The Week in Public Finance: Money, Money and, Well, Money
A roundup of money (and other) news governments can use.
Show me the money
The oh-so-snappily-named federal PILT program (Payment in Lieu of Taxes) is set to expire at the end of the month and localities want to make sure the feds are paying attention and renew the program. PILT gives local governments money for federal lands within their borders as a compensation for not being able to earn property taxes on that land. According to the National Association of Counties, 62 percent of counties have federal lands within their boundaries. The land covers roughly 640 million acres, or nearly 28 percent of the United States.
On Thursday, NACo rallied more than two dozen county officials from fifteen states to meet with members of Congress and federal agencies on Capitol Hill. This year, the PILT program provided $437 million to approximately 1,900 counties and other local governments. “Despite not being able to collect property tax on federal lands,” the Sept. 18 news release said, “county governments must still provide important services for their residents and visitors to public lands, including solid waste disposal, law enforcement, road and bridge upkeep and emergency medical services.” Therefore, the argument continued, localities need to be compensated for the effort. The PILT program was created in 1977 and has generally survived through multi-year renewals. Last year Congress gave it just a one-year extension as part of the Farm Bill approval.
Brother can you spare $700 million?
After Pennsylvania’s main operating fund fell $20 million into the red this week, officials borrowed $700 million from an internal fund this week to keep the state afloat. It’s not the first time the Keystone State’s general fund has approached zero this early in the fiscal year, which began only two and a half months ago (yikes), but it is the first time in more than a decade. “I remain concerned that the need for a loan this early in the budget year is a strong indicator of the bigger budget problems the governor and legislators will face in the coming months and years,” Auditor General Eugene DePasquale said in a news release announcing the loan.
It also may not be the end of the hasty borrowing for Pennsylvania -- Treasurer Rob McCord’s office said it has extended a $1.5 billion line of credit, meaning the state can now borrow $800 million more. The money is from a fund managed by McCord called Pool 99. Borrowing from it helps the administration avoid higher interest rates and fees it would have incurred through the financial markets. But the internal loan is by no means any kind of fix for a state that has suffered from budget deficits and a credit rating downgrade and has failed to find a long-term solution to its growing pension obligations.
“Although we are pleased to be able to help the administration during this difficult time with an innovative, win-win solution that saves money ...this loan... just masks a much larger chronic budget problem that plagues our state,” McCord said. “Like a family buying groceries and paying the heating bill on credit, you can get away with it for a little while, but eventually you have to pay the credit card bill.”
Six years after the Lehman Brothers collapse, Nevada State Treasurer Kate Marshall’s persistency has paid off -- to the tune of $50 million. Nevada invested $50 million in 2007 with the financial firm now symbolic of Wall Street’s greed leading up to the housing and financial markets collapse. “At the time of the Lehman Brother bankruptcy, I promised I would do everything within my power to recover every last dollar,” Marshall said in a news release. (The recovery by Marshall does not include interest on the investment.)
When Lehman declared bankruptcy in 2008, states across the country were taken aback. Among the affected state governments, Minnesota had invested more than $56 million, Missouri $50 million, Oregon invested $173 million, Washington state had $130 million at stake and Florida more than $465 million. Many states sold off their stake following the collapse, resulting in losses. The state of Washington, for example, had to write off $92 million in losses. The average recovery for creditors in the Lehman case was 28 percent, according to an analysis conducted by the Federal Reserve Bank of New York.
Marshall, though, hung on to Nevada's investment. Her recovery strategy was comprised of three parts: (1) holding Lehman bonds until the bankruptcy was finalized in order to receive distributions from the sale of Lehman assets, (2) evaluating the market for the possible sale of the defaulted bonds and then selling them at an opportune time and (3) recovering the remaining amount through an interest earning amortization process. As of July, Marshall had recovered $49,832,975 of the loss. Obsevers expect the state to recover the remaining $1,047,025 by the end of the year.