

Justin Peterson, a Trump appointee and former bondholder adviser who joined the board in October, called the settlement a “significant milestone in ending bankruptcy for the people of Puerto Rico” that “would not have been possible without the flexibility of creditors in reaching a deal.”

Not all bonds covered by the settlement are being treated equally, with fixed recoveries ranging from as high as 80.3 cents on the dollar to 67.7 cents for Puerto Rico’s last sale of debt before its default, a $3.5 billion issuance in 2014.

The lower recoveries on some bonds reflect arguments by the board that Puerto Rico breached constitutional ceilings on debt in 2012, rendering subsequent bonds invalid and worthless, which bondholders denied.

The settlement, if approved, would end the legal battles that have raged since Puerto Rico filed for bankruptcy in 2017, costing taxpayers in the territory more than $858 million in fees and expenses for lawyers, bankers and other professionals as of last month. Some rulings stemming from that litigation have undermined longtime assumptions among investors about the safety of some types of municipal bonds, although Puerto Rico’s struggles have been viewed in some quarters as an isolated incident within the typically staid tax-exempt market.

The bankruptcy came after years of heavy borrowing and service cutbacks in Puerto Rico that affected everything from schools to electricity service and pushed many residents, who are U.S. citizens, to depart for the mainland, sapping the tax base and squeezing budgets. The territory’s financial troubles have strained its relationship with Washington and slowed the release of federal aid following the devastating 2017 hurricane season.

Efforts toward an economic revival in Puerto Rico have also been complicated by corruption allegations against public officials and political turmoil stemming from a former governor’s forced resignation in 2019 as well as more recent earthquakes and the continued fallout from the coronavirus pandemic.

Bond recoveries under the settlement are somewhat lower than what some creditors agreed to receive before the pandemic, reflecting the resulting financial hit to Puerto Rico, ratings firm Moody’s Investors Service said.

The board said it expects to file a debt-adjustment plan incorporating the deal in federal court next month. Creditors will have the chance to vote before it can be approved.

The Wall Street Journal

By Andrew Scurria

Updated Feb. 23, 2021 6:40 pm ET

Puerto Rico Bondholders Cheer Deal Paving Way to End Bankruptcy.

Puerto Rico’s nearly four-year bankruptcy took a step forward as it reached a tentative deal with creditors to reduce the $18.8 billion of debt backed by the central government, giving hope the island could exit its insolvency in 2021 after natural disasters, political turmoil and the coronavirus stalled the process.

While the pact would lower Puerto Rico’s debt to $7.4 billion and brings together competing bondholder groups and bond insurers holding more than 60% of its debt, it will need court approval. Governor Pedro Pierluisi doesn’t support the plan as he and the island’s legislature oppose any cuts to public employee pensions, which a federally-appointed oversight board is seeking.

Still, the agreement moves forward the largest municipal bankruptcy in history and drove up the price of the island’s bonds. The oversight board aims to receive court approval of the plan in the fall and conclude Puerto Rico’s bankruptcy by the end of 2021. That would help enable the commonwealth to grow its economy and increase jobs on the island.

“There was a lot of concern about if they could get a deal with so much uncertainty and the economic outlook, so it definitely gives much more optimism,” Daniel Solender, head of municipal securities at Lord Abbett & Co., said about the debt deal. “No one is going to be happy here, but there has to be a compromise to get this done after so many years.”

The deal gives bondholders a $7 billion cash payment and $7.4 billion of new general-obligation bonds through a debt exchange. Investors would also receive a so-called contingent-value instrument that would pay off if sales taxes surpass projections.

The oversight board plans to file a debt restructuring plan to the court by March 8. That will include the board’s proposal to cut pensions by as much as 8.5%, with those receiving less than $1,500 a month exempt from such reductions. The changes would help fix a broke pension system that must pay retirees solely from the commonwealth’s operating budget as the system is unfunded and owes an estimated $55 billion to future and current retirees.

Still, Pierluisi and other lawmakers object to any benefit reductions. Their support will be needed as the debt plan advances because the island’s legislature would need to approve the sale of the new general-obligation bonds to restructure the existing debt.

“This is part bondholder negotiation and part politics, you have to mesh both of them into the final plan,” said Dora Lee, director of research at Belle Haven Investments.

Even with the risk of the court rejecting the debt deal or island lawmakers holding up a plan, prices on Puerto Rico securities jumped after the oversight board released details of the accord Tuesday.

General obligations with an 8% coupon traded Tuesday at an average 77.5 cents on the dollar, up from 74.7 cents on Monday, according to data compiled by Bloomberg. That’s higher than the 67.7 cents on the dollar that bondholders would receive for that security in the debt plan.

Since the bondholder payouts include different components of cash, new bonds and potential future sales-tax revenue, investors may be calculating each part of the compensation package differently, which may be boosting prices, Solender said.

They’re also looking at how Puerto Rico’s restructured sales-tax bonds, called Cofinas, have jumped in price since the commonwealth issued the debt in February 2019 as part of its bankruptcy. A sales-tax bond maturing in 2058 traded at 110.7 cents on the dollar Tuesday, up from 97.4 cents when the securities were first issued in February 2019, Bloomberg data show.

“It’s hard not to factor in that experience of Cofina to the outlook for these bonds too,” Solender said about the prospect for Puerto Rico’s restructured general obligations. “So it’s definitely part of the equation in terms of determining what the existing bonds are worth.”

Bloomberg Economics

By Michelle Kaske

February 24, 2021, 6:38 AM PST

Puerto Rico Reaches Deal to Restructure $18.8 billion of Debt.

Puerto Rico reached a proposed settlement with bondholders to restructure $18.8 billion in debt as part of an effort to emerge from bankruptcy, its federal oversight board announced Tuesday.

The proposed agreement with the Financial Oversight and Management Board calls for a 27% average reduction for general obligation bondholders and a 21% average reduction for Public Buildings Authority bondholders, and reduces their claims on some interest payments. If finalized, bondholder debt would be cut to $7.4 billion.

Holders of more than $11.7 billion of bonds support the agreement, including traditional municipal investors and monoline bond insurers Assured Guaranty, Syncora Guarantee and National Public Finance Guarantee, while mediation continues with holders of Puerto Rico Government Employees Retirement System bonds, general unsecured claims, monoline bond insurers with clawback claims, and creditors holding other claims against the government of Puerto Rico.

Oversight board Chairman David A. Skeel said in a statement that the agreement puts Puerto Rico on a path to recovery. “I firmly believe this is the best outcome we could achieve in today’s economic uncertainty, not only for the people of Puerto Rico but also for creditors who have an interest in Puerto Rico’s long-term viability and creditworthiness.”

The oversight board will present a restructuring plan next month based partly on the agreement with creditors and other agreements already achieved with a retirees’ group and some unions, as well as the outcome of the ongoing mediation with other creditor groups.

Natalie Jaresko, executive director of the oversight board, said in the statement that reducing annual debt service payments combined with a new debt policy enacted last year that restricts incremental debt issuance “to avoid the mistakes of the past” will establish sustainable debt levels and allow Puerto Rico to focus on structural reforms and growth.

“All of this puts Puerto Rico on a path to renewed market access,” Ms. Jaresko said.

In a separate statement, several creditor groups with a collective $8.2 billion in general obligation and PBA bond claims endorsed the proposal agreement, which includes several creditor concessions.

“This widely supported compromise will help Puerto Rico avert years of costly, distracting litigation and finally expedite the island’s long-awaited exit from bankruptcy in 2021,” they said.

“Creditors have agreed to assume more risk and further align themselves with Puerto Rico’s revitalization by taking a portion of their recovery in a contingent value instrument that only pays out if the Commonwealth’s economy outperforms the May 2020 Certified Fiscal Plan,” they said.

“We firmly believe the new PSA (Puerto Rico Support Agreement) will help Puerto Rico continue to support its 3 million citizens during these difficult times while also laying the groundwork for a much brighter economic future,” they added.



February 23, 2021

Sacramento Sells New Housing Bonds to Profit Off San Francisco Exodus.

Municipal-bond buyers have a chance this week to profit from San Francisco workers fleeing to lower-cost Sacramento.

The state’s capital on Wednesday is selling more than $43 million of unrated special-tax bonds to help finance infrastructure improvements for an area that may encompass as many as 2,175 single-family homes, 331 multi-family units, 189 senior affordable apartments and commercial and retail space. It’s the first such sale for a community known as Northlake that’s being developed by a joint venture of Lennar Homes and Integral Communities 9 miles (14 kilometers) from downtown.

Development of the massive housing project near the Sacramento International Airport comes as people flee the pricey Bay Area in search of bigger and cheaper homes and companies such as Inc., San Francisco’s largest private employer, embrace remote work policies even after the pandemic ends.

“If you don’t need to be in San Francisco or very near it, it’s appealing for some homeowners or potential buyers to move out of an apartment or an expensive condo to a place like this, where you get a single-family home and maybe just more open space,” said Terry Goode, a senior portfolio manager at Wells Capital Management. “That’s clearly a factor that you want to look at when you’re assessing the ultimate success of the development, and whether there’ll be demand ultimately for the home.”

The sale is the biggest unrated special-tax deal in the municipal market since September, according to data compiled by Bloomberg. Bond buyers are scrounging for returns as Federal Reserve policies help keep yields near record lows. Municipal-bond funds that invest in the riskiest securities — such as unrated debt — pulled in the second-highest amount of weekly cash on record last week.

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A 4% coupon bond maturing in 2050 was being offered at 2.83% Tuesday, or 150 basis points more than benchmark, according to a pricing wire seen by Bloomberg News. A bond maturing in 10 years with a 4% coupon was being offered at 2.33% yield, or 155 basis points more than benchmark.

Sacramento’s sale Wednesday is for the first phase of the development, which entails 1,137 market-rate single-family homes to be built by the first quarter of 2026, according to bond offering documents. Lennar in January opened model homes ranging from 1,774 square feet (165 square meters) to 3,940 square feet.

The city will start collecting the special tax paid by the landowners this fiscal year at rates depending on the progress of development and the kind of residence, with enough revenue to cover 110% of the debt service every year, according to the document. The city isn’t obligated to cover any shortfalls in bond payments.

Sacramento’s allure to people chafing under the higher costs in the San Francisco region has intensified during the pandemic, as employees such as those in technology companies are allowed to work remotely instead of in downtown offices. It is California’s sixth-biggest city, compared with No. 4 San Francisco.

Sacramento was the most popular search destination for San Francisco residents looking to leave in the fourth quarter, according to online real estate brokerage Redfin. Sacramento’s median home price was $457,000 in January, a 12% increase from the previous year but still about 60% less than the median price in San Francisco, Redfin figures show.

“It could be seen as a win-win from constituents that desire to relocate to our city, but also helps obviously from an economic point of view down the road for the city and the city’s finances,” said Brian Wong, Sacramento’s debt manager.

Bloomberg Markets

By Romy Varghese

February 16, 2021, 10:30 AM PST

— With assistance by Natalia Lenkiewicz

American Dream Mall Bonds Gain More Than 20% as Traffic Picks Up.

Municipal bond buyers are wagering on a big recovery for the American Dream.

Bonds issued for the mall and entertainment complex in New Jersey’s Meadowlands have returned more than 20% so far this year as consumers come back and investors snap up the riskiest securities.

The mall, which reopened on Oct. 1, last week reported sales of $54 million in 2020, with $39 million collected in the fourth quarter. Sales at U.S. department stores grew for the first time in a year last month as consumers spent their $600 stimulus checks, according to Mastercard SpendingPulse.

“As more stores opened and the vaccine is rolled out, we think that traffic at enclosed malls should rebound, with levels at American Dream continuing to rise relative to comparable malls,” Barclays Plc muni strategists led by Mikhail Foux, wrote in a research note Thursday.

Yields on investment grade municipal bonds have plunged to record lows against Treasuries as investors keep pouring billions into mutual funds, spurred by optimism about the economic recovery and the prospect that Congress will extend some $350 billion of aid to states and local governments. That money has been chasing fewer bonds as the pace of new sales slows down, driving up prices and leading some fund managers to shift into riskier securities to get higher yields.

The bonds issue for the American Dream in 2017 was one of the biggest issues of unrated securities ever in the municipal market, reflecting the risk associated with the retail industry even before the pandemic struck.

The longest maturity American Dream bonds have delivered 25.8% this year, almost 10 times the return for junk and non-rated municipal bonds, according to data compiled by Bloomberg. On Thursday, $5 million American Dream bonds with a 7% coupon maturing in 2050 traded at 111.7 cents on the dollar to yield 4.94%. In September the same securities traded at 87 cents to yield 8.2%.

“It’s further evidence that strong cash flows into open-end mutual funds and limited supply is driving investors to buy bonds down the credit spectrum in an effort to pick up yield,” said Robert Amodeo, head of municipals at Western Asset Management Company.

American Dream owners Triple Five Group issued about $1.1 billion municipal bonds to help finance the complex, which includes an amusement park, water park, ice rink and indoor ski slope. The deal consists of $800 million bonds backed by payments in lieu of taxes and about $300 million that are secured by New Jersey grants it will receive if the project meets sales-tax revenue targets

Barclays estimated the mall received about $2.6 million of 2020 grant revenue to cover expenses and debt service on bonds backed by those payments. While this is lower than $44 million base case in the bond prospectus, it is above the downside scenario that estimated no revenue in 2020.

The grant revenue bonds, which traded Thursday at a 4.6% yield, are attractive relative to the high-yield muni index, which yields 3.4%, Barclays said.

Barclays has “proprietary” data from cell phones, electronic devices and cars showing traffic going into American Dream picking up, said Mayur Patel, a Barclays muni analyst.

“If mall traffic and sales continue to increase, grant revenues might continue to grow, although they are likely to track the downside scenario for the next few years,” according to Barclays analysts.

Bloomberg Markets

By Martin Z Braun

February 18, 2021, 10:46 AM PST

— With assistance by Anne Riley Moffat

Philly is Facing a $450 million Budget Gap and the Pain Won’t Stop There.

It could take years for the city to recover from the fiscal impact of the pandemic, and there will soon only be enough money in reserves to run the city for about three days.

Philadelphia officials offered a grim outlook for the city’s finances Tuesday as they warned that the budget Mayor Jim Kenney presents this spring could come with painful cuts to fill a $450 million deficit.

The pain won’t end there: It could take years for the city to recover from the fiscal impact of the coronavirus pandemic, officials said, and there will soon only be enough money in reserves to run the city for about three days.

The warning came as local and state governments across the country are hoping for relief from a new federal coronavirus relief package. Philadelphia officials expressed optimism about the desperately needed lifeline from Washington but said it won’t solve the city’s dire financial situation by itself.

Continue reading.

The Philadelphia Inquirer

by Laura McCrystal

Updated Feb 17, 2021

To Bridge the Digital Divide, Cities Tap Their Own Infrastructure.

The challenges of virtual school have pushed some cities to try new ideas for expanding internet access.

When the pandemic shut down schools in March, it created a new urgency to narrow the digital gap in the U.S. as millions of students struggled to participate in remote learning because they didn’t have internet access at home. It also reinforced the reality that the divide doesn’t just exist between rural and urban communities, but also within America’s largest cities. Some 500,000 households lack reliable connection in New York City, for example; in Chicago, 1 in 5 students don’t have broadband, according to data published at the start of the pandemic.

As many local governments have scrambled to secure internet access for children in virtual school, some policies could last past the pandemic. One popular approach in cities like Washington, D.C., and Chicago has been providing low-cost or free service to families who can’t afford a broadband subscription, and the tech devices to go with them. Some measures are currently set up to last only a year, while others, like Chicago’s, will continue for several years. Recognizing that the digital divide will persist after the pandemic, digital inclusion advocates say there is a need for more permanent solutions.

One approach that’s gained traction is for local communities to play a direct role in providing internet service — in many cases by building their own or relying on their own infrastructure.

Continue reading.

Bloomberg CityLab

By Linda Poon

February 8, 2021, 3:30 AM PST

Minnesota Supreme Court Holds General Contract Disclaimer in Employee Handbook May Not Prevent Creating Contractual Obligations to Pay Out PTO.

Fourteen years ago, in Lee v. Fresenius Med. Care, 741 N.W.2d 117 (Minn. 2007), the Minnesota Supreme Court held that an employer’s obligation to pay out unused paid time off (“PTO”) to an employee at termination depends on what the employer’s PTO policy dictates. The holding was consistent with Minnesota law as it did not require employers to offer any PTO to employees. The issue of whether PTO is owed at time of termination is a question of contract, and employers can set the terms with a carefully drafted policy.

Last week, in Hall v. City of Plainview, Case No. A19-0606 (Minn. Feb. 3, 2021), a divided Minnesota Supreme Court held that the employer’s PTO policy contained in an employee handbook (“Handbook”) could still be an enforceable contract with respect to the PTO policy specifically, although the Handbook repeatedly stated it was not a contract.

The Handbook in question contained several contract disclaimers at the outset, including: “The purpose of these policies is to establish a uniform and equitable system of personnel administration for employees of the City of Plainview. They should not be construed as contract terms.” And: “[t]he Personnel Policies and Procedures Manual is not intended to create an express or implied contract of employment between the City of Plainview and an employee.”

With the disclaimers, the Handbook also contained the PTO policy which read, in part: “When an employee ends their employment with the City, for any reason, 100% of the accrued unused personal leave time will be paid up to 500 hours, unless the employee did not give sufficient notice as required by the policy.” Another section of the Handbook provided that if an employee does not provide 14 days’ notice of resignation, the employee is not considered “in good standing” and “may be considered cause for … denying leave benefits.”

In Hall, the City terminated an employee who had managed its municipal liquor store for 30 years after the employee refused to “voluntarily resign” in lieu of termination. The City’s letter offering the opportunity to resign instructed the employee that if he resigned “with sufficient notice,” the City would pay him up to 500 hours of his unused PTO. At that time, the employee had accrued 1,778.73 hours of unused PTO. Because the City ultimately terminated the employee as he refused to resign, the City refused to pay out any of his PTO. The City reasoned that, “due to [the employee]’s failure to provide sufficient notice as set forth in the Handbook,” he was not entitled to the PTO payout. The employee sued the City for breach of contract, alleging that the City owed him a PTO payout.

Ultimately, a jury will decide if the employee will get paid for his unused PTO. The Court held that the City’s detailed PTO policy may be definite enough to create a unilateral contract, the employee accepted the contract by performing work, and concluded “that this broad and general contract disclaimer language in the Handbook’s introduction, in the context of the entire Handbook and the relationship between the City and its employees, is ambiguous as to its applicability to the PTO policy…. If the City truly wanted to preserve the right to withhold accrued PTO compensation from an employee after the employee had performed work for the City while the provision governing payment for accrued PTO was in place, it should have been more precise and clear about that intent.” Because the Court found that the disclaimer language within the Handbook was ambiguous with respect to the PTO policy, the case was sent back to the district court for a fact finder to decide the merits of the case (“the question of the impact of the Handbook’s general disclaimer on [the employee]’s claim is for a fact-finder to determine”).

The Chief Justice dissented, explaining: “I disagree with the majority that the employer’s intent to form a binding contract is ambiguous and must be determined by a jury…. In its quest for fairness, the majority has created uncertainty and confusion, which will benefit neither employees nor employers.” Justice Anderson joined in the dissent.

Based on the Hall decision, employers should review their PTO policies and handbooks to evaluate what (if any) contractual obligations employers may face, intentional or unintentional. Please reach out to the Jackson Lewis attorney with whom you regularly work with any questions related to your employment or workplace law policies.

Jackson Lewis PC – Gina K. Janeiro and Jessica M. Marsh

February 12 2021

San Francisco-Area Cities Face Precarious Budgets Amid Pandemic.

San Francisco and several neighboring cities are watching revenue slip more than expected, leaving local leaders grappling with whether the pandemic has permanently transformed their finances.

The effects vary. Oakland must make cuts to close a $62 million shortfall this year, while San Jose may cover its $10 million decline in general-fund revenue with reserves. San Francisco faces a $411 million deficit next year after having largely exhausted one-time measures.

Collectively, the results show that the region, a hub for the technology industry that drove California’s economic boom, is struggling with the multiple rounds of state and local orders imposing and relaxing business restrictions to combat the spread of the coronavirus.

The loss of revenue from canceled conventions to fewer lunching downtown workers also underscores the area’s vulnerability to the rise of remote work. San Francisco’s fiscal analysts last month warned real estate markets like theirs “face an uncertain future” should workers fail to return to their offices as they did before the pandemic. On Tuesday, Inc., San Francisco’s largest private employer and occupant of its tallest tower, said it would permanently embrace more flexible work policies even after the pandemic ends.

That compounds the difficulty facing municipal leaders, who can’t predict virus surges and further mandates restricting activities, as they craft budgets. At the same time, companies are still mulling their policies on what kind of workforce and space they should have after the pandemic eases, said Greer Cowan, a research analyst at the Bay Area Council Economic Institute, which focuses on the nine-county region.

“There’s so much uncertainty surrounding when it’s safe to return to the office and, additionally, both business and employee preference around when they want to return and if they want to return to the office that it makes sense that cities are having a hard time getting a grasp on it,” she said.

Municipal-bond analysts are closely watching if anecdotal evidence of workers leaving expensive cities such as New York translates into permanent hits to their economies. Credit rating companies S&P Global Ratings and Fitch Ratings cut their outlooks on San Francisco’s ratings to negative from stable, reflecting uncertainty about its recovery given changing work habits and pressure on commercial real estate and tourism.

Here’s a snapshot of fiscal conditions by city:

San Francisco:

San Jose:


Mountain View:

Bloomberg Politics

By Romy Varghese

February 10, 2021, 10:30 AM PST

Texas Airport Facility Borrows for First Time Since Covid.

For investors betting on air travel’s comeback, the municipal-bond-market is ready for you.

A rental car facility at the airport in one of America’s biggest boomtowns is selling bonds, the first such debt offering of its kind since the pandemic began.

The Austin, Texas facility refinanced about $147 million of bonds to help ease debt service payments — giving it more than enough breathing room to stay afloat until the pandemic is over. The deal comes as the U.S. is vaccinating nearly 1.5 million Americans a day, and coronavirus cases across the nation are on the decline.

“Now there’s more of a consensus that this part of the economy has made it through a challenging time,” said Daniel Solender, director of tax-free fixed income for Lord, Abbett & Co., which is looking at the Austin deal. “Now there’s an end in sight. Definitely optimism.”

Final pricing for the Austin deal came in with yields between 50 basis points and 160 basis points above Treasuries, reflecting stronger demand for the earlier-maturity debt and weaker demand for securities with the longest due dates, according to data compiled by Bloomberg. That’s compared with preliminary pricing wires reflecting spreads between 55 basis points and 130 basis points.

The investment-grade-rated facility is joining dozens of cities, hotels, museums, airports and toll roads that have been using the steep drop in borrowing costs to push off debt payments or cut them by refinancing. That’s helped keep distress relatively rare in the $3.9 trillion market, despite the myriad stresses issuers have faced.

Doug Benton, a senior municipal credit manager at Cavanal Hill, said the strong market conditions are a “silver lining” for borrowers who can ease the financial burden of the pandemic by refinancing. It also shows how far the state and local debt market has come. Less than a year ago, munis were on the precipice of a deep selloff that sent interest rates skyrocketing and scuttled billions in bond deals.

“Now we’re one-hundred and eighty degrees from that,” he said.

The offering comes amid strong demand for state and local debt. Investors are pouring money into muni mutual funds. Inflows reached $2.79 billion during one week in January, the second biggest influx ever, and these funds have seen inflows for 13 straight weeks.

The Austin facility is rated A3, four levels above junk, by Moody’s Investors Service and an equivalent A- by Fitch Ratings with a negative outlook by Fitch because of the uncertainty around air travel.

U.S. Transportation Security Administration traveler checkpoints have recovered from a low of 87,534 passengers in April, averaging more than 706,000 passengers per day in the first week of February, but the numbers are still far below this period last year, where an average of 2 million passengers passed through airport security.

The lack of travel has had a major impact on the finances of airports and the facilities they run. This includes rental car facilities, which were already facing pre-pandemic challenges from the rise of ride-sharing services operated by Uber Technologies Inc. and Lyft Inc., according to Bloomberg Intelligence analyst Eric Kazatsky.

Over the past year, credit rating companies have downgraded rental car facility bonds for similar projects located at Charlotte Douglas International Airport, the Hartsfield-Jackson Atlanta International Airport and the Phoenix Sky Harbor International Airport. S&P Global Ratings rates 14 consolidated rental car facilities borrowers with about $2.8 billion in outstanding debt, according to analyst Todd Spence. The ratings company downgraded the credit rating on all but one of those borrowers in 2020.

“Despite some of the challenges, or issues people are well aware of, I’d be surprised if there wasn’t extreme demand,” Jeff Timlin, a managing director at Sage Advisory Services, said of the Austin deal. “There’s so much money out there that needs to be put to work.”

Bloomberg Markets

By Fola Akinnibi and Amanda Albright

February 9, 2021, 12:06 PM PST Updated on February 9, 2021, 1:53 PM PST

— With assistance by Natalia Lenkiewicz

Miami Pushes Crypto With Proposal to Pay Workers in Bitcoin.

Miami Mayor Francis Suarez proposed paying municipal workers and collecting taxes in Bitcoin, expanding a campaign to promote cryptocurrencies.

The mayor wants to allow the City of Miami’s workers to choose to receive all or a portion of their pay in Bitcoin, according to a resolution passed by the city’s governing commission. In addition, the mayor proposed allowing people to pay all or part of property taxes or city fees in crypto.

Although the commission approved the resolution 4-1, it significantly dialed back its original wording. It only agreed to study the practicality of such steps, rather than taking action, as the original proposal had suggested.

Suarez has been courting Silicon Valley investors and technology companies for months, and adopting Bitcoin is a critical part of that plan. “I think we’re on the cusp of seeing a major titanic shift on this,” Suarez told the city commission. ”It’s an industry that’s boisterous, vociferous and growing, and this would send the right signal.”

Suarez also wants the city to analyze the feasibility to invest some government funds in Bitcoin, the resolution said. It’s not clear how much of that is actually possible: Florida statutes have strict limitations on how local governments can invest surplus funds, generally restricting investments to low-volatility instruments such as those issued by the U.S. government. In the past year alone, Bitcoin has shown it can double in price — or lose half its value — in a month’s time.

Suarez doesn’t seemed fazed by volatility: Miami, the mayor’s original resolution said, “is committed to promoting the emergence of Bitcoin as it continues to gain mainstream acceptance.”

Some city commissioners cautioned against embracing Bitcoin without a close study of the risks. “Let’s analyze this before we jump in,” said Manolo Reyes, a commissioner. “Maybe you’re ahead of your time, maybe you’re right, but let’s analyze it.”

New Ideas

Suarez, who is up for re-election this year, has portrayed himself as someone who is willing to consider and promote new ideas. Late in 2020, he started engaging with Silicon Valley technology investors on Twitter, and his efforts to lure them to Miami have become a viral sensation.

While Suarez’s Twitter campaign may have given him new influence, the mayor of the City of Miami doesn’t control the budget or municipal workforce or get a vote on the commission. He asked voters to give him more managerial power, but the initiative failed.

The proposal comes in a week when Tesla Inc. disclosed it had made a $1.5 billion investment in Bitcoin, a big vote of confidence from the world’s leading electric-carmaker. Mike Novogratz, the billionaire founder of cryptocurrency investment firm Galaxy Digital, said in an interview Monday that “it’s the messaging that matters,” even if the investments themselves are relatively small.

In the resolution, the mayor described Bitcoin as an increasingly popular asset for people, corporations and major investors. The plan is part of a campaign to make Miami a city that “embraces new technologies,” the resolution said.

Ken Russell, vice-chairman of the city commission, said he’s “certainly not opposed” to the idea of integrating Bitcoin into the city’s business, but it’s important to ensure “we all know what we’re getting into.”

“What needs to be done is diligence, and not just from the legal perspective,” he said in an interview Wednesday. “It’s not just a currency, it’s a concept.”


By Jonathan Levin and Michael Smith

February 11, 2021, 2:38 PM PST Updated on February 11, 2021, 7:48 PM PST

California Statewide Financing Authority -- Moody's upgrades Tobacco Asset-Backed Bonds issued by California Statewide Financing Authority

Rating Action: Moody’s upgrades Tobacco Asset-Backed Bonds issued by California Statewide Financing Authority – Approximately $61 million securities affected

New York, February 11, 2021 — Moody’s Investors Service has upgraded the ratings of four tranches in the tobacco settlement revenue securitization issued by California Statewide Financing Authority.The complete rating actions are as follows:Issuer: California Statewide Financing Authority (Pooled Tobacco Securitization Program) , Series 2002Ser. 2002A Term Bonds 1, Upgraded to A3 (sf); previously on Aug 1, 2018 Upgraded to Baa1 (sf)Ser. 2002A Term Bonds 2, Upgraded to Ba1 (sf); previously on Jul 26, 2016 Upgraded to Ba2 (sf)Ser. 2002B Term Bonds 1, Upgraded to A3 (sf); previously on Aug 1, 2018 Upgraded to Baa1 (sf)Ser. 2002B Term Bonds 2, Upgraded to Ba1 (sf); previously on Jul 26, 2016 Upgraded to Ba2 (sf)RATINGS RATIONALEThe upgrade actions are primarily driven by further deleveraging and the availability of cash reserves. In addition to the factors discussed above, the rating actions are generally driven by future projections of cigarette shipment volume declines, which is estimated to be 3-5% in the next five years.There is a risk of continued shifts in attitudes towards smoking, as well as further regulation. Tobacco settlement ABS are exposed to social risks that reduce cigarette consumption, lowering the revenue available to repay tobacco bonds. Factors that could accelerate such declines are further changes in demographics and shifts in social attitudes towards smoking. Such trends could also result in further regulation that restricts tobacco use. Furthermore, the marketing of new products that are currently less regulated could expose tobacco companies, who are the obligors in the transactions, to litigation risk. However, because regulation takes several years to come into effect, we view this as a moderate risk at this stage.Exposure to these identified social risks is broadly manageable, or could be material to the credit quality the bonds in the medium to long term (five or more years). However, it may be less certain that the identified risks will develop in a way that is material to bond ratings. These identified risks have been taken into account in the analysis of the ABS.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Our analysis has considered the effect on the performance of corporate assets from the current weak U.S. economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.PRINCIPAL METHODOLOGYThe principal methodology used in these ratings was “Tobacco Settlement Revenue Securitizations Methodology” published in May 2020 and available at Alternatively, please see the Rating Methodologies page on for a copy of this methodology.Factors that would lead to an upgrade or downgrade of the ratings:UpMoody’s could upgrade the ratings if the annual rate of decline in the volume of domestic cigarette shipments decreases, if future arbitration proceedings and subsequent recoveries for settling states become more expeditious than they currently are, or if additional settlements are entered into which benefit the bonds.DownMoody’s could downgrade the ratings if the annual rate of decline in the volume of domestic cigarette shipments increases, if subsequent recoveries from future arbitration proceedings for settling states take longer than Moody’s assumption of 15-20 years, if an arbitration panel finds that a settling state was not diligent in enforcing a certain statute which could lead to a significant decline in cash flow to that state, or if additional settlements are entered into which reduce the cash flow to the bonds.

February 11, 2021


For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody’s determines based on its assessment of the collateral characteristics. Moody’s then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody’s weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.Moody’s quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating.

For further information please see the ratings tab on the issuer/entity page for the respective issuer on any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on see for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on for additional regulatory disclosures for each credit rating

Will Some OC Cities’ Proposed Pension Gamble Save Public Money or Risk Greater Losses?

Officials in Santa Ana and Orange think they’ve found a solution to their skyrocketing employee pension debt crisis.

Much of the crisis is fueled by the expansion of salaries and benefits for police and firefighters, some of the most politically active groups at Orange County city halls.

Though some wonder whether the solution proposed — to issue bonds, pay off the existing unfunded pension liability, and repay the private bondholders at lower interest rates — could open the door to a host of more problems.

They’re called “pension obligation bonds.” Santa Ana put the idea forward last week and Orange could make a decision on Tuesday. Other cities who have looked or are looking into the issue include Huntington Beach, Anaheim, Placentia, and La Habra.

It’s a controversial idea, seen as a money-saving engine by advocates but a risky gamble by critics like former state Senator and OC Supervisor candidate John Moorlach, who warns the bonds are speculative and vulnerable to fluctuating economic conditions:

“City officials think it’s a solution, but it could blow up.”

Local labor leaders like Monica Suter, president of the Service Employees International Union (SEIU)’s Santa Ana chapter, say it’s a necessary measure to ensure those serving in the public sector get the retirement benefits they deserve:

“From the beginning, SEIU 721 members in the City of Santa Ana have been on the frontlines of the pandemic, keeping vital city services running throughout this public health crisis.”

Suter added: “Members like these spend a lifetime working for and earning their pensions, a deferred benefit. And, just as it can make sense to refinance a home when interest rates are low, it can be fiscally responsible to address other long-term obligations, similarly.”

Orange and Santa Ana are required to meet the pension and benefits commitments they make to their retirees by doling out periodical payments to the California Public Employee Retirement System (CalPERS), which administers the pension plans.

CalPERS calculates how much debt a city owes through a formula weighing factors like the number of a city’s retirees and rate of return (net gain or loss) CalPERS sees on the investments the agency makes with some of its money.

Unfunded liabilities for cities occur when the total amount of obligations to future retirees exceed the funds that a city has set aside for those payments over the next few decades.

This liability can also grow if CalPERS falls short on its investments, and if retirees live longer than expected.

Both Orange and Santa Ana, like many Orange County cities, have massive unfunded pension liabilities which increased by hundreds of millions of dollars over the last decade due to factors like, in Santa Ana specifically, pay raises for police officers.

Santa Ana’s combined unfunded liability for all employees is around $707 million, according to a presentation at the council’s Feb. 2 meeting by Finance Director Kathryn Downs.

Around $404 million of that amount comes from the city’s pension liability to “sworn safety employees,” which includes police officers.

And the interest builds on that liability.

Orange City Council members on Tuesday will decide whether they want to issue a bond not exceeding $292 million, to pay off what officials say will be 100% of their unfunded liability.

“The most viable option, and the option that has the greatest potential savings, is the issuance of Pension Obligation Bonds (POBs),” staff said in a report attached to the agenda for the City Council’s meeting.

Santa Ana officials largely welcomed the idea when given a report on it by Downs, who estimated the city could cut the interest rate they owe to CalPERS in half by issuing the pension obligation bonds.

Issuing a bond could produce annual savings of up to approximately $3.8 million to the city, according to staff.

Staff there will come back with an actual ordinance at a later date.

“It’s a path to save the organization and the city quite a bit of money, realizing these pension debts are continuing to increase,” said Mayor Vicente Sarmiento at the City Council’s Tuesday, Feb. 2 meeting.

And in a labor-friendly city like Santa Ana, officials indicated that finding a way to save money and pay off the CalPERS debt could send a positive message to workers who look forward to retiring.

“I really do believe everybody deserves a plan for retirement,” said Councilwoman Thai Viet Phan at the meeting. “Especially folks who have dedicated their lives to public service.”

All city employees also pay varying percentages of their paychecks into their plans, Downs said.

But the idea is met with criticism by some fiscal conservatives like John Moorlach, who say the strategy amounts to a gamble based on a number of factors and — before the pandemic — even tried to get a state bill passed requiring certain pension bonds to go before voters as ballot measures.

Moorlach pointed to the official stance on pension obligation bonds taken by the Government Finance Officers Association, which argues the bonds “involve considerable investment risk, making this (savings) goal very speculative.”

“Failing to achieve the targeted rate of return burdens the issuer with both the debt service requirements of the taxable bonds and the unfunded pension liabilities that remain unmet because the investment portfolio did not perform as anticipated,” the association states.

Moorlach said that if the cities stay with CalPERS, they at least are in a flexible position with their “soft” debt to where they could renegotiate future payments should they find themselves in a fiscal predicament.

Additionally, Downs at the Santa Ana meeting said that if the city issued the bonds but CalPERS outperformed its investment return assumptions, “the debt will not decrease.”

Though she pointed to the agency’s average investment returns over the past several years, which undershot those assumptions.

Downs at the Santa Ana meeting said the city could mitigate the risks involved with pension bonds by issuing a bond of less than 100% of the unfunded debt. For example, she recommended the city issue a bond that didn’t exceed 90% of the city’s pension debt.

Other options outside of pension bonds, Down said, involve paying down a bulk of the city’s liability over a shorter time span to avoid higher payments due to interest rates.

Both Santa Ana and Orange studied the issue through the same financial consulting firm, Urban Futures.

At the end of the day, officials in Santa Ana agreed something must be done.

Required contributions to CalPERS are growing faster than the city’s revenues, Downs said, and are estimated to grow more than 40% over the next seven years.



Brandon Pho is a Voice of OC reporter and corps member at Report for America, a GroundTruth initiative. Contact him at [email protected] or on Twitter @photherecord.

Steve Cohen Saves Mets $50 Million in Debt Refinancing.

Steve Cohen has owned the New York Mets for three months and Wall Street bond rating analysts like what they’ve seen so far.

Cohen, a hedge fund manager who paid $2.4 billion for the team, has bolstered the balance sheet of the subsidiary that leases and operates Citi Field with a $50 million capital injection, according to S&P Global Ratings Inc. He’s moved quickly to sign all-star shortstop Francisco Lindor and pitcher Carlos Carrasco from the Cleveland Indians in an effort to turn around a club that finished tied for last in the National League East last year.

And next week, the Mets plan to take advantage of surging demand for lower-rated municipal bonds to refinance $540 million of debt issued to fund the construction of Citi Field more than a decade ago. The deal will reduce debt service payments by about $50 million over the next three years — giving the ball club breathing room to weather the risks of reduced attendance because of the pandemic.

Holders of the new debt will benefit from an increase in the percentage of ticket revenue available to pay debt service by 40%, equating to about $43 million annually before 2020.

“In a short period of time we have actionable things you could point to that showed the impact of the change in ownership,” John Medina, a Moody’s Investors Service analyst said in an interview. Moody’s raised the ratings on Citi Field bonds one notch to Baa2, the second-lowest investment grade, on Jan. 28.

Strong demand for municipal bonds, coupled with scant new issues and an improving economic picture have driven prices on AAA rated municipal bonds relative to U.S. government securities to record highs. As a result, investors have poured into lower-yielding municipal bonds, pushing their yields down in turn.

Yields on municipal bonds rated BBB fell to 1.71% on Feb. 3, a record low, according to Bloomberg Barclays Indexes. Triple B rated state and local government debt now yields about 1 percentage point more than AAA bonds, the narrowest spread since March and just 0.3 percentage point more than pre-pandemic lows.

BBB Rated Muni Spreads are Close to Pre-Pandemic Levels
“With the vaccines there’s some light at the end of the tunnel,” said Dan Solender, head of municipal debt at Lord, Abbett & Co. “The money’s coming in and the expectation is that credits can only get better from here.”

The pandemic led Major League Baseball to cut last year’s season to 60 games from 162 and state and local health mandates barred fans from attending regular-season games. Citi Field’s revenue plunged to $28.2 million for the nine months ending Sept. 2020 from $148.7 million, according to a bond offering document. The stadium collects revenue from advertising, naming rights, and luxury suite premiums in addition to tickets, concessions and parking. The revenue is used to make payments in lieu of taxes, which back the bonds.

In spite of their poor record on the field, the Mets are the sixth most valuable Major League Baseball team, according to Forbes Magazine, valued at $2.4 billion, and the team ranked 13th in attendance, with 2.4 million. Last year, the Mets missed the playoffs for the fourth straight year.

Cohen “is willing to invest as needed to build a winning organization with a goal of winning the World Series in 3-5 years,” according to an investor presentation by Goldman Sachs Group Inc., the underwriter for next week’s bond sale.

New York Governor Andrew Cuomo’s decision to allow limited fan attendance at two Buffalo Bills National Football League playoff game bodes well for at least some attendance at Citi Field when the season starts in April, Medina said. The rating company projects 2021 attendance at 35% of 2019 levels, reaching 80% in 2022 and 100% in 2023. S&P forecasts the Mets will play in an empty Citi Field through June, or roughly half the season, and then operate at 40% capacity for the remainder. S&P rated the bonds BBB-, one step lower than Moody’s.

The bonds that are being refinanced were sold in 2006 and 2009 and carried interest rates as high as 6.6%, according to the offering documents. Under a prior stadium use agreement, only revenue from 10,600 premium seats was retained by the ballpark. That agreement was amended in December so that revenue generated from 31,000 additional seats is available to pay debt. The refinancing will reduce debt service by about $150 million, according to S&P.

“As the stadium is able to increase capacity to normal levels, and our expectation that fan demand returns to or at least close to pre-virus levels, the project will reap the full benefit of the expanded retained ticket revenue,” S&P said.

Bloomberg Markets

By Martin Z Braun

February 5, 2021, 10:36 AM MST

Record Refinancing Buys Nassau County Reprieve From Tax Hit.

Residents of New York’s Nassau County, the stretch of Long Island where property taxes are among the highest in the nation, are getting a reprieve, thanks to a rally in the municipal-bond market.

Seizing on interest rates that are holding near the lowest in more than six decades, the county sold $1.1 billion of bonds Thursday, the largest refinancing in the county’s history. The step will pay off previously issued securities, push out looming debt payments, and provide cash to cover budget shortfalls left by the pandemic.

The bond sale will allow the county to “avoid what otherwise would have been a significant tax increase and/or cut to mission critical services,” said Adam Barsky, the chairman of the Nassau Interim Finance Authority, the control board that oversees the county budget.

The county of some 1.4 million people is joining a rash of governments that have been refinancing debt to push out or cut their bills after shutdowns drove the economy into the steepest contraction since World War II. In Nassau County, business closures cut sales-tax collections by 4% last year, according to the New York State Comptroller’s office.

The drop, while smaller than initially expected, put pressure on the county’s budget nonetheless. “It’s still a significant drop — and that’s where the relief is really going to be applied, to backfill the loss of sales tax,” said Barsky, who projected the bond deal will save the county $285 million this year and $150 million in 2022.

The bonds are rated AAA from S&P Global Ratings because they are backed by sales-tax receipts that are sent by the state directly to the trustee for bondholders. They sold for yields ranging from 0.26% on debt due in 2023 to 1.64% for some low coupon bonds that mature in 2030, according to data compiled by Bloomberg.

Craig Brandon, co-director of municipal investments at Eaton Vance Management, said that provides a safeguard for investors.

“Investors would be very comfortable investing in this because you’re fairly comfortable that you’re going to be repaid,” he said.

“You’ve already probably seen the worst case scenario in sales-tax revenues for Nassau County,” he said. “I think the coverage only gets stronger in the future as sales taxes go back to their normal level.”

Bloomberg Markets

By Anastasia Bergeron

February 4, 2021, 7:00 AM MST Updated on February 4, 2021, 2:59 PM MST

Fitch: Job Recovery Stalling for Northeast & Midwest U.S. Metros

Fitch Ratings-New York-28 January 2021: Job recoveries in major Northeastern and Midwestern metropolitan statistical areas (MSAs) lost ground between October and November, according to Fitch Ratings’ latest U.S. Metro Labor Markets Tracker.

Job recoveries in Northeastern MSAs have ranged between 55% and 56% since September. Restrictions imposed on restaurants and other non-essential businesses in many Northeastern states could be at least partially responsible for the flat performance during the fall. New York City, in particular, lags the national and Northeast recoveries in recovering just 50% of the jobs lost early in the pandemic. As for the Midwest, Chicago, the country’s third-largest MSA by population, has struggled to build momentum. Chicago’s jobs recovery has grown by only 2pps since August and employment declined between October and November. Also notable among the Midwest’s stagnation is the dip in Indianapolis’ recovery rate.

‘Recovery rates are likely to remain little changed or decline in the coming months given softening macroeconomic data and high-frequency data, pointing to continued declines in small business hours worked and less mobility across the regions,’ said Fitch Senior Director Olu Sonola.

This stagnation comes as the median jobs recovery rate (the share of employment regained from pandemic losses) among major metropolitan statistical areas (MSAs, or metros) improved between October and November 2020, rising to 58% from 55%. The median Fitch-adjusted monthly unemployment rate for major metros, which reclassifies those who had left the labor force since the onset of the pandemic and have re-entered as unemployed persons, was 8.2% in major MSAs during October — notably higher than the median official unemployment rate of 6.3% for major MSAs.

Fitch’s latest “U.S. Metro Labor Markets Tracker” is available at ‘’.

N.C. Supreme Court: Quasi-Municipal Corporations Are Immune from State Antitrust and Section 75-1.1 Liability

We have previously discussed whether a local-government entity can be sued for money damages based on a federal antitrust violation. Today’s post discusses a similar question: are quasi-municipal corporations—a type of local-government entity—exempt from liability under section 75-1.1 and North Carolina’s antitrust laws? Last month, the Supreme Court of North Carolina unanimously answered yes to that question.

The cases against Atrium Health

On three occasions (here, here, and here), we’ve discussed a group of high-profile antitrust cases involving Atrium Health, the large public-hospital system in Charlotte formerly known as the Charlotte-Mecklenburg Hospital Authority. These cases target “steering restrictions” in Atrium’s contracts with insurance companies. The steering restrictions limit an insurer’s ability to direct their insureds to healthcare providers other than Atrium. The plaintiffs—insured patients who have received care at Atrium—allege that Atrium’s steering restrictions have anti-competitive effects, including that they give Atrium’s competitors less incentive to keep costs low and to be more efficient.

One case against Atrium, DiCesare v. Charlotte-Mecklenburg Hospital Authority, landed in the North Carolina Business Court. The plaintiffs alleged that Atrium’s steering restrictions violate multiple provisions of chapter 75, including section 75-1.1 and North Carolina’s antitrust laws.

Continue reading.

Ellis & Winters LLP – Scottie Lee

January 26 2021

Los Angeles Airport Sells Bonds to Buyers Betting on Rebound.

Los Angeles International Airport increased the size of its bond sale Wednesday to about $900 million, showing investors’ confidence in its ability to weather the turbulence from the pandemic-related shutdowns, as well as their eagerness for yield.

At the airport’s last sale in August, some buyers balked, leaving the underwriter Goldman Sachs saddled with unsold bonds. This time, though, the new administration of President Joe Biden is pledging speedier shipments of coronavirus vaccines — which were authorized for emergency use in December — and investors are clamoring to own debt from issuers poised for a rebound in a post-Covid landscape.

Given its strong balance sheet before the outbreak, Los Angeles’s airport is positioned well to absorb the drops in passengers and revenue, Terry Goode, a senior portfolio manager at Wells Capital Management, said before the sale. He pointed to the airport’s projection that it will have ample resources to cover debt service even if it takes five years for fliers to return to pre-pandemic levels.

“If you’re going to be participating in the airport sector, LAX is one of your strongest credits,” said Goode, who was evaluating the new deal. “I would put LAX clearly as one of the winners.”

The airport offered two series of subordinate tax-exempt bonds and one of subordinate taxable debt. Underscoring investor demand, it increased the size of the tax-exempt portions to $807 million from $664 million and was able to lower the yield on a 5% coupon tax-exempt bond due in 2051 to 1.87% from 1.97% in preliminary guidance, according to wires viewed by Bloomberg.

Investors are anticipating more federal aid may come for municipal governments and services such as commercial airports in particular, which had already received $10 billion from a previous stimulus package. The expectation has helped drive more cash into municipal-bond mutual funds and lower yields.

Airport bonds have paid off for investors in the past, with returns beating the overall market five out of the past seven years, according to ICE Bank of America indexes. Meanwhile, issuance of municipal bonds by U.S. airports plummeted by about 50% in 2020 from the previous year, according to data compiled by Bloomberg.

“In today’s market, there’s a tremendous amount of money flowing into the market, looking for the tax shelters, looking for a higher yield environment and safety that the municipal bond industry offers,” said Ted Galgano, senior municipal strategist at UBS Global Wealth Management. “And there’s not a lot of products, not a lot of supply. Our trader was lamenting that she can’t find airport deals to buy.”

To be sure, the unprecedented decline in airline passengers isn’t for the most risk averse. Last year, global air traffic dropped 64%, according to Airports Council International. For the Los Angeles gateway — the world’s third-busiest airport in 2019 — passenger volumes declined by 75% in July to November last year from the same period the previous year, according to a presentation to potential investors.

Still, the airport’s size distinguishes itself from others. Unlike some hubs, Los Angeles doesn’t depend on the fortunes of one or two airlines. No carrier accounted for more than 20% of revenue-generating passengers last year, the presentation showed.

Moody’s Investors Service, which has a negative outlook on U.S. airports this year, has a stable outlook on Los Angeles’s ratings because of its diverse revenue base. Unlike other U.S. airports, which typically aren’t in the top investment grades because of the risk of travel disruptions and reliance on airlines, Los Angeles’s rating for senior securities is the company’s fourth-highest, Aa2, said Moody’s senior analyst Earl Heffintrayer.

“In fact, LA’s rating for the senior lien bond at Aa2 is the highest airport rating we have,” he said.

Bloomberg Markets

By Romy Varghese and Anastasia Bergeron

January 27, 2021, 10:06 AM MST Updated on January 27, 2021, 3:38 PM MST

— With assistance by Danielle Moran

S&P: California’s Fiscal 2022 Executive Budget Cuts Out-Year Deficit Projections By More Than Half

Key Takeaways

Continue reading.

28 Jan, 202

Illinois Tax Revenue Losses Lower than Expected During Pandemic, U. of I. Study Finds.

Illinois’ loss of tax revenue because of the pandemic was much lower than experts predicted in the spring when COVID-19 first took hold, but “tremendous uncertainties” persist moving forward, a University of Illinois study released Tuesday found.

The pandemic hit state tax revenues hard last spring when a widely restrictive stay-at-home order was in effect, but much of that early loss was recovered in subsequent months, according to the report from the University of Illinois’ Institute of Government and Public Affairs.

The initial federal coronavirus relief package Congress approved in the spring sent billions of dollars streaming into Illinois’ economy through stimulus checks to individuals and Paycheck Protection Program loans to businesses, acting as a “catalyst for increased spending,” the study found.

Based on an analysis of state tax receipts through November, the study found that people “began to adapt their behavior” to what was allowed during the pandemic and “once retail establishments and restaurants began curbside pickup services, sales started to rise.”

“There was a steep fall in spending in most categories in April and May, then a recovery toward pre-COVID-19 levels. Spending has not recovered completely, but it is near what it likely would have been in the absence of COVID-19,” the authors wrote.

Despite their upbeat conclusion, the authors of the study warned there remains “more than a fair amount of uncertainty” because of the possibility of future coronavirus surges and the timeline for distributing vaccines.

Much of the state’s general fund revenue loss in the budget year that ended June 30 was due to extending the income tax filing deadline into July, and “well over half of that revenue loss has been recouped,” said Kenneth Kriz, director of the Institute for Illinois Public Finance at the University of Illinois at Springfield and the study’s lead author.

Once that delayed income tax deadline passed in July, “revenue was significantly above the model’s forecast, returning in August to near the forecasted level.”

The pandemic’s hit to the state’s budget remains significant. The loss to the state’s general funds was $868 million from major revenue sources, the study concluded based on the analysis of state tax receipts. Across all state funds, the loss was $1.44 billion.

That still falls short of conservative projections from the spring, when forecasters predicted revenue drops of 15% to 20% and the U. of I. researchers said the pandemic could cost the state “billions of dollars and possibly cost tens of billions of dollars.”

The state’s budget for the year that began July 1 is $43 billion.

Following the failure at the ballot box in November of his signature policy proposal, a graduated-rate income tax, Gov. J.B. Pritzker warned of “painful” budget cuts on the horizon.

Deputy Gov. Dan Hynes, Pritzker’s top budget adviser, said the governor’s office made an upward revision of its own revenue projections in November. “And hopefully that continues, but the improved revenues are not going to be enough to close the gap,” Hynes said Tuesday.

A separate Pritzker proposal that sought to block a federal tax code change in a coronavirus relief plan from applying to state tax bills, which the administration said would prevent the loss of up to $1 billion in revenue, failed in the Illinois House earlier this month during the legislature’s lame-duck session.

Pritzker is due to introduce his proposal for the state’s next budget year next month.

The administration is still looking to Washington for help filling the hole, a prospect that became a little brighter under President Joe Biden and Democratic majorities in both houses of Congress. Republicans have criticized Pritzker and Democrats for counting on federal aid in the budget they crafted last year.

“We don’t regret building that into our plan, and if it does not materialize, we’re going to have to make those adjustments,” Hynes said. “But we didn’t want to have to cut billions of dollars in critical state programs either when there was still a possibility that the federal government would provide us some relief.”


JAN 26, 2021 AT 5:50 PM

NJ Legislation Allowing Municipalities to Issue Bonds for Passenger Cars Using Renewable Power Sources Clears Committee.

(TRENTON) – Promoting the State’s clean energy goals, Assemblyman John McKeon (D-Essex, Morris) sponsors legislation approved Wednesday in the Assembly Environment and Solid Waste Committee that would allow towns to purchase passenger cars and station wagons driven by municipal employees fueled by renewable energy.

The bill (A-2208) would permit counties and municipalities to issue bonds to acquire passenger cars and station wagons that are fueled by battery or equivalent energy storage devices that can be electrically charged. It would allow local governments to spread out the costs of acquiring new passenger vehicles while simultaneously promoting the State’s clean energy goals.

Upon committee approval, McKeon issued the following statement:

“Our state is moving in the positive direction toward using clean energy and more efficient vehicles through renewable power. This bill will allow local governments to acquire new passenger vehicles driven by municipal employees while broadening our aspiration for a cleaner and healthier environment.”

January 27, 2021

Fitch: Improved Revenue Outlook Supports California's Budget

Fitch Ratings-New York-21 January 2021: California Governor Newsom’s executive budget proposal for fiscal 2022 benefits from better than anticipated tax collections, as compared to the deep declines assumed in the enacted fiscal 2021 budget, says Fitch Ratings. The proposed budget also prudently allocates higher available revenue to addressing the pandemic while also rebuilding budgetary resilience.

The state now projects fiscal 2021 revenues will be $28 billion (22.5%) higher than the June 2020 enacted budget estimate, essentially matching the pre-pandemic forecast. General fund revenues, prior to transfers, are forecast to further increase 5.2% to $161.6 billion in fiscal 2022, $39 billion (32%) higher than the June 2020 estimate.

The state attributes the improved revenue performance to the unusual nature of the coronavirus-related downturn, in which higher-wage taxpayers have both been protected from job losses and have benefitted from the strong stock market. This has allowed the state’s progressive personal income tax structure and taxing of capital gains to generate the higher than anticipated tax revenue. It also reflects a less severe economic downturn than was assumed in the fiscal 2021 budget. The economic assumptions underlying the governor’s budget proposal align with Fitch’s economic outlook for the U.S., with the state assuming 3.1% real national GDP growth in 2021. However, California’s relatively volatile tax structure leaves it vulnerable to wide swings in economic activity.


The governor is requesting early action on several items intended to provide immediate relief to individuals and small businesses considered to be disproportionately affected by the pandemic. These one-time actions include $2.4 billion to provide $600 payments to low-income workers, $575 million for grants to small businesses and small non-profit cultural institutions, and additional targeted relief for other industries, including restaurants and personal services. However, the budget was developed prior to enactment of the December federal stimulus bill, and legislative action is likely to take recent and expected federal actions into account.

The budget also requests immediate action to provide $2 billion in incentives to schools to re-open as early as February and accelerates repayment of deferrals that were incorporated into the fiscal 2021 budget. Education funding will automatically significantly increase due to the requirements of Proposition 98 in both the current year and the budget year.


As has been the state’s practice, the governor takes a fairly conservative approach to using increased revenue by limiting growth in ongoing spending, rebuilding reserves, and paying down long-term liabilities. The executive budget begins to restore the $7.8 billion draw on the rainy day fund, known as the Budget Stabilization Account (BSA), that helped balance the fiscal 2021 budget. It also provides $2 billion to continue programs that otherwise would sunset during the coming fiscal year, applies $3 billion in supplemental payments to reduce retirement liabilities (required under Proposition 2 and above the actuarial requirement), and provides limited additional funding for various policy initiatives.

The proposed budget adds $7.2 billion to the BSA across fiscal years 2021 and 2022, bringing the balance to $15.6 billion, or 9.6% of revenues. In contrast to prior economic downturns when the state’s reserves were limited, the BSA helped address the anticipated revenue gap as the pandemic unfolded and continues to provide flexibility to address revenue volatility. The budget also allocates $6.3 billion to other operating reserves.

Fitch anticipates details of the enacted budget will vary from the governor’s plan, which will be updated in May to reflect federal actions and any changes in the economy. But, as in recent years, the general approach of limited recurring spending growth, focus on one-time actions, and restoring resilience will likely carry through.


Karen Krop
Senior Director
Fitch Ratings, Inc.
300 West 57th Street
New York, NY 10019

Karen Ribble
Senior Director

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

California Inequality During Outbreak Drives Its Budget Windfall.

California’s budget is benefiting from the disproportionate impact of the coronavirus outbreak that’s thrown lower-income employees out of work and onto the streets while highly paid residents who can work remotely are snapping up new homes to ride out the pandemic.

The state, with a progressive tax system that rakes in more revenue when the income of the highest earners rises, expects to collect a record amount from capital gains as wealthy residents reap the rewards of a booming stock market. California has taken in more in sales-tax receipts year to date than it did over the same period last year as people shop online for everything from groceries to $275 pajamas.

California’s reliance on the fortunes of the rich, which led to multi-billion dollar deficits in the past, is allowing it to now project a $15 billion surplus after officials had previously girded for a $54 billion two-year shortfall. As Covid-19 infected more than 3 million people and killed almost 35,000 in California, officials there, as in other states now scaling back their initial dire forecasts, failed to estimate the extent of the success of the top 1% amid the pandemic.

“Everything is pointed up for the state of California right now,” said Jennifer Johnston, director of research for Franklin Templeton Fixed Income’s municipal bond team. “This recessionary period has not impacted high wealth earners. And the state is highly reliant on them for cash revenue. They’re generally still employed, they haven’t seen the layoffs like we’ve seen among low income.”

California, which levies a top rate of 13.3% on income, is home to more billionaires than any other U.S. state, according to the Bloomberg Billionaires Index ranking of the world’s wealthiest 500 people. Nearly half of the state’s personal income tax collections come from the top 1% of earners.

Meanwhile, nearly half a million leisure and hospitality jobs in California have been lost year to date, while the typically higher-paying financial activities sector added 4,300 positions over the same period, another sign of the uneven recovery. A survey released in December from the Public Policy Institute of California showed that about 40% households with annual incomes of under $40,000 reduced work hours or pay in the last 12 months, with a similar share forced to cut back on food.

The state’s finances are likely to be buttressed even more as the new Biden administration pushes a $1.9 trillion Covid relief package that could send more federal aid to the Golden State. That could allow Governor Gavin Newsom and lawmakers to redirect state tax money toward those most in need.

Newsom has proposed tapping the surplus for $600 checks to 4 million low-income Californians. He also wants to spend $1.75 billion on housing and homelessness programs and $2 billion to help schools open for in-person education more quickly.

But the state’s flush treasury obscures a disturbing trend: high-profile companies such as HP Inc. and billionaires such as Elon Musk are leaving the state. While businesses and people have for years departed the Golden State for lower-tax locations, the pandemic and the potential of remote work continuing in the future raises concerns that the exodus could speed up and pose a risk to the vibrancy of the world’s fifth-largest economy. Indeed, despite the surplus, the state still sees deficits ahead.

“The fact that the state is still running a budget surplus this year reduces the urgency to solve some of these longer-term problems,” said Scott Anderson, Bank of the West’s chief economist. “I do think the economic pain could grow, the longer they delay these sorts of adjustments. And there could be a bit of a snowball effect.”

When asked during his recent budget briefing what he can do to prevent more companies and billionaires from leaving the state, Newsom noted the success of recent initial public offerings of companies based there. He pointed to his proposed budget allocations to education and business grants when pressed.

“The state is still this remarkable, remarkable home to more dreamers and doers than any other part of the globe,” the first-term Democrat and businessman said. “There’s no state on planet Earth that I’d rather do business in than the state of California.”

But for some Democratic lawmakers, more needs to be done to help those hurt most by the pandemic after years of growing inequality. Several members of the Assembly have introduced a bill that would raise the corporate tax rate on certain companies for a dedicated funding stream for homelessness services.

As the pandemic bears down more heavily on lower-income residents, lawmakers will have to make difficult decisions while balancing the budget with deficits projected in the future, said Howard Cure, head of municipal research at Evercore Wealth Management.

“The long-term negative effects of the pandemic, it’s going to last for a while,” he said. “How willing are you to put in additional monies above the formulas to help all these schools districts make up for it or provide more Internet access or housing needs to help poor people, even though they’re not contributing that much proportionately to the state’s budget?”

Bloomberg Business

By Romy Varghese

January 21, 2021, 5:00 AM MST

— With assistance by Jack Witzig

California Endowment Taps Bond Market for First Time in 18 Years.

The California Endowment, the largest health foundation in the state, plans to offer its first debt sale in nearly two decades to help alleviate some of the financial pressure charities around have been facing due to Covid-19.

The $3.9 billion endowment plans to price $300 million of bonds as early as this week to fund grants to nonprofit groups. This is the first time it has sold so-called “social bonds,” though it previously issued $80.6 million of debt in 2003. The taxable bonds, which will be sold with a corporate identifier, carry a triple-A rating from Moody’s Investors Service and S&P Global Ratings.

The sale comes as other endowments have sold similar debt in 2020 to advance their charitable contributions amid the pandemic and its economic fallout. The Ford Foundation borrowed a record $1 billion for grants in June, while the Rockefeller Foundation sold bonds in October and the Bush Foundation in November.

“The Covid pandemic has really unmasked any and all manner of structural inequality and health inequality for vulnerable populations in our nation and in California,” Robert Ross, president and chief executive officer of the endowment, said during a telephone interview. “What these dollars are intended to do is for those organizations who are fighting the battles of systems change and policy change, and structural change — these are dollars intended to support them.”

The endowment said the securities carry a “social bond” label because spending of the proceeds will track with accepted guidelines of the International Capital Market Association. It engaged Sustainalytics, a ESG and corporate governance research and ratings company, to provide an outside opinion that the bonds align to social bond principles.

This outside opinion is beneficial as investors “don’t want to buy a bond, put it into a socially designated fund, and then find out later that the proceeds aren’t being used for socially responsible uses,” said Eric Friedland, director of municipal bond research at Lord, Abbett & Co.

Given the endowment’s purpose of giving grants to health-care entities, Friedland said “it’s pretty easy to see that this would fit nicely into a socially labeled fund.” He said his group’s decision to invest will depend on its pricing.

The triple-A rating, the highest rating possible, is given with confidence that the $300 million debt “is in line with the mission and given they do have assets to more than amply cover any outstanding obligations,” said Phillip Peña, associate director at S&P.

The endowment says it has awarded more than 22,000 grants totaling $2.9 billion since it was founded in 1996. The endowment was created as a requirement for the conversion of the nonprofit Blue Cross of California to the for-profit WellPoint Health Networks. The sale is the first from the organization for grant-making, inspired by the success of its peers while also seizing on historically low interest rates, Ross said.

“The rates being at historic lows was the foundational rational for doing this at this time,” he said. “Money has never been cheaper to borrow.”

Bloomberg Markets

By Anastasia Bergeron

January 20, 2021, 5:00 AM MST

— With assistance by Danielle Moran

Los Angeles Has Been Hammered by Covid. But Its Muni Bonds Are Holding On. Here’s Why.

Los Angeles is suffering what may be the hardest Covid-related health and economic hit of any big city. But the city’s $2.6 billion in municipal bonds outstanding, while hardly thriving, appear in decent shape.

Unemployment in the Los Angeles region, at 9.6% in November, was the highest among the five biggest metropolitan areas and 3.2 percentage points worse than the national average. And that was before the surge of infections and deaths in Southern California accelerated into the new year, straining hospitals and morgues and dashing hopes for a rebound in the city’s revenue.

Fitch Ratings analyst Alan Gibson last month revised the outlook to negative on Los Angeles’ AA issuer default rating, citing “the extensive budget-balancing actions necessitated by the current economic downturn, which have the potential to reduce the city’s financial resilience during the subsequent economic recovery period.”

The pandemic threatens to reverse much of the progress the city made in the decade since the Great Recession, as it built its rainy-day reserves to almost $600 million in 2019. With the revenue shortfall for fiscal 2021 at $700 million, the city is about to pull a quarter of a billion dollars from reserves. Having already agreed to furloughs and early retirement for some city employees, Los Angeles is poised to start layoffs at its 10,000-member police department, a sign of fiscal distress to municipal bond professionals.

“When you see they’re starting to cut into a significant number of employees, they’re not just cutting fat in the budget,” says Tom Kozlik, head of Municipal Strategy and Credit at Hilltop Securities. “They’re cutting into the muscle.”

Los Angeles’ budget woes mirror those of cities, states, and authorities across the nation, as they struggle to fill a trillion-dollar revenue shortfall over three years caused by the pandemic. An unexpected dip in U.S. jobs in December dashed hopes that the U.S. economy will rebound quickly enough to ease the budget pain.

“The revenue decline that the City of Los Angeles has suffered as a result of Covid is multiples more than the decline during the Great Recession,” says City Councilman Paul Krekorian, who chairs the council’s budget committee. “We’re now experiencing the biggest surge [in Covid] in the county. We have no reason to think our revenue is going to get better in the next months.”

At the same time, Democratic victories in the Georgia runoffs for the Senate raised expectations that the new Biden administration will be able to enact direct federal aid to help states and cities like Los Angeles avoid layoffs that could cascade into the private sector and prolong the recession. Democrats last year proposed as much as $1 trillion in aid, an amount that was whittled down to nothing as Republicans argued the money would amount to a bailout for cities that had mismanaged pensions and finances.

Moody’s Investors Service in the midst of the first Covid surge in April revised its outlook on the Los Angeles’ Aa2 rating to stable from positive. The city’s $2.6 billion in debt outstanding includes $585 million of general obligation bonds. It issued $1.8 billion of short term tax and revenue anticipation notes to bolster liquidity early in the fiscal year.

Moody’s cited the city’s large and diverse economy, strong management, and relatively modest debt burden. Los Angeles’ $614 million of debt service is a fraction of the $5.8 billion New York City pays to investors, according to a separate Moody’s report. Debt service plus retirement-benefit costs amount to only 22% of revenue, compared with Chicago’s 46% burden, the heaviest in the nation. Moody’s is still monitoring the situation, and the $250 million draw on reserves is in line with expectations, analyst Lori C. Trevino said on Jan. 13.

Investors have stood by the city’s debt. Based on analysis by Ice Data Services, the price of a Municipal Corp. of Los Angeles lease revenue bond maturing in 2037 has risen to $122.427 on Jan. 14, from $120.51 at the beginning of 2020.

“I don’t really see L.A. bonds trading much cheaper than the general market,” says John Mousseau, head of fixed income at Cumberland Advisors. “This is why cities have reserves and why bonds have debt-service reserve funds—for those times. No doubt federal aid will help post-inauguration.”


By Stephen Kleege

Jan. 15, 2021 8:39 am ET

Developer Says Work on Vegas-to-L.A. Line Could Start This Year.

Developers of the proposed $8-billion high-speed train between Southern California and Las Vegas—a project that has been on financial hold since last fall—have told Nevada regulators that construction, originally planned to start in 2020, could begin this year.

The president of Brightline West said in a Jan. 4 letter to the Nevada High-Speed Rail Authority that construction heading south from Las Vegas could begin in the second quarter of 2021. Last fall, Brightline’s parent company, Fortress Investment Group, put the brakes on the project when it was unable to complete financing.

“We are preparing a revised financing plan for 2021 that is expected to include additional equity and a relaunch of the bond sale,” wrote Brightline West President Sarah Watterson. The letter cited Brightline’s recent issuance of nearly $1 billion in tax-free bonds to fund an expansion of its existing Florida line as evidence of “improving market conditions and strong interest in private intercity passenger rail projects.”

The letter also announced that the company has contracted with Siemens Mobility to provide its Velaro trains for the SoCal-to-Vegas project. Brightline promises one day to link Las Vegas with Los Angeles, its biggest feeder market, with an initial 170-mile train line that would cut the six-hour driving time in half.

“We continue to make progress on Brightline West and remain focused on expanding our plans to connect further into L.A. County,” says Greta Seidman, Brightline West’s director of public affairs. “We appreciate the tremendous support from Nevada and California and are actively engaging officials in both states on our financing and construction plans.”

In 2020, Brightline secured the rights to issue $800 million in private activity bonds allocated by California and Nevada. The company let those rights lapse last fall, citing financial market uncertainty caused by the pandemic. A bond industry newsletter said at the time that there were no markets for the securities, which were offered with yields running from 7% to 7.5%, about four times what top-rated municipal bonds pay.

The company says the project would create 40,000 construction jobs and 1,000 permanent jobs. It also says the all-electric train, with speeds of up to 200 mph, will keep 400,000 tons of carbon dioxide out of the air each year and remove three million cars from Interstate 15, which is often clogged with travelers on weekends.

Along with the rail project connecting Southern Nevada and Victorville, the company is also discussing additional links to California cities Rancho Cucamonga and Palmdale, where riders can then connect with the Metrolink railway to downtown Los Angeles.

The company’s letter also mentioned it is recruiting for its executive and project management teams in Las Vegas and offered to provide an in-person briefing for the Nevada High-Speed Rail Authority in the near future.

Ninyo & Moore and Terra Contracting have been conducting geotechnical testing and exploratory boring for Brightline near the planned Las Vegas station south of the Strip.

Brightline West is the latest name for the project. It was introduced in 2019 as Virgin Trains USA and included participation by billionaire investor Richard Branson’s Virgin Group Ltd.

It was renamed Xpress West after Branson left the project last year and is now being reintroduced as Brightline West, to better associate with the Florida Brightline train that, before being suspended during the pandemic, traveled from the Miami area to Orlando.

by Doug Puppel

January 14, 2021

Illinois and MTA Bonds Rally on Bet That Democrats Win Senate.

Municipal-bonds investors are buying up debt from New York’s Metropolitan Transportation Authority and Illinois, but they have Georgia on their minds.

Some bonds sold by the MTA, the largest U.S. mass-transit system, and Illinois are trading up in price Wednesday as Democrats’ chances of taking back the U.S. Senate increased after Tuesday’s runoff elections in Georgia. Illinois and the MTA are two well-known, financially-stressed governments that would benefit if Democrats control both chambers of Congress as they are more likely to aid states and municipalities, said Matt Dalton, chief executive officer of Belle Haven Investments, which oversees $14 billion of municipal debt.

“MTA is probably the most visible entity out there right now that’s in need of cash,” Dalton said. “A lot of the focus within our industry is ‘OK, MTA is probably going to benefit on the back of the Blue Wave.’ So that’s going to be the real power behind seeing MTA spreads tighten.”

Illinois, the lowest-rated state, and the MTA are the only two borrowers that tapped the Federal Reserve’s emergency lending program, which ended on Dec. 31, as low interest rates in the $3.9 trillion municipal-bond market kept the Fed program attractive only to the most fiscally-challenged.

MTA debt maturing in 2031 traded Wednesday at an average price of 121.1 cents on the dollar, up from an average 112 cents during the prior three months, according to data compiled by Bloomberg.

An Illinois bond maturing in 2030 traded at an average price of 128.3 cents on the dollar, up from 124.8 cents at the end of 2020, Bloomberg data show.

The MTA’s near-term finances got a boost last month as Congress approved $4 billion of additional federal aid to help close the agency’s 2021 budget deficit as ridership has plummeted. That infusion of cash allows the MTA to avoid drastic service cuts and laying off thousands of employees.

Even with the federal help, the MTA faces an $8 billion budget deficit through 2024. The MTA was seeking $12 billion of federal aid as ridership may not return to pre-pandemic levels until 2024.

While federal stimulus won’t help Illinois’ long underfunded pension systems, it could help with other losses connected to the pandemic that are contributing to back-to-back budget gaps.

Illinois is facing a $3.9 billion deficit in fiscal 2021 and has only $1.85 million in its rainy day fund. It borrowed $1.2 billion in June from the Federal Reserve Municipal Liquidity Facility to close a gap in fiscal 2020 and then another $2 billion in December for fiscal 2021.

“Illinois has more to gain from potential stimulus out of Congress and more ground to make up,” said Daniel Solender, director of the municipal bond group for Lord, Abbett & Co., which owns Illinois debt as part of $31 billion in muni assets under management. “The reason it has more to gain is the state and local funding is potentially a direct source of funding for them.”

Bloomberg Markets

By Michelle Kaske and Shruti Singh

January 6, 2021, 9:33 AM PST

Fitch: New York Transit System Risk Remains Despite Government Stimulus

Fitch Ratings-New York-05 January 2021: The $908 billion coronavirus stimulus package includes funding that will tide the New York Metropolitan Transportation Authority (MTA) over in 2021, but financial challenges will remain in future years, absent a strong recovery in ridership, according to Fitch Ratings. The infusion of funding should be sufficient to balance the MTA’s 2021 budget, temporarily staving off substantial service reductions and layoffs, but without ridership improvement or additional aid some cuts will still likely be needed by next year, as the MTA reports a nearly $8 billion budget gap for 2022-2024.

The bill, signed into law on Dec. 27, includes $14 billion for transit systems with more than $4 billion going to the MTA, according to Senator Charles Schumer of New York. The MTA received a similar amount of funding in the Coronavirus Aid, Relief and Economic Security (CARES) Act, passed in March. Without the new aid, the MTA was projecting the need for 40% service reductions in subway and bus systems and 50% in commuter rail lines, resulting in an estimated 9,400 layoffs.

Fitch believes the service and workforce reductions proposed by the MTA would be difficult to implement, given the need for essential workers and others to travel by mass transit. Other gap closing actions, such as increased deficit borrowing, deferring capital spending or use of any remaining reserves could further weaken the authority’s credit profile. Fitch downgraded MTA’s Long-Term IDR (A-/Negative) multiple times in 2020. To close its 2020 budget gap the MTA tapped more than $500 million in reserves and $424 million in capital lockbox funds, and exhausted its borrowing capacity under the Municipal Liquidity Facility with the issuance of $2.9 billion in deficit financing notes in December.

The additional federal aid does not address the MTA’s fundamental ridership problem. Subway ridership was down a drastic 64% as of Dec. 30, 2020 from last year and bus ridership was down 44%. Ridership growth has flattened after an initial boost coincided with the partial reopening of the economy during the early summer, as restrictions on public gatherings and significant work-from-home levels continue. The MTA is forecasting a return to a ‘new normal’ ridership level — the equivalent of 90% of the pre-pandemic trend — by 2024 in the best-case scenario. Fitch expects ridership to remain highly sensitive to the effective distribution of coronavirus vaccines and widespread inoculation, and the permanency of the transition to remote work and migration to lower-density suburbs.

The MTA fared better in relative terms under the new bill than in the CARES Act. The agency will receive about 30% of transit aid in this bill, compared with only 16% in the earlier one. Transit ridership among the MTA’s constituent agencies, responsible for subways, buses and commuter rail, represented 37% of all transit passenger trips in 2018 in the U.S., according to the American Public Transportation Association’s 2020 Public Transportation Fact Book.


Michael Rinaldi
Senior Director, US Public Finance
+1 212 908-0833
Fitch Ratings, Inc.
Hearst Tower
300 W. 57th Street
New York, NY 10019

Amy Laskey
Managing Director, US Public Finance
+1 212 908-0568

Sarah Repucci
Senior Director, Fitch Wire
+1 212 908-0726

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings.

S&P Pension Spotlight: Ohio

Key Takeaways

Continue reading.

7 Jan, 2021

Michigan Public-Private Partnership Authorization Nears Passage.

A bill package headed to the Michigan governor’s desk would authorize certain municipalities to enter into public-private partnerships to get needed bridge work done.

Options to cover road and bridge repairs in Michigan are a constant pursuit at the statehouse. Since taking office, Gov. Gretchen Whitmer has advocated for a 45-cent fuel tax increase.

In the past year, the governor signed into law a bill to have the Michigan Department of Transportation hire an independent consulting firm to study the feasibility of collecting tolls on interstates. The agency is interested in the viability of tolls on Interstates 75, 94 and 96.

Local public-private partnerships

The bill package headed to Whitmer addresses infrastructure needs.

SB1215-1218 would update the state’s Home Rule Act to allow cities with moveable bridges, or bascule bridges, to enter into public-private partnerships to cover repairs and construction.

Sen. Ken Horn, R-Frankenmuth, said the legislation is intended to benefit the entire Great Lakes Bay Region. There is no specific municipality identified, but he said it would benefit municipalities like Bay City.

The locale near the base of the Saginaw Bay on Lake Huron has two bridges described by legislators as “in dire need of repair.”

Horn and Sens. Jeremy Moss, D-Southfield, and Wayne Schmidt, R-Traverse City, say costs to make repairs far outweigh what is feasible from the local level.

“Unfortunately, especially after revenues have been even further affected by COVID-19, the city’s repair needs are beyond available funding at all levels of government,” Horn said in prepared remarks.

According to a legislative analysis, Bay City has partnered with United Bridge Partners to work on the city’s two bascule bridges. The Legislature must act before the work can get underway.

SB1215 also would specify that tolls could not be collected on drivers until a bridge is either renovated or constructed. Additionally, toll agreements could be for up to 75 years.

Other bills in the package cover limits on affected projects, how counties approve projects, and public-private partnership tax collection.

In addition to Bay City, bascule bridges in the region are located in Alpena, Manistee, Menominee, Port Huron, and South Haven.

Tolling study

The 2020 law giving the state DOT authority to move forward with a tolling study requires consideration to be given to the economic impact, providing discounts to in-state drivers, toll amounts, and how to pay for the toll. The impact of tolls on out-of-state operators expected to use Michigan interstates also will be considered.

A written report on the firm’s findings will be provided to state officials. At that time, the governor will be authorized to move forward with a strategic plan to implement tolls.

If the state were to decide to move forward with toll implementation, a federal waiver would be required to collect tolls on highways built with federal funds.

Land Line Media

by Keith Goble

JANUARY 4, 2021

New Jersey to Sell $350 Million in Self-Designated Social Bonds.

New Jersey says it’s getting into the social-bond market.

The Garden State’s Economic Development Authority Thursday is selling $350 million of what officials have self-designated as social bonds through a negotiated offering managed by Loop Capital Markets. It’s the first social bond for the state, according to data compiled by Bloomberg.

Continue reading.

Bloomberg Markets

By Danielle Moran

January 7, 2021, 6:54 AM PST

California Treasurer Launches Interactive Public Finance Guide.

California Treasurer Fiona Ma’s office has gone virtual with the California Debt Financing Guide, making it easier for public finance professionals to find information they need.

Ma announced the release of a new interactive software version of the guide Wednesday, which up until now had only been available as a static PDF document. It’s available at

“The new interactive application responds to the needs of present-day finance officers, many of whom require quick answers to complex questions,” Ma said.

California has more than 4,400 units of government that tap the muni market to fund projects and look to the guide for answers to questions on how to issue bonds.

The app was developed by the California Debt and Investment Advisory Commission (CDIAC), which Treasurer Ma chairs. CDIAC provides educational resources to public finance professionals in California.

Robert Berry, CDIAC’s executive director, told the Bond Buyer when he was named head of the commission early this year that this project was on his short list of goals.

“This version of the Debt Guide enables users to easily search for public finance terms and concepts and then save their personal notes and bookmarks for future use,” Berry said in a statement.

The Debt Guide is the 2020 update to CDIAC’s flagship resource, the California Debt Issuance Primer.

As designed, the app enables users to create an account to highlight sections, save notes and bookmark sections for future use. In addition, the application can be accessed and viewed on any personal device. The app also has a legal references appendix.

“One of the most important aspects of the Debt Guide app is that it can be accessed on any device, a shortcut to the application can be saved to the home screen of your phone, tablet, or computer and easily accessed when needed,” Berry said.

By Keeley Webster


New MI Drain Code Amendments Signed into Law.

On Dec. 29, Governor Whitmer signed two Drain Code amendments into law—House Bills 5126 and 5504, now Public Acts 281 and 291, respectively. Public Act 281 does not go into effect until March 29, 2021, however Public Act 291 is effective immediately. Below are summaries of the more significant revisions to the Drain Code:

Public Act 281 (House Bill 5126, Effective March 29, 2021)

Public Act 281 amends Section 135 to allow a county drainage district or intercounty drain drainage district be extended into a new county by a petition signed by five freeholders or a municipality (previously a petition under Section 135 could only be brought by 50% or more of the landowners affected by the drain or the proposed drain). A petition under Section 135 can now be combined with a petition under Section 192 (maintenance and improvement of an intercounty drain).

Public Act 281 also amends Section 154 to separate the notice of letting (advertisement for bids) and the notice of the day of review of apportionments. The notice of letting must only be posted on the drain commissioner or county’s website at least 10 days before the bid letting. The notice for the day of review must now be published only once (instead of twice), mailed to property owners, and served (by personal service or certified mail) on the county clerk, a member of the road commission, township supervisors, and city and village clerks at least 10 days before the day of review. The notice for the day of review must now also include all of the following:

The address of the drain commissioner or county’s website, as applicable, and that the following information will be available on that site:

– A description of the drainage district or a map depicting the drainage district;
– The number and length of sections, average depth and width of each section, and if the drain will be a closed drain,                   the amount and specifications of all tile or pipe required;
-The location, number, type, and size of all culverts and bridges;
-The conditions upon which the contract will be awarded.

The full text of Public Act 281 is available here.

Public Act 291 (House Bill 5504, Effective Immediately)

Public Act 291 amends various sections of the Drain Code as summarized below:

The full text of Public Act 291 is available here.

December 31, 2020

Missouri Supreme Court Won't Hear Appropriation Bond Default Case.

The Missouri Supreme Court’s refusal to hear the bond trustee’s appeal deals a final blow to litigation over whether Platte County bears legal responsibility to repay $32 million of defaulted appropriation-backed, development bonds, the county’s attorneys said.

UMB Bank NA asked the state’s high court to hear its appeal of lower court rulings backing the county’s position that it was not on the legal hook to cover a shortfall in revenues generated in a special tax district that repay the bonds.

The case was considered a longshot among market participants based on the appropriation backing that does not legally obligate a sponsoring government to honor the pledge with the incentive instead being a government entity’s investment grade rating and market access.

But the trustee had argued that the financing agreement tied to the bonds offered a layer of protection that did require the county to make up pledged revenue shortfalls.

“This puts an end to the unfortunate effort by the trustee to force Platte County into paying taxpayer funds to bondholders that it never agreed to pay at the outset,” said attorney Todd Graves, who represented Platte County along with Graves Garrett partner Dane Martin. “This case could potentially impact countless bond financing arrangements for counties and cities throughout Missouri.”

Platte County leaders decided in 2018 not to cover a $765,000 shortage in tax monies generated by the Zona Rosa shopping center in Kansas City. Revenues had been pledged to repay a 2007 Platte County Industrial Development Authority issue. Officials worried that the price tag would eventually total more than $40 million through 2032, forcing tax hikes or service cuts. The estimated shortfall is currently about $3.6 million.

The decision cost the county its investment grade bond rating.

The county filed a lawsuit against UMB in November 2018 seeking court affirmation that it was not obligated to cover shortfalls because the trustee had threatened its own action. A Platte County Circuit Court judge agreed with the county in a May, 2019 ruling.

The trustee appealed and an appellate court panel on Aug. 25, 2020 upheld the lower court decision that the county bears no legal obligation. The trustee in September sought a rehearing that was rejected and it then asked the Missouri Supreme Court to take the case. The high court rejected the application on Dec. 22.

“The trustee will provide further information on EMMA as it becomes available, continue to advise the committee formed regarding the bonds, and work with counsel to explore and consider its options, all in the best interests of bondholders,” UMB wrote in a Dec. 24 notice filed on the Municipal Securities Rulemaking Board?s EMMA website.

Though the county won’t cover shortfalls, bondholders continue to see some payments from what revenues the shopping center district does generate that are pledged to repayment.

UMB reported in the Dec. 24 notice that it made the full $724,750 interest payment due on the bonds Dec. 1 but none of the $850,000 of principal due was paid. “The payment was made up of funds received from the districts but also a draw of $392,228.49 from the debt service reserve,” UMB said. The reserve fund held $1.69 million following the payment and other fees.

The district sent $113,000 in revenue to the trustee last January. That dwindled to a low of $38,000 in June as the COVID-19 pandemic stung sale tax collections. It fluctuated in subsequent months hitting $95,000 in September, was $45,000 in November and $78,000 for December.

A debt service payment of $724,750 in interest was paid in full June 1. No principal was due. The bonds traded this month around 45 cents on the dollar. About $29 million is outstanding.

The bonds are not secured by a deed or mortgage and remedies in the event of a default are heavily influenced by judicial actions should a restructuring or bankruptcy be sought.

Municipal Market Analytics did not believe the legal case had much traction but finds the county’s willingness to renege on the pledge despite market consequences as troublesome.

“This was an appropriation security, so its payment was always subject to the county’s appropriation. But the county’s failure to pay debt service speaks to its lack of willingness to honor its agreement with bondholders. Platte County is no longer a good faith participant in the municipal bond market, and none of its security pledges can be considered investment grade or should be sold to retail bond buyers,” said Matt Fabian, a partner at MMA.

Since 2009, MMA has seen nine local appropriation credits in Missouri suffer impairment.

“It’s a compelling pattern. Municipal investors need to be skeptical about local Missouri governments honoring their appropriation securities if the underlying project struggles, meaning that local GOs in the state are relatively more vulnerable to getting downgraded to junk if their issuer has appropriation debt outstanding,” Fabian said.

Moody’s Investors Service cut the county”s rating – then at Aa2 – to junk in September 2018. Moody’s rates the county Ba3 with a negative outlook.

S&P Global Ratings stripped the Zona Rosa bonds of their investment grade rating in September 2018 after county commissioners discussed at a public meeting their opposition to making up future shortfalls absent a long-term solution.

By Yvette Shields


Fitch: Illinois' MLF Borrowing Reflects Deep Challenges, but Options Remain

Fitch Ratings-New York-22 December 2020: Illinois’ $2 billion borrowing from the Federal Reserve’s Municipal Liquidity Facility (MLF) illustrates the depth of its budget challenges, but the state also retains fiscal tools to address them, Fitch Ratings says.

The loan provides a short-term solution for a $3.9 billion fiscal 2021 gap. The governor also recently announced $711 million in budget reductions, and the 2021 legislative sessions will include further action to address the gaps in 2021 and future years. Available options include further expenditure cuts, revenue increases and non-structural solutions.

Fitch considers Illinois notably more constrained in its fiscal choices than other U.S. states. Illinois’ ‘BBB-‘ Issuer Default Rating (IDR) and GO ratings and Negative Outlook reflect Fitch’s anticipation of a fundamental weakening of the state’s financial resilience given its already tenuous position entering the pandemic. Illinois will be challenged to maintain its investment-grade IDR.

Before the most recent MLF loan, Illinois faced a sizable budget gap the governor estimated at $3.9 billion on a roughly $43 billion general funds budget. Pandemic-driven shortfalls reportedly account for about half of the gap with the remainder reflecting underlying structural issues that are a key factor in the state’s relatively weak credit profile.

Revenue performance has been well ahead of expectation in May’s enacted budget. Both the Governor’s Office of Management and Budget and the legislature’s Commission on Government Forecasting and Accountability revised revenue forecasts upwards by more than $2 billion in November, even while assuming slowing economic growth and additional coronavirus mitigation measures.

The revisions are consistent with trends in many U.S. states as economic activity has rebounded faster than originally anticipated from the spring’s coronavirus-driven trough, as noted in our on-demand webinar US States’ Path to Economic Recovery. Gains have been slowing in the face of rapid virus spread and resultant mitigation responses. Recently enacted federal stimulus should support near-term stabilization of economic activity, and dependent tax revenues, in Illinois and elsewhere (New Federal Aid to Steady State and Local Budgets, published Dec. 2020 on

The $2 billion MLF borrowing follows the state’s $1.2 billion MLF cashflow borrowing in June. The state will use proceeds primarily to pay down Medicaid bills, leveraging over $1.1 billion in federal matching revenue. To address the remaining $1.9 billion gap for fiscal 2021, the governor announced $711 million in budget reductions last week, most of which will be imposed unilaterally. The reductions do not include any change in education funding.

Despite failure of the graduated income tax ballot initiative, Illinois retains legal authority to implement various revenue enhancements, though political willingness is uncertain. In February 2019, the Commercial Club of Chicago Civic Committee outlined up to $6.4 billion in recurring revenue options, although these estimates relied on pre-pandemic economic expectations.

While the governor has ruled out one suggestion, $1.9 billion from taxing retirement income, other options including raising the personal and corporate income taxes by 1 percentage point ($3.7 billion and $300 million respectively), and a sales tax expansion to more services ($500 million) could generate significant recurring revenue. Changes to income tax credits could be paired with a rate increase to mimic a graduated income tax rate structure.

Fitch anticipates the legislature will consider revenue options and further expenditure changes in early 2021, along with non-recurring options such as further bill deferrals, fund sweeps or utilization of remaining Coronavirus Relief Funds. While the state retains broad legal capacity, Illinois also has a history of deferring or avoiding difficult fiscal choices and instead implementing short-term, non-recurring budget measures that add to long-term challenges. This repeated inability to address its structural challenges remains a key negative rating consideration.


Eric Kim
Senior Director
Fitch Ratings, Inc.
300 West 57th Street
New York, NY 10019

Karen Krop
Senior Director

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Providence Pension Could Bankrupt Rhode Island City.

The financial condition of the City of Providence, Rhode Island certainly looks precarious. The municipality may need to seek bankruptcy protection in the near future primarily as a result of its over $1 billion in unfunded pension obligations.

As indicated below, the Mayor of Providence agrees with this dire analysis.

According to the Comprehensive Annual Financial Report (CAFR) of the City for the fiscal year ended June 30, 2019, the Employee Retirement System of the City (ERS) had a funded ratio of only 25.83%. That is, ERS had approximately $367 million in assets to cover its total $1.4 billion pension liability.

Continue reading.


by Edward Siedle

Dec 16, 2020

NYC’s Whitney Museum Wins Bond-Market Reprieve From Covid Hit.

The Whitney Museum of American Art got a reprieve in the bond market.

The Manhattan art museum, founded in 1931 by Gertrude Vanderbilt Whitney, completed a debt refinancing this week that will prevent a $50 million principal payment from coming due next year by pushing it to 2031 with newly issued bonds, according to Fitch Ratings.
The refinanced bonds were initially sold in 2011 to help finance its new $422 million facility located in the Meatpacking District, which opened in 2015 and features about 50,000 square feet for indoor galleries, outdoor terraces facing The High Line, and a 170-seat theater.

The Whitney, which had to close its doors for about six months in 2020 due to Covid-19, is one of the many borrowers that have rushed to the municipal-bond market to seize on low interest rates to cut debt costs or push payments into the future. Even governments, museums and other agencies hit hard by the pandemic have had little trouble selling debt, with cash flowing into the market on optimism that the rollout of vaccines will set off a recovery next year.

“I think the sale went phenomenally well,” said Eric Wild, a managing director at Morgan Stanley who co-leads the bank’s nonprofit and higher education team. “The Whitney’s credit strength, despite the challenge of the pandemic really came through and resonated with investors.”

The $73.3 million deal priced to yield 1.13% for debt due in 2031, about 42 basis points more than AAA rated municipals, according to data compiled by Bloomberg. In 2011, bonds due in 2021 were priced with a 3.7% yield.

The pandemic has been particularly hard on Manhattan cultural institutions that had to close their doors and face the prospect of a tough winter, with New York City Mayor Bill de Blasio warning this week that there could be another shutdown after Christmas. The Whitney, which reopened in September with capacity limited to 25%, is expecting a cash operating deficit of up to $4.5 million for fiscal 2021, according to bond documents.

The number of visitors has fallen to about 550,000 in fiscal 2020 from 1.19 million in 2019. The museum has had to postpone events like a retrospective of artist Jasper Johns’ career, which would have been a boon for attendance, according to the bond documents. It laid off nearly a fifth of its staff in April and had to implement pay cuts.

But donors have also stepped up, with funding from contributions, grants and bequests totaling $11.2 million in fiscal 2020, even though that’s slightly less than it expected to raise before the pandemic, according to bond documents. Fitch, which rated the bonds AA, the third-highest level of investment grade, pointed to the stability of the donor base in a report this month.

Since reopening in September, locals have kept the galleries relatively busy, with New Yorkers representing about 75% of visitors, compared with about 31.5% over the same period in fiscal 2020.

The bond deal was three times oversubscribed, helping cut yields by three basis points and adding to the museum’s bond investor base, including accounts focused on environmental and socially-beneficial investments, said Luke Hale, director of the municipal syndicate desk at Morgan Stanley.

Beyond big issuers like the city itself or New York’s Metropolitan Transportation Authority, “investors are also willing to pay special attention for the diversification benefits of adding a security like Whitney Museum to their portfolio,” said Gabriel Diederich, a portfolio manager at Robert W. Baird & Co.

“The pricing is indicative of New Yorker’s hunger for tax-exempt income,” he said.

Bloomberg Markets

By Amanda Albright and Fola Akinnibi

December 16, 2020, 10:43 AM PST

New York’s MTA Forms Underwriting Groups for Debt Sales.

New York’s Metropolitan Transportation Authority implemented a new pool of underwriting firms to work on its bond and note sales as declining revenue and ridership challenge the agency’s finances.

The MTA’s board approved the new underwriting appointments during its meeting on Wednesday. The agency, the nation’s largest mass-transit provider, is a major borrower in the $3.9 trillion municipal-bond market, with $44.6 billion of outstanding debt as of Nov. 27.

Bank of America Securities, Goldman Sachs & Co., JP Morgan Securities, Jefferies, Ramirez & Co., and Siebert Cisneros Shank & Co. will serve as senior managers for the MTA, according to board documents posted on its website.

The MTA elevated Jefferies to the senior manager group from its co-senior managing pool. Citigroup Global Markets will serve as a co-manager, after previously working in the senior manager group, according to board documents.

Citi, along with 14 other firms, will form the MTA’s co-managing pool. Of the 21 businesses in the senior managing and co-managing groups, nine of them are owned by women, minorities and veterans.

The MTA recommends the groups stay in place for three years, or until the agency completes its next request for proposals. The MTA last updated its underwriting group in September 2016.

Bloomberg Markets

By Michelle Kaske

December 16, 2020, 5:00 AM PST Updated on December 16, 2020, 9:29 AM PST

A Public Utility May Not Qualify as a “Public Utility” - Nossaman California Eminent Domain Report

The Refugio Oil Spill in 2015 resulted in not only impacts to a highly diverse stretch of California’s coast, but also years of associated litigation. In a recent California Court of Appeal opinion, State Lands Commission v. Plains Pipeline, L.P., No. B295632 (Nov. 19, 2020), the court held that the judicial doctrine establishing that public utilities do not owe the public a duty to provide their services continuously and without interruption did not apply to Plains Pipeline, L.P. and its affiliates (collectively, “Plains Pipeline”) on the ground that despite being a public utility, it did not “deliver essential municipal services to members of the general public.”


The burst pipeline that led to the Refugio Oil Spill previously served as a connection between offshore facilities and refineries for a few other oil companies. As a result of the closure of the pipeline, one of the oil companies stopped production, quitclaimed its lease back to the State, and halted its royalty payments to the California State Lands Commission (“Commission”). As a result, the Commission was left with loss of royalties and alleged that upkeep and maintenance costs after the shutdown amounted to recoverable property damage. It therefore brought suit against Plains Pipeline. The trial court agreed with Plains Pipeline’s argument that, as a public utility, it was exempt from liability for interruption of service based on the long-standing rule that public utilities owe no duty to provide uninterrupted service, first recognized in Niehaus Bros. Co. v. Contra Costa Water Co. (1911) 159 Cal. 305.

Appellate Court Opinion

The California Second District Court of Appeal reversed and instead held that Plains Pipeline was not exempt from liability because the public utility rule was not applicable. In so holding, the Court construed prior case law applying that doctrine to be limited to situations where the “utility directly serves members of the general public.”

The Court held that Plains Pipeline did not qualify under the public utility doctrine because it concluded that Plains “does not deliver essential municipal services to members of the general public.” This rationale was based upon the Court’s belief that Plains Pipeline “transport[ed] oil to a private entity for commercial purposes.” In reaching this result, the Court declined to follow a recent decision by the Ninth Circuit applying the same doctrine to bar the same tort-law claims by the oil company that had ceased operations and quitclaimed its lease back to the state. (See Venoco, LLC v. Plains Pipeline, L.P. (9th Cir. 2020) 814 Fed. Appx. 318.)

In making such a decision, the Court declined to recognize a blanket immunity to all public utilities for service disruptions. Instead, the Court held that merely being a public utility with rates set by a regulatory agency was insufficient for purposes of asserting immunity against liability for service disruptions – such immunity stems from the provision of “essential municipal services” to the general public.

The dissent warned that “the majority casts doubt on more than a century of cases holding public utilities exempt from liability for interruptions to service,” and “gives rise to more questions than it answers.” Thus, while seemingly narrowing the public utilities exemption, this opinion may actually result in increased litigation as parties attempt to decipher this new requirement.

Nossaman LLP – Jillian Friess

December 18 2020

Why Chicago Should Start a Public Bank.

Arresting poverty, inequality and the racial wealth gap requires this genuinely transformational tool.

As Chicago contemplates a COVID-19 economic recovery plan, the city cannot afford to think small. For too long, civic and business leaders have relied on corporate philanthropy, tax credits, and market reforms to recover from crises. These tools work only on the margins, which is why they invariably fizzle.

Arresting poverty, inequality and the racial wealth gap requires a genuinely transformational tool: a public bank.

Why do we need a public bank? Banks create money when they lend. This superpower is the cornerstone of economic development. Loans stimulate economic growth, increase property values, and build wealth — and we can harness this power to benefit all communities.

Continue reading.

The Chicago Sun Times

by Daniel La Spata, Matt Martin, Robert Peters and Ameya Pawar

Dec 7, 2020

MTA Borrows $2.9 Billion From Fed Before Window Closes.

New York’s Metropolitan Transportation Authority borrowed $2.9 billion from the Federal Reserve’s emergency credit line for states and local governments, marking the second time the transit agency has turned to the central bank as it contends with a steep drop in ridership from Covid-19.

The transit agency sold payroll mobility tax bond-anticipation notes with a 1.33% coupon for those maturing in 2023 to the Fed’s Municipal Liquidity Facility, according to data compiled by Bloomberg. Aaron Donovan, a spokesperson for MTA, confirmed the sale in an email on Thursday.

The MTA has turned to short-term borrowings to close the budget gaps created by the pandemic and it seized on the chance to borrow from the Fed before the little-used credit line expires at the end of the month. The agency has warned that it will have to slash subway and bus service by 40% and chop commuter rail service by half if it doesn’t receive aid from Washington. Fares and tolls will increase and roughly 9,300 jobs will also be eliminated.

The Fed’s $500 billion municipal lending program was designed to serve as a lender of last resort for cities and states to ensure they could still raise cash if the bond-market froze up, as it did in March amid panic about the fallout of the pandemic. But it has barely been used because it charges high penalties, leaving the public market a better deal for virtually all local governments. Three-year benchmark municipal debt yields just 0.13%, according to Bloomberg BVAL.

The MTA — and the state of Illinois, the only other one to borrow from the Fed, based on central bank data last month — is a rare exception. Investors still demand high yields on the MTA’s bonds because of the agency’s financial strains. Some MTA debt due in 2023 traded at a nearly 2.2% yield on Thursday, about 2 percentage points higher than AAA rated bonds.

Bloomberg Markets

By Amanda Albright, Michelle Kaske, and Danielle Moran

December 10, 2020, 12:19 PM PST

New York City Is Selling Bonds. Fitch Ratings Just Downgraded Its Credit.

New York City is planning to sell $1.5 billion of bonds next week to refinance maturing debt. And two ratings firms have warned about the city’s credit ahead of the sale, citing the potential for long-term fallout from the coronavirus pandemic.

The bonds, which will be sold with maturities from one to 16 years, are being issued to refinance existing debt. The sale is happening at a vulnerable time for the city, as Covid-19 cases start to rise and officials weigh closures of schools and businesses.

Declining sales and tax receipts are responsible for a 9.1% decline in the city’s revenue forecast for 2021, about $6.5 billion less than it expected before the pandemic began, according to marketing documents for the Dec. 16 sale. Notably, property taxes are expected to only be about 1% below original projections and real estate taxes made up about 47% of the city’s tax revenue in 2020.

“The city has sound independent legal ability to adjust property tax rates and a variety of fees and charges to offset the modest revenue declines expected in a typical economic downturn,” Fitch Ratings said in a note downgrading the credit late Tuesday. Still, “rates for other important revenue sources (mainly income and sales taxes and state aid) are not within management’s independent control.”

Fitch cut the city’s credit rating by one notch, to AA- from AA, leaving it with its fourth-best rating, and six tiers above junk. The move reflects the firm’s “expectation that the impact of the coronavirus and related containment measures will have a longer-lasting impact on New York’s economic growth than most other parts of the country.”

That move follows S&P Global Ratings’ decision on Tuesday to assign a “Negative” outlook to the city’s bonds, though it kept its AA rating on the securities.

New York City is also under pressure because of the potential for mass-transit service reductions, according to S&P. The Metropolitan Transportation Authority has said it might need to cut service and lay off workers if it doesn’t receive federal aid, but it isn’t clear when such a relief package might be passed. The MTA is tapping the Federal Reserve’s municipal liquidity facility—closing at the end of this year—to help cover a sizable budget deficit this year and next.

The outlook implies a “one-in-three chance” that the rating will be downgraded over roughly the next two years, S&P said in its note.

“The negative outlook reflects our opinion of uncertainties, such as a recent uptick in the virus transmission rate that could negatively affect the city’s financial forecast, the trajectory for global tourism trends and additional federal stimulus funding for state and local governments, service reductions at the [MTA] that could affect the economic recovery within the region, and weakness in property tax values that will not be evident until fiscal 2023,” S&P analyst Nora Wittstruck said in a statement.


By Alexandra Scaggs

Dec. 9, 2020 4:11 pm ET

Illinois’s Bond-Market Penalty Hits Lowest Since Pandemic Crash.

No state is reaping the bond-market benefits from the promised end of the pandemic more than Illinois.

The state, whose bonds tumbled early this year on speculation it would become the first stripped of its investment-grade credit rating, has since seen its bonds rally back as investors plow into higher-yielding debt on speculation the financial blows of the shutdowns won’t be as bad as once feared. That’s driven down the yield on Illinois’s 10-year bonds from more than 6% in March to about 2.8%, reducing the yield penalty investors are demanding to the smallest in nine months, according to Bloomberg’s BVAL indexes.

The drop reflects the broader optimism among investors and shows how the Federal Reserve’s promise to keep interest rates low has cut the financing costs for governments. Connecticut’s and California’s yields have drawn closer to the benchmark, too, as their tax collections stand to gain from this year’s stock market surge. Even the water utility of the still bankrupt territory of Puerto Rico borrowed $1.4 billion this week for yields of 3.2% on those due in five years.

“During the spring when the pandemic hit, Illinois got hurt worse than other states because they have less margin for error with their budget,” said Daniel Solender, director of the municipal bond group at Lord, Abbett & Co. LLC, which holds Illinois debt as part of $31 billion in municipal assets. “Of the states, Illinois is benefiting the most from the recovery of the lower quality part of the municipal bond market.”

The expected rollout soon of vaccines in the U.S. has helped buoy optimism that an economic recovery is on the way even as an impasse in Congress over another stimulus measure threatens to withdraw support that has helped states to weather the slump.

In Illinois, the state increased its revenue estimates for the current fiscal year by about $2.3 billion as sales- and income-tax collections outstrip previous expectations, according to a November report by the Commission on Government Forecasting and Accountability.

But Illinois still has a bond rating just one step above junk, partly due to its persistent budget deficits. It has a $141 billion unfunded pension liability, a $7.9 billion bill backlog, and is the only state that has turned to the Fed’s emergency lending program for governments that are facing high interest rates in the public market.

Gabe Diederich, a portfolio manager at Robert W. Baird & Co., said the drop in Illinois’s bond yields shouldn’t be interpreted as a sign that investors think the state has addressed its financial challenges.

Investors searching for yields “are forced to cast a wider net” to issuers such as Illinois and New Jersey, said he said.

Recent deals by the Puerto Rico Aqueduct and Sewer Authority and Fortress Investment Group-backed passenger railroad Brightline Holdings LLC bonds also show “demand for spread,” he said. It “feels like there is a recovery trade taking place.”

Bloomberg Markets

By Shruti Singh

December 11, 2020, 11:13 AM PST

Fortress Returns to Muni Market, This Time For Florida Train.

Less than two months after failing to sell $2.4 billion of unrated municipal debt for a Las Vegas tourist train, Fortress Investment Group is back in the market — this time with a smaller deal for its inaugural rail in Florida.

Through its company Brightline Holdings LLC, Fortress on Thursday is planning to sell $950 million of unrated tax-exempt debt, with proceeds financing the train’s extension to Orlando from West Palm Beach. Last year, it sold $1.75 billion for the country’s first new privately financed intercity passenger rail in a century, launched in 2018 along Florida’s east coast.

The train missed passenger and revenue forecasts even before the coronavirus pandemic forced it to suspend operations in March. But in this offering, the company touts its plans for a new station at Walt Disney World property near Orlando and three more in the works along its initial line from Miami to West Palm Beach. And it says more revenue is likely from fees paid by Miami-Dade County, which wants to use the corridor for a separate commuter service.

It projects 9.9 million passengers and $792 million in revenue in 2024, its first full year of complete operations, or almost four times the average revenue per passenger seen in 2019.

This sale comes after Fortress in late October pulled the deal for its proposed rail to Las Vegas that failed to attract enough interest following weeks of investor pitches even after it was downsized from $3.2 billion. The postponement was a “positive” for the Florida train, said John Miller at Nuveen LLC, which holds 80% of the bonds sold for it. Before Fortress offered the bonds for the Las Vegas venture, Miller had said he had wanted to see the $950 million deal converting short-term securities sold in 2019 into long-term debt first.

The new bonds maturing in 2049 were being offered with a 7.375% coupon, a 7.75% yield and a price of about 95.73, according to a preliminary pricing wire viewed by Bloomberg Tuesday. That’s higher than the 94 cents on the dollar reached by an existing bond on Dec. 4, according to data compiled by Bloomberg.

The Florida train still has potential after the coronavirus pandemic is over and the full line is running, said Miller, head of municipal investments at Nuveen, which holds about $1.4 billion of the bonds sold for the project under the name of Virgin Trains USA.

“This is essentially a construction project until it’s finalized,” Miller said. “The long-term popularity of the route, which will be seen in 2023, the long-term popularity of Florida for both a destination and increasingly a place to live, the long-term traffic trend — those are all unchanged.”

Fortress has also dangled a sweetener for investors: it’s willing to buy back $250 million of the existing Florida bonds at par, contingent on this week’s deal getting completed. It had tried that with the Las Vegas deal without success, but after this buyback offer was made last week, prices of some of the thinly-traded bonds rose to the highest since March.

Heavy Demand

The $950 million deal, which comes amid heavy demand for high-yield securities, will test how far investors will go for juicier returns. In 2019, buyers of the Fortress bonds weighed more typical risks such as whether passenger estimates would materialize and construction would proceed as planned. Now, investors have those risks, plus uncertainty over whether and when tourism will bounce back after the Covid vaccine, said Terry Goode, a senior portfolio manager at Wells Capital Management.

“In this particular environment, there’s probably even more uncertainty around whether that ridership will be there and how soon it will be there,” Goode said.

Last year, 1 million passengers rode the Florida railroad, half the number estimated. In addition, the system was supposed to earn $37 of total revenue per passenger in 2019; instead, it was an average of about $22. In an online presentation, the company said it had “strong momentum” and was on track to carry 2 million passengers this year before Covid.

The train is expected to reopen for service in the third quarter next year, bond documents show. Construction of the 168-mile extension to Orlando International Airport has continued amid the pandemic, and service is slated to start in 2022. The station at Disney Springs, a retail and entertainment complex a mile from the theme park, is projected to open in 2023.

Second Run

While he’s a “bit skeptical” about the train’s latest forecasts, Jason Appleson at PT Asset Management said the company “has made some very good improvements.” The buyback offer shows Fortress is “willing to stand behind the project,” said Appleson, who helps manage about $2.5 billion in municipal debt, including Fortress bonds.

Success in Florida could facilitate a second run at issuing bonds for the Las Vegas venture. California Treasurer Fiona Ma said she expects Fortress to return in the first quarter next year to request a smaller amount of bonding authority from the state.

“The focus on Vegas was too early,” Miller said. “At some point next year, I think they would have a better chance of parlaying that success story in Florida into a new issue.”

Bloomberg Markets

By Romy Varghese

December 9, 2020, 4:00 AM PST

— With assistance by Danielle Moran, Natalia Lenkiewicz, and Bert Louis

California City That Sold Pension Debt Now at Fiscal Brink.

West Covina, California, which sold $204 million of pension bonds in July, is at the fiscal brink because of its ineffective management and raiding of reserves, according to a report Tuesday by State Auditor Elaine Howle.

The southern Californian city of about 105,000 residents helped cover salary and benefit costs for its public safety workers by siphoning from reserves, halving its year-end balance in fiscal 2019 to about $10 million over four years, the report said.

The city, which has about $227 million in outstanding municipal debt, has made “questionable” financial decisions, has likely understated the impact of the coronavirus pandemic and doesn’t have a fiscal recovery plan, raising the risk of bankruptcy, according to Howle’s report.

“West Covina is at high risk of being unable to meet its future financial obligations and provide effective city services,” the audit said. “If West Covina is unable to resolve its structural deficit, it risks becoming embroiled in the lengthy and complex process of declaring municipal bankruptcy.”

In July, West Covina’s financing authority sold $204 million of taxable lease-revenue debt rated A+ by S&P Global Ratings, with the top yield of 3.89% for a bond maturing in August 2044. A bond due in August 2038 traded Monday at a 3.12% yield, according to data compiled by Bloomberg.

Proceeds of the sale went to paying down the city’s unfunded pension liability, which would initially reduce its annual pension obligation to the California Public Employees’ Retirement System. But that leaves the city on the hook for required debt payments that gradually increase every year by 2044 and still at the risk of higher pension bills should the retirement system underperform its target and require more from municipal governments to make up the difference, the audit said.

West Covina plans to sell land and use the proceeds to pay down its debt obligations, according to the report. But, such “large one‑time revenue sources will be insufficient on their own to reverse the city’s negative financial trend and rebuild its reserves,” it said.

City Manager David Carmany said in an interview that he and the finance director were brought in recently to address the city’s fiscal issues. With public safety expenses accounting for about 80% of West Covina’s general fund, Carmany said that officials are negotiating with unions to help defray the burden, and police officers agreed to contribute more toward their pensions. The city may also disband the fire department and instead contract with Los Angeles County for its fire services, a decision that the council may make early next year, he said.

“We are aggressively exploring all options,” Carmany said. “This community is going to be facing some tough choices.”

Bloomberg Markets

By Romy Varghese

December 1, 2020, 11:25 AM PST Updated on December 1, 2020, 2:43 PM PS

Illinois Plans to Borrow Another $2 Billion From Federal Reserve.

Illinois plans to borrow an additional $2 billion from the Federal Reserve in an effort to prop up its already-struggling finances as the state’s bills rise amid the pandemic

It would be the second time the worst-rated state has borrowed through the central bank’s Municipal Liquidity Facility, an emergency lending program for state and local government issuers. Illinois already borrowed $1.2 billion from the Fed during fiscal year 2020 to cover pandemic-induced losses, and has since repaid $200 million of that loan, according to the governor’s office.

“Short-term borrowing is a short term band-aid to address the urgency of a short-term problem like one caused by a pandemic,” Governor J.B. Pritzker said during a virtual press conference on Wednesday.

Illinois is the only state to tap the Fed’s borrowing program so far and is at risk of seeing its debt cut to junk. The pandemic worsened Illinois’s already strained finances: the state is struggling with $137 billion of pension debt and $7 billion of unpaid bills. Illinois is projecting a fiscal 2021 budget gap of about $3.9 billion and deficits are expected to continue through 2026, according to a Nov. 13 forecast from the Governor’s Office of Management and Budget.

Yield Penalty

Investors have long punished Illinois for its fiscal woes, boosting the penalty the state pays to borrow from the bond market. Illinois 10-year general obligation bonds yield about 2.77 percentage points more than benchmark debt, the highest of the 20 states tracked by Bloomberg.

The state still has market access, but it’s not a surprise that officials are turning to the Fed, said Daniel Solender, head of municipal securities at Lord Abbett & Co., which manages $30 billion of state and local debt, including Illinois bonds.

“It makes sense to use it while they can,” said Solender. “The reason they’re using the facility is because the cost for them in the market, it’s higher for them than other states.”

Spending Cuts

The decision comes after Illinois voters rejected a ballot measure that would have let the state raise taxes on its wealthiest residents, a key component of Pritzker’s plan to balance the budget. Since the failure of the graduated income tax proposal, Pritzker, a billionaire Democrat, has warned of potential spending cuts for public safety, education and health services.

Pritzker said the new borrowing is less than half of the $5 billion authorized, and that it would be “irresponsible” to saddle the state with the full amount. He said the state plans to repay the debt “as early as possible.”

“The $2 billion is necessary given that this targeted borrowing will allow us to stabilize Illinois’ health care system in the middle of a global pandemic and a COVID-19 spike here in Illinois,” Illinois Comptroller Susana Mendoza said in an emailed statement.

Mendoza plans to use the loan to pay medical bills for which the state receives federal matching dollars and also to avoid late-payment interest penalties, she said. The borrowing will be repaid over a three-year period and any new federal stimulus will be earmarked to repay the loan, according to Mendoza.

Dec. 1 is the last day for state and local governments to notify the Fed of their intent to tap the program before it expires on Dec. 31.

Bloomberg Markets

By Nic Querolo and Shruti Singh

November 25, 2020, 2:56 PM PST

Pittsburgh Sports Authority Bond Rating Slashed by S&P.

The municipal authority that owns Pittsburgh’s pro football, baseball and hockey stadiums had its ratings cut down two notches, from A-plus to A-minus, by S&P Ratings to reflect“a steep drop in pledged hotel tax revenue, a direct result of the severe toll of the pandemic,” the agency stated in its ratings note.

The Pittsburgh & Allegheny Sports & Exhibition Authority owns the Steelers’ Heinz Field, the Pirates’ PNC Park and the Penguins’ PPG Paints Arena, as well as the city’s convention center and some infrastructure, such as parking garages and roads near sports facilities. As part of building and maintaining those properties, the sports authority has $585 million in municipal bond debt outstanding. The A rating is the bottom of three “strong” credit ratings S&P Ratings maintains. The A rating , like most other S&P scores, can be further rated a “plus,” “minus” or standalone. “We anticipate either cash on hand or debt service reserve may need to be tapped to meet debt service due in February 2021, unless there is further revenue growth in the coming months,” the agency wrote.

Pledged revenues supporting the sports authority’s bonds were down 59% year to date through September, to about $11.3 million, according to S&P. Based on earlier disclosures by the authority, revenue was on par with prior years in the first quarter of the year, then plunged starting in April. The bonds are initially backed by two hotel taxes of 5% and 2% on room transactions. With annual debt service of $54 million on the sports authority bonds, Pittsburgh will fall well short of what’s needed.

Yet according to a September report from the Allegheny Institute for Public Policy, while the sports stadiums are technically revenue-backed bonds that would default if tax revenue continues to drop, a series of side agreements with Pennsylvania means the pro teams’ home arenas will continue to have their debt paid on time. For PPG Paints Arena, the state signed a 2014 deal to pay the rink’s debt service if other revenues fall short. Similarly, any unmet balance in the football and baseball stadium payments gets covered by the state annually through another side deal. The net effect is that while other tax revenue-supported facilities in Pittsburgh have had budget cuts due to lower revenue, the sports facilities haven’t. “So, while parks, libraries, the zoo, the aviary and numerous other organizations took cuts, the [sports] debt allocation was unchanged,” economist Eric Montarti wrote in the Allegheny Institute analysis.

The bond rating’s downgrade doesn’t have an immediate effect on the Pittsburgh sports authority itself. A drop in the credit rating means those people owning the existing bonds will experience a drop in value. The sports authority would likely be affected by higher borrowing costs in the future, however. A 2017 study found that every notch of ratings downgrade cost issuers an average of six basis points (100 basis points equals one percentage point). A 12-basis-point shift would mean Pittsburgh paying $120,000 more in interest on a $100 million A-minus bond than it would pay on one rated A-plus.

Yahoo Sports

by Brendan Coffey

November 24, 2020

Supreme Court Ends Puerto Rico Bondholders’ Bid for Pension Assets.

The U.S. Supreme Court on Monday declined to review an appeals court ruling against a group of Puerto Rico bondholders seeking pension assets and a share of future revenue.

On Jan. 30, the 1st U.S. Circuit Court of Appeals in Boston upheld a June decision from the federal judge overseeing Puerto Rico’s complex bankruptcy case that went in favor of the Employees Retirement System of the Government of Puerto Rico and the federal oversight board. The ruling dismissed arguments by ERS bondholders holding $3 billion of ERS debt that they were entitled to some assets that existed when they bought the bonds as well as future pension contributions, which are now coming from general revenues.

The Financial Oversight and Management Board for Puerto Rico said at the time of the 1st Circuit ruling that it “clearly denies ERS creditors access to public pension contributions.”

Seeking to have that decision overturned, the ERS creditors, including Andalusian Global Designated Activity Co., Glendon Opportunities Fund LP, Mason Capital Master Fund LP and several Oaktree Capital funds, argued in their petition that the 1st Circuit decision conflicted with other circuits, “thereby endangering secured lending and municipal finance.”



November 16, 2020 03:37 PM

The MTA Is Developing Plans to Cut Costs and Borrow From Fed. Its Bonds Have Rallied.

The Metropolitan Transportation Authority next month will be discussing cutting service by up to 40%, laying off thousands of workers and increasing fares, as it weighs options to offset sliding revenues from the pandemic.

Officials reiterated the need for federal funding at a Wednesday meeting, and said deep cuts to service and jobs will be necessary if Congress doesn’t offer aid.

Yet the market seems to be taking a slightly less downbeat perspective than it was before. Yields on some MTA bonds have declined since the U.S. presidential election and news of a vaccine: A two-year bond yield, for example, was trading at 3.5% Tuesday, down from 4.6% on Nov. 6, according to Bloomberg data. Prices and yields move oppositely.

MTA officials have requested $12 billion in grants from Washington, and forecast deficits of more than $15 billion in the next three years without any steps to reduce that gap. The deficits will total about $7 billion if the MTA takes deficit-reduction steps that aren’t service or jobs cuts.

The four-year “worst case” budget plan introduced Wednesday reflects no deficit spending, though the state has recently passed a law that allows the MTA to borrow up to $10 billion to cover pandemic-related costs in coming years.

To be sure, MTA bond yields are still well above their levels from the start of this year, when the two-year bond traded around 1.4%. The coronavirus pandemic prompted the yield to soar as high as 7.9% in March. Last week, subway ridership was down as much as 70% compared to similar days last year.

So the moderate decline in bond yields is likely the result of investor optimism about federal aid. Help from Congress likely won’t arrive until at least next year, however, and the possibility of Republican control of the Senate may hamper the amount of aid received.

So to help fill this year’s budget gap, MTA officials are working on an application to tap the Federal Reserve’s Municipal Liquidity Facility for the maximum $2.9 billion available. The process is under way, said Robert Foran, the MTA’s chief financial officer, in Wednesday’s board meeting. That should allow the MTA to access the facility by the end of this year.

The MTA’s board will take action on its 2021 budget proposal at next month’s meeting.


By Alexandra Scaggs

Nov. 18, 2020 1:37 pm ET

Michigan Court of Claims Denies Request for Injunction Against State Over Local Licensing Decisions: Dykema Gossett

On November 11, 2020, Attitude Wellness D/B/A Lume Cannabis Company (Lume), filed suit in the Michigan Court of Claims against the Michigan Marijuana Regulatory Agency (MRA), the Village of Edwardsburg, and two private parties, after the Village denied Lume’s application for village marijuana establishment licenses. Lume sought an injunction to prevent the MRA from issuing state licenses to the two businesses that won licenses from the Village. Last week, the Court of Claims denied that request, finding Lume’s claims against MRA to be “speculative and inexact.”

Under the state’s adult-use law, the Michigan Regulation and Taxation of Marihuana Act (MRTMA), if the MRA is faced with more applications from a municipality than the number of establishments that the municipality allows, then the municipality is to select from among competing applications by a competitive process. That process must be intended to select the applicants who are best suited to operate in compliance with MRTMA. As permitted under MRTMA, the Village limited the number of licenses for retail establishments, in this case to two, and chose from among the applicants.

In the Michigan Court of Claims, Lume alleged that the Village inappropriately selected Alvarez Cultivation (Alvarez) and NOBO Michigan (NOBO), in violation of MRTMA. Michigan’s Court of Claims is a court of limited jurisdiction, which can only entertain claims against the State and its agencies. Lume argued that the MRA was the proper defendant and that MRA should be enjoined from awarding state licenses to Alvarez and NOBO because the Village failed to follow MRTMA’s requirements with respect to competitive selections.

Lume’s case illustrates the difficulty of succeeding in such challenges. Although MRTMA requires a municipality to select applicants by virtue of a competitive process aimed at ascertaining which are best suited to comply with the law, by its plain language MRTMA’s requirement applies only in cases where MRA receives too many applications. But an MRA application is not complete without a municipal attestation that the applicant is in compliance with local ordinances. And municipalities generally will not provide such an attestation until applicants have been selected at the local level. As such, MRA does not face more applications than a municipality allows, because the municipality has already whittled the number down before the applicants come to MRA.

While the practicalities of the MRA licensing process and specific language of MRTMA has led to substantial debate as to whether and how a competitive process is truly required, Court of Claims Judge Michael J. Kelly issued an opinion in Lume’s case last week that did not address this issue. Rather, Judge Kelly simply assumed that the MRTMA requirement was implicated here.

Nevertheless, Judge Kelly denied Lume’s motion for an injunction. In doing so, he found that “the crux of plaintiff’s allegations is against Edwardsburg and its decision to approve applications by Alvarez and NOBO.” The Court further found that the few allegations levied against the MRA were “speculative and inexact” because they assumed that “Alvarez and/or NOBO will receive licensure—first local licensure and then state licensure.” And Alvarez and NOBO apparently had not yet even applied for licensure from MRA.

Even though the MRA was the only state-actor named in the complaint, none of the defendants were dismissed. While the Court of Claims has no jurisdiction over non-state actors, Judge Kelly stated in a footnote that “the Court has jurisdiction over the only defendant against whom it has been asked to grant relief—the MRA—at least for purposes of the instant motions.” Given that, “while the court questions whether it has jurisdiction over the non-state actors, it will not sua sponte dismiss them at this time, as doing so is unnecessary for resolving the currently pending motions.” But this is a fundamental problem for aggrieved applicants who wish to sue the MRA and municipalities over a licensing fight—the Court of Claims lacks jurisdiction over non-state actors, yet the Circuit Court that has jurisdiction over the municipalities lacks jurisdiction over the MRA.

As this case moves forward, there may be further insight to gain.

Dykema Gossett PLLC – R. Lance Boldrey and Soujoud C. Hamade

November 23 2020

Austin Voters Approve Tax Measure to Help Fund $7.1B Project Connect Plan: Nossaman

On November 3rd, Austin voters approved a property tax increase to help fund the $7.1 billion Project Connect mass transit project. The initial investment, which is a portion of the “Project Connect System Plan,” includes 27 miles of rail service, 31 stations and a transit tunnel. Specific elements of the plan include:

Blue Line: An approximately 15-mile light rail line running from Austin-Bergstrom International Airport (AUS), connecting through the downtown station and running north to Lamar Boulevard at Highway 183
Orange Line: A 21-mile light rail line running from North …

Continue reading.

Nossaman LLP

By Patricia de la Peña on 11.19.2020

Denver Supportive Housing Social Impact Bond Initiative: Housing Stability Payments.


In February 2016, the City and County of Denver and eight private investors closed on the city’s first social impact bond, an $8.6 million investment to fund a supportive housing program for 250 of the city’s most frequent users of the criminal justice system. The city will make outcome payments over five years based on the initiative’s goals of housing stability and a decrease in days spent in jail by participants. This brief details the fourth assessment of housing stability payment outcomes and interim housing stability outcomes for the program.

Read the study.

The Urban Institute

by Sarah Gillespie, Devlin Hanson, Alyse D. Oneto, Patrick Spauster, Mary K. Cunningham, Mike Pergamit

November 13, 2020

San Francisco Sees $116 Million Gap as Revenue Falls Short.

San Francisco’s revenue is falling short of forecasts as the economy recovers more slowly from the coronavirus pandemic than the technology hub expected, creating a $116 million budget shortfall just a few months into its fiscal year.

In a report issued Tuesday by city Controller Ben Rosenfield, revenue is forecast to be $144 million less than expected in the adopted budget for the year that began in July, largely due to drops in business and hotel taxes. Still, higher than expected property tax collections are softening the blow and boosting reserves by $21 million.

The city already raided reserves to help plug a $1.5 billion deficit over the next two years due to the pandemic. Rosenfield’s update comes a week after city voters approved new business taxes and changes, which will add a net $11 million to the budget. Mayor London Breed in October had warned that failure of the measures could lead to service cuts. The budget for the fiscal year was enacted that month, later than usual to deal with the uncertainty amid the pandemic, and the city is already seeing changes to its forecast.

San Francisco’s predicament is true for other local governments across the country dealing with the uncertainty of the outbreak and resulting shutdowns. Municipal officials are also hoping for a federal stimulus package, but Congress remains in gridlock. Chicago is planning to raise taxes and lay off workers to plug its record $1.2 billion gap, and New York City is using $4 billion in reserves, and warning it may have to lay off as many as 22,000 city workers if it doesn’t get federal aid or state approval for borrowing to help close its $9 billion shortfall.

“The level of uncertainty regarding city revenues and expenditures remains extraordinarily high, driven by the economic and financial impacts of the public health emergency,” Rosenfield wrote.

Indeed, the city on Tuesday said it will temporarily roll back the reopening of indoor dining and reduce the capacity of fitness center and theaters after a spike in Covid cases.

By tapping reserves, San Francisco, a city and county of about 880,000 residents, avoided layoffs but the Board of Supervisors approved scheduled raises for city workers against the wishes of the mayor, who called it irresponsible. The two-year general fund budget is about $6 billion per year.

Rosenfield told the Board of Supervisors Tuesday that another concern is the availability of funds from the Federal Emergency Management Agency, which the city relies on for temporary housing for those at risk of contracting the coronavirus, such as those over age 65 or those who have qualified medical conditions.

The FEMA program, which is dependent upon the executive branch continuing it, can be cut off with 30 days’ notice, and is only authorized month to month. “So I don’t say that to scare anybody, but only to note that I think there is a significant risk that FEMA will fall away at some point,” Rosenfield said.

Rosenfield’s report assumes a vaccine will be available in spring 2021, and widespread adoption by December 2021. It expects a slower rebound in travel and tourism than previously forecast, not returning to pre-pandemic levels until the fiscal year that begins in July 2025.

Another key source of uncertainty is telecommuting, because even if offices can return to full capacity — which they currently aren’t — it’s unknown if managers will continue to allow employees to work from home as much as possible, according to the report. If remote work returned to its pre-pandemic levels, the city would get $190 million more in business revenue. San Francisco expects to collect $3.7 billion in total receipts, down from $4.4 billion the previous year, according to the report.

Bloomberg Economics

By Romy Varghese

November 11, 2020, 6:00 AM PST Updated on November 11, 2020, 10:35 AM PST

— With assistance by Joyce Cutler, and Henry Goldman

New Jersey Joins Hawaii in Pandemic Credit Downgrades, but Their Bonds Have Diverged.

New Jersey just became the second state to get a credit-rating downgrade since the coronavirus pandemic struck, following Hawaii’s downgrade earlier this year.

But New Jersey’s bond yields have declined since then, even though rating downgrades typically drive bond prices lower and boost yields.

Last week New Jersey’s 10-year general obligation bond—debt backed by a state’s pledge to use its taxing power to repay, rather than a specific project or revenue stream—yielded 1.82%. At Tuesday’s close, the bond yielded 1.77%, even though the state’s credit was downgraded Friday to BBB+, three tiers above junk, by S&P Ratings.

In contrast, Hawaii’s bond yields have climbed since its downgrade by Moody’s in August. Its 10-year benchmark general-obligation bond yielded 1.1% on Tuesday, according to Bloomberg data, compared with 0.8% shortly before its downgrade.

Some of New Jersey’s minor bond-price gains could be the result of the downgrade not being as severe as investors feared. But it could also be the result of optimism around the recent U.S. presidential election and a vaccine.

Yet Hawaii’s finances—which are tied to the state’s tourism industry—could be helped by a vaccine more than New Jersey’s. Earlier this year, Hawaii said its tourism revenues aren’t expected to get back to normal before 2024, according to Moody’s. But it seems reasonable to think that an effective and widely distributed vaccine would move up that date.

New Jersey’s problems, on the other hand, are more structural, as S&P Ratings pointed out in its Nov. 6 note downgrading the credit.

“Until the recent recession, New Jersey had been making progress on closing its…deficit,” the analysts wrote. “However, this progress depended on steady revenue growth during the long previous economic expansion. In recent years, most of the state’s revenue growth has gone toward increasing New Jersey’s annual pension contributions.”

And the possibility of a divided government could constrain the amount of federal aid New Jersey can obtain. That likely won’t be determined until early January, when Georgia hosts two runoff elections.

In other words, if New Jersey’s credit looks better after the election and vaccine, Hawaii’s should look much better.


By Alexandra Scaggs

Nov. 11, 2020 9:43 am ET

Illinois Faces Risk of Junk After Voters Reject Tax on Rich.

Illinois voters defeated a measure that would have allowed the state to raise taxes on its wealthiest residents, striking down a pillar of Governor J.B. Pritzker’s plan for shoring up the state’s finances and preventing its debt from being cut to junk.

The failure of the constitutional amendment that would have scrapped the flat income tax by a vote of 55% against sent the prices of Illinois’s bonds tumbling, with those due in 2034 down about 7%. The costly campaign ended in a win for Citadel founder Ken Griffin who spent nearly $54 million to fund the opposition, while Pritzker, the billionaire heir to the Hyatt hotel empire, gave $58 million in support.

“The citizens of Illinois have delivered a clear message to our political leaders in Springfield,” Griffin, the billionaire head of the Chicago-based hedge fund, said in an emailed statement on Wednesday. “Now is the time to enact long overdue reforms to save our state from fiscal ruin.”

The loss adds a new challenge to the Democratic governor’s effort to steady the finances of Illinois, whose rising pension-fund costs and chronic budget shortfalls left it with the lowest bond rating among U.S. states even before the pandemic struck. Failure of the measure won’t automatically trigger a downgrade to junk. The three major rating companies, which all consider Illinois the lowest level of investment grade, said they’ll be watching for the state’s backup plan.

“There will be cuts and they will be painful,” Pritzker said during a press conference on Wednesday. Without the additional revenue from the graduated income tax, the state will look at various options including cuts potentially for public safety, education and health services and may have to rely on its “regressive” tax system for more revenue, he said.

Downgrade Risk

If approved, the state would have been able to proceed with enacted legislation to apply higher rates to incomes over $250,000, raising levies on the highest earners. Rejection by voters means the “risk of a downgrade would increase” unless the state eventually increases the flat tax, Barclays Plc said in a report Wednesday.

“The amendment’s failure makes greater reliance on deficit financing more probable and is therefore credit negative, but the state’s likely pursuit of other recurring fiscal strategies mitigates this impact,” Moody’s Investors Service analysts led by Ted Hampton, said in a report on Wednesday. The likelihood of “credit-negative strategies” like deferring near-term pension contributions may also rise, Moody’s said.

Even with the graduated income tax failure, Illinois has other options available, Carol Spain, S&P’s director of U.S. public finance, said in an emailed statement. Illinois will need to look at other budget-balancing steps, Eric Kim, head of state government ratings for Fitch, said in an emailed statement.

Alternatives for Illinois include more borrowing, tapping the Federal Reserve’s Municipal Liquidity Facility for a second time, cutting spending or raising revenue with sales taxes and a higher flat income tax rate, Kim said.

‘Budget Crisis’

Previously, Pritzker has said budget cuts of 15% over two years or potentially borrowing from the Fed again are possible if the amendment failed and no more federal aid comes through.

“While the fair tax would have helped to address our budget crisis with the least damage to the working families of Illinois, the millionaires and billionaires opposed it to protect their own wallets, deceiving the public about its purpose and they ended up prevailing,” Pritzker said Wednesday. “Sometimes politics works against the best solutions.”

The business closures due to Covid-19 since March have added to the fiscal challenges and all three major rating companies have a negative outlook on Illinois, signaling that it could be the first state stripped of its investment grade rank. Such a step would likely add to its financial problems by saddling the government with higher interest bills and preventing many mutual funds from owning its debt.

Pritzker said Wednesday he considers the state’s investment grade rating “very important” and will continue to work to fix the state’s structural financial problems to avoid it going lower.

“In this election, Illinois voters sent a resounding message that with an $8 billion deficit and two massive tax hikes in the last ten years, we cannot trust Springfield Politicians with another tax hike,” the Coalition to Stop the Proposed Tax Hike Amendment, said in an emailed statement late Tuesday.

“We are undoubtedly disappointed with this result but are proud of the millions of Illinoisans who cast their ballots in support of tax fairness in this election,” Quentin Fulks, chairman of the Vote Yes For Fairness campaign, which supported the measure, said in an emailed statement on Wednesday.

“Now lawmakers must address a multi-billion dollar budget gap without the ability to ask the wealthy to pay their fair share,” Fulks said. “Fair Tax opponents must answer for whatever comes next.”

If enacted, the new graduated rates would have brought in $1.2 billion for fiscal 2021, which began July 1, and $3.1 billion for a full year, according to state estimates.

Red Ink

It was no panacea. Illinois has about $8.3 billion of unpaid bills, some $137 billion of unfunded pension liabilities, and its rainy day fund has just $68,459. With the bond market demanding high penalties to own its debt, it’s one of just two that have borrowed from the emergency lending facility the Federal Reserve rolled out after the pandemic.

“Illinois — it’s not a stretch to say — it was a net loser in the preliminary aftermath of the election,” said Ty Schoback, senior analyst for Columbia Threadneedle Investments, which owns Illinois debt as part of its $17 billion in muni assets under management. He cited the lack of expected Blue Wave and the graduated tax failure.

The state has budget flexibility and sufficient liquidity for now, he said, adding that market participants will look for willingness to fix problems with structural changes that may be unpopular rather than only borrowing more or one-time tactics.

“I don’t think the rating agencies have an itchy trigger finger and I think they are going to give the state a little bit of time,” Schoback said. “All that being said, the state is definitely on the clock with rating agencies and investors.”

Bloomberg Markets

By Shruti Singh

November 4, 2020, 8:56 AM PST Updated on November 4, 2020, 2:48 PM PST

Illinois Isn’t a Junk-Rated Credit. It’s Just Trading That Way After Voters Rejected a Progressive Tax.

Illinois’ bond prices fell after voters rejected a graduated income tax proposal on Tuesday’s ballot. And while its debt hasn’t been downgraded, it is already trading like junk.

Several years after its budget-setting process was frozen by political gridlock, the state has been taking steps to increase revenue and reduce its reliance on bond markets—partly because its bonds are rated BBB-, just one tier above junk.

The state’s constitution mandates a flat tax, and overturning that policy would have required 60% of people voting on the amendment to approve it, or more than 50% of all voters casting ballots, according to Moody’s.

Instead, about 55% of voters rejected the measure, according to the Associated Press. A graduated income tax would have brought in an estimated $1.3 billion this year, according to Fitch.

It is also looking less likely that states (or other stressed local governments) will receive substantial amounts of aid from Congress this year, as strategists say there is a higher probability of a divided government in Washington.

So Illinois’ bonds have sold off. Yields of bonds maturing in five years have climbed roughly half of a percentage point since last Friday, to 3.5%, according to Bloomberg data.

The selloff has been even sharper over the past seven days, and the yields of six- and seven-year bonds have increased most on the news—the benchmark yields on Illinois’ six-year bonds have climbed to 3.8% from 3% since last week.

S&P, Moody’s, and Fitch all assign Illinois their lowest investment-grade rating, the equivalent of BBB-. But their current yields are closer to junk-rated municipal bonds, rather than investment-grade debt, according to Bloomberg data.

The Bloomberg Barclays High-Yield GO Index has a yield of 3.8% with a maturity of 5.4 years. The index of BBB-rated municipal bonds yields 2.6%, with roughly the same maturity.

To put it in simpler terms: The fact that Illinois’ five- and six-year bond yields are trading around 3.5% and 3.8% shows that investors think the state’s credit is closer to junk-rated municipals than its investment-grade peers.

“Now this is where it gets interesting, to see if the rating agencies actually have the chutzpah to pull the trigger on the first ever U.S. state junk rating,” wrote Eric Kazatsky, analyst with Bloomberg Intelligence, in a Wednesday note.

To be sure, Illinois still has options to raise revenue that it can pursue during coming legislative sessions, according to a Wednesday note from Moody’s.

If the state raises its flat income tax by 0.7 percentage points to roughly 5.7%, it could bring in about $3 billion of additional revenue, says Moody’s, the same amount that it had projected it would raise under a proposed graduated income tax.

Gov. J.B. Pritzker has also asked state agencies to identify potential spending cuts: 5% for the current fiscal year and 10% for the coming fiscal year.

But to free up $3 billion, “the state would have to impose across-the-board reductions of almost 11%, based on actual 2019 figures,” Moody’s wrote. “This degree of austerity would have significant implications for delivery of core education, healthcare, corrections and other services.”

It can also tap the Federal Reserve’s Municipal Liquidity Facility again, says Fitch. If the state does end up getting downgraded by ratings firms, however, it will need to pay higher interest rates to use the facility.

As the state weighs its options, “Illinois’ upcoming post-election legislative session could be particularly consequential this fiscal year,” wrote Eric Kim, head of state government ratings at Fitch, in a Wednesday note.


By Alexandra Scaggs

Nov. 5, 2020 9:15 am ET

California’s Financials Come in So Late They Reflect Bygone Era.

On Friday, California’s bondholders finally got the most up-to-date look at the government’s audited financial statements, revealing how things looked when the economy was in the midst of a record-long expansion, nobody had Covid-19 and the state’s savings account was rapidly growing.

California’s certified annual financial report for the 2019 fiscal year — which ended 16 months ago — is later than any other state’s, a dubious distinction in a corner of the bond market known for the slow pace of such disclosures.

California had blamed the delay on the difficulty multiple agencies had with rolling out a new accounting system called the Financial Information System for California (FI$Cal), a $1.06 billion modernization project that has ballooned in cost since original estimates. The coronavirus pandemic subsequently complicated the task.

Many other states were far more timely, closing the books on their years within six months. Big companies do it even faster: Securities and Exchange Commission rules require them to file their annual reports within 60 days.

While California does provide regular updates on budgets and debt, the so-called CAFR includes other information such as pension liabilities that are integral to rating-company decisions. The document filed Friday showed the state’s sum of liabilities, deferred inflows and net position had grown to $329 billion from $310 billion the previous year.

State Controller Betty Yee had pushed back her estimates several times for when the 2019 report would come out because of the difficulties the state’s departments had in using the new technology to produce their statements that go into it. Even Illinois, on the brink of being the first U.S. state to fall to junk status, filed its 2019 audit in April, or about 10 months after the end of its fiscal year.

To be sure, investors are more concerned about the state’s response to closing the deficits triggered by the pandemic than about a document that lays out its fiscal position before the onset of the worst recession of modern times.

But the outdated statements illustrate a long-running gripe about the loose disclosure rules in the $3.9 trillion municipal market. They also leave taxpayers unaware of long-term expenses like workers’ pensions, said David Crane, an adviser to former Governor Arnold Schwarzenegger and president of Govern For California, which funds state lawmakers’ campaigns.

The costs of these obligations aren’t necessarily disclosed in annual budgets but get “spread out over time,” Crane said before the 2019 filing came out.

“It’s all created without voter approval or knowledge. That’s what the CAFR discloses,” he said. “And that’s how you find out the truth about an enterprise.”

Bloomberg Economics

By Romy Varghese

October 30, 2020, 12:17 PM PDT

A Junk Bond Rating for Illinois Is on the Ballot.

The state’s standing in the municipal-debt market will depend on voters approving a “fair tax” amendment, but which party holds power in Washington may also play a role.

Illinois doesn’t get as much attention as some other Midwestern states around Election Day. It’s no secret why: Unlike Iowa, Michigan, Minnesota, Ohio and Wisconsin, it’s not even remotely close to being a toss-up for the presidency.

What it lacks in White House intrigue, however, it more than makes up for in its own drama.

Illinois has long held the unenviable distinction of being the lowest-rated U.S. state. Its retirement systems are so underfunded, and have been for such a long time, that the phrase “Illinois pensions” is practically used as shorthand among Republicans in Washington as a reason the federal government shouldn’t send a huge aid package to state and local governments to help them get through the pandemic.

Continue reading.

Bloomberg Opinion

By Brian Chappatta

October 28, 2020, 4:00 AM PDT

Chicago Mayor Plans Tax Hikes, Layoffs to Fill $1.2B Budget Hole.

Mayor Lori Lightfoot’s plan includes raising property, gas taxes

Chicago approaches 600 homicides already in 2020; insight from Chicago Alderman Raymond Lopez on what leaders can do to stop the violence.

Chicago Mayor Lori Lightfoot on Wednesday evening unveiled her plan to fill the city’s $1.2 billion budget deficit, the largest in its history.

The $12.8 billion plan includes a number of tax increases and cost savings to help fill the hole in the city’s budget that was exacerbated by the COVID-19 pandemic.

“Chicago’s 2021 Budget represents our city’s roadmap toward an inclusive and fiscally responsible recovery from the extensive challenges of the unprecedented COVID-19 crisis,” Lightfoot said in a statement.

Lightfoot’s plan includes raising $94 million through property tax hikes, in addition to increasing the gas tax by 3 cents per gallon and the cloud-computing tax by 1.75 percentage points. Also included is an annual property tax increase that is tied to the consumer price index.

More than $537 million in savings are identified, including $106 million through layoffs, furloughs and the elimination of unfilled jobs. At least 350 workers are expected to lose their jobs beginning in March 2021.

Lightfoot’s plan also calls for the city to refinance $501 million in debt to take advantage of historically low interest rates.

Other revenue sources include $76 million of tax increment finance surplus funding and $30 million from the city’s rainy day fund.

The budget provides $18.6 million in new investments, including an additional $5.25 million for community-based violence prevention and reduction efforts. Chicago homicides are up 53% so far this year versus last year, according to the Chicago Police Department.

Further community investments include $1.7 million for youth programming, $2 million for affordable housing and $7 million to support workforce training.

Lightfoot’s budget proposal comes as Chicago’s economy has shrunk 10% as a result of the COVID-19 pandemic.

The sharp drop in economic activity came as the city was just starting to get its fiscal house in order. Lightfoot last year identified more than $500 million in structural solutions, the most since 2012, to fill the city’s then-record $838 million gap.

By Jonathan Garber | Fox News

October 22

Chicago Turns to Scoop and Toss, Tax Hikes, and Job Cuts to Manage Coronavirus Wounds.

Chicago’s fix for a record $1.2 billion 2021 budget shortfall and remaining 2020 COVID-19 pandemic tax wounds count on $948 million of relief through a $1.7 billion refinancing and restructuring of general obligation and Sales Tax Securitization Corporation debt.

Chicago Mayor Lori Lightfoot’s proposed 2021 budget totals $12.76B when counting all funds, including a $4 billion corporate fund.

Heading into 2021, the city was still working to close an $800 million revenue hole caused by the pandemic’s economic blows while the 2021 gap was estimated at $1.2 billion due to roughly $800 million of pandemic-related tax losses and $400 million of rising structural costs.

The $1.2 billion shortage is wiped out through a mix of structural measures like tax increases and efficiencies as well as non-recurring, one-shots like debt restructuring and furloughs. The city will take $501 million of debt savings and relief, bank $184.9 million of new revenue, and cut $537.2 million in costs through savings and efficiencies. It mostly leaves the city’s healthy reserves alone.

The city attributes 35% of its 2021 hole to structural demands and 65% to COVID-19 blows with 47% of the measures tackling the $1.2 billion shortfall structural in nature.

“We believe that these structural reforms will set us up well to continue along our path toward structural balance, we which are targeting for 2023. And I hope you will agree and ultimately vote to support this budget,” Lightfoot told the City Council in her budget address Wednesday.

Staying on course with the goal to structurally balance the city’s books by 2023 will prove more difficult given a post-debt restructuring spike in 2022 of about $600 million in debt service and a $300 million price tag to cover an actuarial pension contribution for the municipal and laborers funds. Those factors are likely to weigh heavily in what rating agencies have to say on the proposed plan.

The city’s general obligation credit is rated junk-level by Moody?s Investors Service, at Ba1, it’s rated BBB-minus by Fitch Ratings, BBB-plus by S&P Global Ratings, and A by Kroll Bond Rating Service. S&P moved the outlook to negative in April over mounting pandemic pressures that make structural balance targets a tougher task. The others assign a stable outlook.

Chicago’s GO paper is thinly traded but recent trades put spreads at about 325 basis points to the Municipal Market Data’s top benchmark, said Daniel Berger, senior market strategist at MMD-Refinitiv.

“Ratings agencies have demonstrated unusual patience, due to the unusual circumstances” said Brian Battle, director of trading at Chicago-based Performance Trust Capital Partners, who added, at first glance the budget proposal and debt restructuring appears “reasonable as this voluntary quarantine is unprecedented.”

Market participants will welcome that spending cuts and tax increases are part of the equation and may be willing to swallow the return to scoop-and-toss debt restructuring. “The mayor’s office is being responsible by talking about tax increases and spending cuts,” Battle said, adding that on debt restructuring the city “did it way before there were circumstances” like the pandemic.

Bigger questions loom large over the city’s post-pandemic fiscal picture. “The more salient question for the city is what is the long-term revenue and spending plan.  What is the one, three, and five projections for revenue increases and spending cuts and how does the city attain fiscal stability,” he said.

The package now heads to the council with hearings beginning Monday and a vote expected next month. While Lightfoot labeled the tax hikes and layoffs modest, they may prove a hard sell for some council members who prefer other tax proposals, want police spending cut and more spending on human services, and may look skeptically at the debt refinancing.

“I think it is a fair division and reasonable approach to structural change during this pandemic with little federal help,” said Alderman Scott Waguespack, Lightfoot’s Finance Committee chair, who was a frequent critic of the former mayor’s budgets. “They have a balance in here where we cannot do all structural changes at once. We don’t want to hit personnel too hard, or raise property taxes too high but I believe rating agencies are looking for a good balance.”

The $537.2 million of savings and efficiencies include $106.3 million in personnel reductions from measures like five furlough days and the elimination of 1,900 positions, including 350 layoffs. The budget cuts about 600 police department positions, but Lightfoot said she has no plans to cut other police spending, especially given demands associated with reforms under a consent decree.

The city will sweep old accounts, moving $59 million to the corporate fund and will require Chicago Public Schools to reimburse it for $40 million of pension contributions for CPS employees who participate in the city’s pension funds and $54 million will come from improved rates in healthcare contracts.

The $184.9 million of new revenue comes from a $33.5 million increase in an expected tax-increment financing surplus declaration, a $30 million draw on city fund balances, new tax revenue, including a $93.9 million property tax hike, including $16 million for new property and a $42.5 million hike due loss of collections. The city lost litigation filed by the pension funds and now must make up the difference between what’s levied to cover pension contributions and what’s collected. Future annual property tax hikes will be tied to inflation, a shift from existing practices. The city will also raise $25 million from a hike on cloud computing and motor fuel taxes.

Council members have pressed the administration to dip deeply into reserves. The city’s fiscal chief Jennie Huang Bennett has pushed back, warning that preservation of the reserves that total $900 million between an unassigned fund balance, a cash reserve, and long term reserves are central to maintaining the city’s ratings and weathering a prolonged pandemic hit.

“To be clear, folks, we are not experiencing a rainy day. It is truly a rainy season, and we must continue to be prudent and cautious,” Lightfoot said.

The city will declare a $300 million TIF surplus, pocketing $76 million or $33.5 million more than previously anticipated. Chicago Public Schools receives half of any surplus and the city’s sister agencies and Cook County receive the remainder.

Pension appropriations rise to $1.815 billion in 2021 from $1.68 billion. The city is carrying $31.8 billion of net pension liabilities, and funded ratios for the funds are at 18% for firefighters, 21% for police, 24% for municipal, and 43% for laborers. The contributions shoot up in 2022 to $2.245 billion due to a roughly $300 million spike when the laborers and municipal fund payments move to an actuarial level and due to modest growth in contributions to police and firefighters which moved to an ARC this year.


A cornerstone of the 2021 package that will also cover half of the 2020 hole will come from a $1.7 billion debt refinancing and restructuring. If approved by the council, the city would issue the first piece of the refinancing in December, according to budget documents.

Lightfoot refinanced GO and other debt with $1.5 billion of borrowing under the GO and STSC credits in January generating a total of $300 million in savings that were mostly taken upfront. Bennett has stressed the upfront savings may mark a one-time maneuver but did not constitute scoop-and-toss, as maturities were not extended and savings were achieved in all maturities.

“Unlike the refinancing in 2020, the city will be increasing the debt service on the bonds in future years and extending the debt,” reads a city description of the proposed transaction. “Overall, the city will use the refinancing savings  to help pay for the cost of the debt restructuring and overall the transaction will still generate positive savings on a net present value basis.”

The city says the debt will be layered into STSC debt structure to create a level debt service schedule that meets projected of sales tax collections, which are pledged to payoff the bonds. A chart included in the budget presentation shows a reduction in combined GO and STSC debt service to about $200 million in both 2020 and 2021 from existing levels of $600 million in 2020 and $700 million in 2021.

The expected $800 million of debt service owed in 2022 is held steady and continues with modest increases through 2029, holds mostly steady through 2032 with higher payments owed through 2047 with new debt piled on in 2048-2050.

The STSC bonds are sold through a bankruptcy-remote entity that garners higher ratings in the double-A to triple-A category, depending on whether they are senior or second lien.

Pushing off 2020 and 2021 debt service and extending debt will mark a return to the past fiscal tactic of scooping and tossing debt first used by former Mayor Richard M. Daley as he sought to hold the line on property taxes while financing infrastructure projects. Mayor Rahm Emanuel inherited the practice when he took office in 2011 and then phased it out in his second term.

Some market participants considered the city’s first issues under the STSC, which was established in 2017, as “scoop-and-toss lite” as the maturities of some general obligation bonds being refunded were pushed a few years out and interest was capitalized. The city’s last deal also capitalized interest.

By Yvette Shields


New York Subway’s Pain Could Bring Riches for Bond Investors.

Riders and revenues are way down at the Metropolitan Transportation Authority. Its bonds look risky, but some investors are tempted.

You can make a lot of money betting on government bailouts.

Swooping in to buy the dirt-cheap stocks and bonds of troubled entities is a time-honored — and profitable — tactic throughout the investing world. When deep-pocketed public saviors come forward, such a wager can pay off handsomely.

Given the vital role it plays in the economy of the nation’s largest city, the Metropolitan Transportation Authority, which runs New York’s subway, bus and commuter rail system, is a likely candidate for a lifesaving infusion of government cash.

“It’s very explicitly too big to fail,” said Matt Fabian, a partner at the research firm Municipal Market Analytics who has been pitching M.T.A. debt to his clients.

The agency was dealing with high costs even before the pandemic, and the beating the coronavirus has given its finances has raised the possibility of deep service cuts. That economic pressure is translating into low bond prices and some of highest — and therefore most tantalizing — yields available to investors anywhere in the bond markets.

Investors who buy 10-year M.T.A. bonds right now — the agency was expected to issue around $258 million more in debt on Thursday — are capturing a yield of about 4 percent. That’s roughly three percentage points more in annual interest than they would get buying the safest long-term municipal debt. It also trounces the yields of other major transit systems, which hover around 1 percent.

If it were a for-profit corporation, the M.T.A. would most likely be heading for bankruptcy. Its budget deficit has exploded, and last week Fitch downgraded the agency’s bond rating, citing weak ridership and revenue outlook.

But the M.T.A. is a quasi-governmental body — technically a public benefit corporation, formed in 1968 — that’s deeply entwined with the economic health of the region. That means its risk of default is almost infinitesimal, investors and analysts say.

There’s another reason to like these bonds: federal and state tax exemptions on municipal debt. To match the after-tax return on M.T.A. bonds without taking on a lot more risk, analysts say, investors would need to find relatively safe corporate bonds yielding almost 9 percent — all but nonexistent nowadays.

Len Templeton, president of Templeton Financial Services in Chandler, Ariz., has allocated roughly 5 percent of his client assets to the securities issued by the M.T.A. He said he couldn’t imagine the agency’s being allowed to default.

“I mean, how could you not think they should have public transportation in a city like New York?” asked Mr. Templeton, who manages some $425 million in client assets in bond funds. “And how can the city survive and do what it needs to do without it?”

Even Fitch, in downgrading the agency’s rating to A– from A+, said the M.T.A. continued to have “the highest strategic and economic importance” and would continue to benefit from government support.

Mark Paris, who manages New York and national municipal bond funds for the asset management firm Invesco, said M.T.A. bonds were “definitely a great place to get some yield.” He has been adding them to his holdings, but warned of violent swings in their prices as the agency struggles to stabilize itself over the next few years.

“Is there going to be volatility?” he said. “Yes.”

In fact, there already has been quite a bit. Prices for M.T.A. bonds are normally quite stable, but as the virus gripped New York in March and April, they plunged more than 20 percent and sent yields shooting up.

In normal times, the M.T.A.’s massive ridership is a stabilizing force: Subway, commuter train and bus fares, as well as bridge and tunnel tolls, matched 50 percent of the operating costs in 2019.

“It’s a strength because it reduces their reliance on statewide and citywide politics,” Mr. Fabian said.

That strength disappeared with the arrival of the pandemic. Subway ridership — averaging around 5.5 million on weekdays last year — collapsed more than 90 percent as a result of widespread shutdowns intended to limit the spread of the virus, which was killing more than 500 people a day in the city. Even with infection rates well down from their peak, subway ridership is still 70 percent below last year’s level.

And that means the M.T.A. needs money — badly. Before the pandemic, the agency projected an estimated surplus of $270 million for 2021. Now? It is projecting a deficit of roughly $5.8 billion. Its annual deficit is expected to add up to about $16 billion by 2024.

While investors and analysts expect that financial help will materialize, exactly where it will come from and when it will arrive aren’t clear.

The agency, which already received $4 billion under the CARES Act, is asking for some $12 billion in emergency aid from the federal government to make it through next year. But talks in Washington have been stuck in neutral from months.

If Democrats capture both the White House and the Senate next week, most observers predict the federal government will come through with more help. But even if Republicans retain control in Washington, that won’t be the end of the line for the M.T.A. Rather, investors believe that would just force the state to cough up the money the agency needed.

“The expectation is the State of New York can and will support the M.T.A. if additional federal moneys aren’t forthcoming,” said Howard Cure, director of municipal bond research at Evercore Wealth Management in New York.

There’s a simple reason: New York City is the economic engine of the state, providing nearly half its jobs. By itself, Wall Street — the securities industry centered in Manhattan — accounts for roughly 17 percent of the state’s tax revenues. The state simply can’t afford not to keep the M.T.A. running and New York City functioning.

Analysts at credit ratings agencies are already beginning to factor in the financial toll that additional support from Albany could take on the state. Moody’s analysts downgraded New York State’s bond rating this month, noting the “state assistance in various forms” that the M.T.A. will require even though the state has reduced financial resources.

So if a bailout is such a sure thing, why haven’t people rushed to buy the M.T.A.’s bonds?

In part, the answer has to do with some of the idiosyncrasies of the market for municipal bonds: how heavily such bonds are traded, and by whom.

At roughly $4 trillion, the market is relatively small, with most bonds traded irregularly. Its prices might not accurately capture information as quickly as prices in some other markets. And it’s dominated by affluent individuals who buy municipal bonds for their safety and tax benefits. Such investors are easily turned off by noisy and negative headlines, advisers said.

That can cause wealth managers to steer clear — despite attractive yields — simply to avoid the risk of aggravating clients.

“Holding an M.T.A. bond now, versus not holding one, means triple or double the number of conversations with an angry dentist from Long Island,” Mr. Fabian said. “There’s a cost to that.”

The New York Times

By Matt Phillips

Oct. 30, 2020

The MTA Is Selling Green Bonds This Week. Investors Should Prepare for More Borrowing.

New York’s Metropolitan Transportation Authority is planning to sell tax-exempt green bonds backed by the agency’s transportation revenues. Analysts at Fitch have downgraded that debt, citing the risk that the country’s largest transit system could borrow a lot more in the future as the pandemic has sharply reduced ridership.

The MTA said it would sell $257.5 million of bonds this week to pay down bonds that mature in mid-November. The bonds are backed by a lien on revenues from the commuter and transit system, along with some of the surplus from the city’s bridges and tunnels, state-and-local-government operating subsidies, and revenue from other miscellaneous taxes and fees. They will also be green bonds with certification from the Climate Bonds Initiative, thanks to their use financing mass transit.

The offering comes as revenues have slumped for New York’s subways, buses, and commuter rail, however, as pandemic-wary commuters avoid public transit. On Oct. 23, for example, subway ridership was down nearly 70% from last year, bus ridership was down more than 50%, Long Island Railroad ridership was down 71%, and Metro-North ridership was down 76%. Bridge and tunnel use was down 12% from last year.

In a recent investor presentation, the MTA reiterated past estimates that put its budget shortfall at $3.2 billion for this year and $5.8 billion for 2021 in the absence of federal funding. MTA Chairman and CEO Patrick Foye has requested $12 billion in federal grants for the next two years to cover the deficits—but it isn’t clear how quickly the MTA will be able to obtain aid from Congress, or how much aid it will end up receiving.

Until the outlook becomes clearer, officials estimate they can reduce this year’s deficit by $1.1 billion by cutting spending and tapping other sources of cash within the agency, such as retirement-benefit reserves.

Beyond those steps, board members have proposed tapping the full $2.9 billion of cash available from the Federal Reserve’s Municipal Liquidity Facility, though the MTA has only a little more than a month to file a Notice of Interest to meet the Fed’s current requirements. The MTA has already tapped the Fed facility once, borrowing $450 million in August.

New York state has given the MTA permission to borrow to cover up to $10 billion in deficits through 2022. But ratings-firm Fitch says that increases the MTA’s reliance on capital markets, along with its “sensitivity to the timing and strength of an eventual revenue recovery that is highly dependent on public health and economic conditions and mass transit ridership behaviors.”

For now, the pandemic-related revenue crunch has prompted Fitch to downgrade all of the MTA’s outstanding transportation revenue bonds by two notches, to A- from A+.

The firm’s analysts estimate that the transit authority is burning $300 million of cash per week, and have a “Negative Outlook” for the debt, meaning that future downgrades are more likely than upgrades.

On the bright side, the MTA has about $5.2 billion of liquidity on hand, with about $2 billion of that in cash, according to Patrick Luby, analyst with CreditSights.

What’s more, the market’s pricing of the MTA’s bonds does seem to reflect the risks created by the pandemic—meaning that while the MTA will likely need to pay high interest rates to borrow, the bond yields may be too high for risk-tolerant investors to resist.

The spread between the MTA’s bonds and AAA-rated benchmark muni yields closed around 338 basis points (or about 3.4 percentage points) on Friday, Luby wrote in a recent note. That is up from a spread around one-tenth that size—33 basis points—at the start of this year. In its investor presentation, the transit authority cited “strong legal provisions [enacted] to ensure timely payment” of those interest costs, such as a New York state law that prevents the MTA or its affiliates from voluntarily filing for bankruptcy to reorganize its debt.

The bonds are expected to price on Thursday, according to Fitch.


By Alexandra Scaggs

Oct. 28, 2020 6:15 am ET

Fortress Fails to Sell Record Bond Deal for Las Vegas Rail.

Fortress Investment Group is postponing its plan to build a train to Las Vegas from Southern California after failing to sell a record amount of unrated municipal debt to finance the speculative project, showing the limits of investor appetite amid an economic downturn.

Since the end of September, Fortress, through its company Brightline Holdings, had been marketing $3.2 billion of debt to be issued through California and Nevada agencies. It subsequently reduced the size to a still-record offering of $2.4 billion and tried to purchase some of the bonds it sold for a Florida rail as a way to entice investors to commit to the Las Vegas sale before terminating that buyback offer Friday.

“Unfortunately there is not a lot of liquidity in the market and a lot of economic uncertainty at this moment,” California Treasurer Fiona Ma said Saturday by email. “The project is postponed until market liquidity improves.”

Brightline spokesman Ben Porritt confirmed the postponement. “We will continue to move the project forward,” he said Saturday by email.

California and Nevada had given Fortress the ability to sell private activity bonds, which are meant for ventures for the public interest that are capped annually in each state by the federal government. California had provided the bulk, $600 million, which was leveraged four times to $2.4 billion in bonds because of federal rules extending that special boost to railroads.

California had given Fortress a Dec. 1 deadline to sell the bonds. Now, Ma said, the state will take back the bond capacity and give it to affordable housing projects and other kinds of qualifying ventures, such as recycling facilities. Before Fortress won its allocation from Ma’s debt committee earlier this year, affordable housing advocates had pressed for all of the state’s low-cost financing resource to go toward easing California’s homelessness crisis.

Ma said she didn’t know when Fortress would return to California to request bonds again.

“That will be part of the discussions with Brightline West over the next several weeks,” she said.

The failure to sell the bonds shows that deal sweeteners and juicy yields weren’t enough to overcome investor concerns about a project that depends on the recovery of the pandemic-ravaged travel and entertainment industries and has few comparisons in the U.S.

While Fortress said the rail would ultimately go to Los Angeles, it would need to do multiple rounds of financing to do so. The venture planned to raise a total of $6.38 billion in debt for the $8.4 billion project. The bond issue would have financed construction for a 169-mile (272-kilometer) line connecting Las Vegas to a Southern California desert town called Apple Valley, 90 miles away from downtown.

Lead underwriter Morgan Stanley pitched corporate junk-bond buyers and overseas investors, as well as traditional municipal-bond managers, according to people familiar with the matter who asked not to be named as the talks were private. Prospective yields in October ranged from 7% to 7.5% depending on the call dates, with final maturity in 2050. That yield on a 30-year bond would have been about four times what the highest rated state and local governments pay, data compiled by Bloomberg show.

Bloomberg Markets

By Romy Varghese

October 31, 2020, 6:44 PM PDT Updated on October 31, 2020, 7:33 PM PDT

SoCal to Vegas High-Speed Rail Project Hits the Brakes as Financing Falters.

Plans to build a high-speed electric train between Los Angeles and Las Vegas have been sidetracked over the investor’s inability to finance the project.

Fortress Investment Group announced Oct. 30 it has postponed its planned $8-billion Brightline West project, which was expected to start construction this quarter.

Fortress and its subsidiary, Brightline Holdings, had been marketing $3.2 billion in tax-free private activity bonds authorized by officials in California and Nevada. The amount investors sought was reduced to $2.4 billion in recent weeks but still met a skeptical response in the bond market.

“Unfortunately, there is not a lot of liquidity in the market and a lot of economic uncertainty at this moment,” California Treasurer Fiona Ma told Bloomberg News over the weekend. “The project is postponed until market liquidity improves.”

California had given Brightline until Dec. 1 to put financing in place and will now shift its bonding authority toward affordable housing or other projects for the public good. Treasurer Ma said she did not know when Fortress would again seek bonding authority.

Private-activity bonds let states give third parties access to lower financing costs by issuing bonds free of federal income tax.

The Bond Buyer reported that lead underwriter Morgan Stanley offered the bonds in October with a yield running from 7% to 7.5%, depending on the call dates, with final maturity in 2050. That yield is about four times what top-rated municipal bonds pay.

A Brightline spokesman said the project would continue but did not offer details.

New Website Launched
The Florida-based company had recently launched a website that includes engineering and construction information for the Brightline West project.

Groundbreaking had been scheduled for late this year on what’s being called the High Desert Segment, a 190-mile stretch from Victorville, Calif., to a proposed station south of the Las Vegas Strip.

The planned route follows rights-of-way along Interstate 15, which links Las Vegas with its biggest tourism market, Southern California. The train will run through the I-15 median at some points and alongside the highway in other areas.

Completion of the entire project had been set for 2024. Brightline says that its train, which can operate at speeds up to 200 mph, will cut in half the normal six-hour drive between Los Angeles and Las Vegas.

The company says the project would create 40,000 construction jobs and 1,000 permanent jobs. It also says the all-electric train will keep 400,000 tons of carbon dioxide out of the air each year and remove three million cars from Interstate 15, which is often clogged with travelers on weekends.

Brightline has been conducting geotechnical testing and exploratory boring near its planned Las Vegas station, according to the Nevada Dept. of Transportation, which issued advisories about possible traffic delays in the area. Ninyo & Moore and Terra Contracting are the contractors.

Brightline West is the third name for the project this year. It was briefly XpressWest, and before that it was branded as part of Virgin Trains until investor Richard Branson pulled out of the deal this summer.

Brightline operates a high-speed train line in Florida linking Fort Lauderdale, Miami and West Palm Beach, with plans underway to extend it to Orlando. Service is currently suspended because of the pandemic.

by Doug Puppel

November 2, 2020

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