The Week in Public Finance: A Demand for Diversity in the Board Room, Bad Credit News and More

A roundup of money (and other) news governments can use.
by | June 3, 2016

For previous editions of "The Week in Public Finance," click here.

A Demand for Diversity in the Board Room

State and local finance officers across the country got together this week to pressure corporations about the lack of diversity on their governing boards. The group, made up of 14 pension fund fiduciaries -- six of whom are women or minorities -- said boards “should cast wide nets in their search for the best talent and include nominees who are diverse in terms of race, gender and LGBT status.”

Board diversification in recent years has been slow -- or even nonexistent. In fact, the percentage of all-white boards has actually increased over the past decade from 10 to 14 percent. Overall, white directors hold 85 percent of the board seats at the 200 largest S&P 500 companies, and men occupy 80 percent.

“Maintaining leadership that is primarily white and male means these companies are potentially missing out on the many benefits diversity can bring to the board room," said San Diego County Treasurer-Tax Collector Dan McAllister.

The Takeaway: This isn't the first time public finance officials have used their power to advocate for change. Pension funds, for example, have been using their massive investing influence to weigh in on all sorts of issues, from apartheid in the 1980s to climate change in more recent years. Pulling public investments from specific companies, however, hasn't always proved successful in effecting change. And so far in this case, finance officials are only encouraging corporations to diversify their boards. No one's talking about divestment.

(And for the record, the public sector isn’t immune to the same diversity problems that we find in private-sector leadership. According to a recent ICMA study, only 14.4 percent of city chief administrative officers are women -- a number that's barely budged in three decades.)

Bad Credit News

While the overall number of government entities that defaulted on their debt in the past couple of years has remained virtually unchanged (hovering aroung 50), those rated by Moody's Investors Service have seen an uptick in defaults -- from zero in 2014 to four in 2015.

According to a new Moody's report, the four defaults in 2015 were Single Family Mortgage Revenue Bond in Cook County, Ill.; Dowling College (which closed its doors Friday) in Long Island, N.Y.; Puerto Rico Public Finance Corporation; and Cardinal Local School District in Ohio.

In addition, the total percentage of credits that Moody’s rates at junk status has doubled over the past five years -- from 0.4 percent to 0.8 percent. The rate of junk bonds, however, has significantly decreased from 2014, when 1.6 percent of credits were rated below investment grade by Moody’s.

The Takeaway: Municipalities are facing big budget constraints driven by higher expenses and revenue growth that can't keep up. That difficult combination has contributed to an increase in struggling municipalities, and there’s no sign these long-term forces pressuring the public sector will abate, said Moody’s Senior Vice President Al Medioli.

Moody’s is not alone in this warning. Last month, one analyst said that a significant portion of municipal issuers are worse off than they were at the end of the Great Recession -- a fact he blames on governments' inability to balance their revenue and spending.

Still, Medioli said, one positive story is that most municipal governments reacted to the recession by making significant budget adjustments. As a result, “Tax bases and fund balance reserves have broadly recovered to pre-recession levels,” he said, “and in some cases strongly so.”

Securing Retirement for All

Connecticut this week joined the list of states that are creating retirement programs for workers who don't have access to one through their employers.

The new law affects nearly 600,000 private-sector workers. Many of those workers can now be auto-enrolled into retirement plans that are privately managed but overseen by the state.

At least half the states are now exploring or implementing programs to provide retirement savings options for private-sector workers without access to a plan, according to a report released this week by The Pew Charitable Trusts. The states that have already enacted such a plan are Illinois, Massachusetts, New Jersey, Oregon and Washington.

The Takeaway: Most Americans are ill-prepared for retirement. More than 38 million people, or roughly 45 percent of working-age households, have no retirement savings at all, according to data from the National Institute on Retirement Security. More and more states -- rightly recognizing that they'll foot the bill for a poor retiree’s social service needs -- are beginning to do something about this.