The Week in Public Finance: Shaming Indiana, Euro Trip and Rhode Island's Pensions
A roundup of money (and other) news governments can use.
For past editions of The Week in Public Finance column, click here.
That Indiana springtime heat....
One really good way to hurt tourism in a state is to do something so controversial that it makes people avoid the state. You probably see where I’m going with this. Last week, Indiana Gov. Mike Pence signed into law the Religious Freedom Restoration Act (RFRA). The measure has attracted criticism because it would have allowed businesses to deny services based on customers' sexual orientation or gender identity. Although Gov. Pence signed a so-called fix to the law on April 2 that clarifies businesses may not use the law to refuse service to anyone on the basis of sexual orientation, gender identity and a range of other classifications, much damage has been done over the past week.
Following the law’s amendment, Moody’s Investors Service still called the negative reaction to the law a negative credit development for highly rated Indiana (Aaa), and especially for Indianapolis (Aaa), “which faces increased risk to its hospitality-related revenues.” Moody’s noted the capital city’s quickly-expanding labor force is highly reliant on professional, business services and tourism. Nine major Indiana employers have issued a statement calling for new legislation to ensure RFRA will not allow discrimination. One of those employers, Angie’s List, also announced plans to halt a $40 million expansion in the city that would have added an estimated 1,000 jobs. Scores of businesses and governments across the country have announced a halt to all travel to Indiana and the American Federation of State, County and Municipal Employees is relocating its October conference, which was planned for Indianapolis.
Moody’s noted that construction of the Lucas Oil Stadium and expansion of the Indiana Convention Center has sparked downtown development and attracted larger conferences and major sporting events, including the 2012 Super Bowl. The bonds that paid for those and other area facilities are partially paid back from taxes that come from tourism and related activity. Those revenue streams will decline if the Indianapolis tourism industry suffers, Moody’s said. The ratings agency added that the passage of RFRA leaves certain future conferences in jeopardy. Other national organizations have announced plans to reevaluate holding events in the city.
Euro trip! And now for the downside.
While pretty great for a European vacation this summer, the U.S. dollar’s increasing strength against the Euro could be bad news for a handful of states that rely on exports. A new report from Standard & Poor’s indicated the declining of the Euro threatens to undercut the economies of states with “significant” export activity. The analysis noted that if the dollar were to materially appreciate even more this year, “states would bear the impact of this unevenly.”
The 10 export-reliant states (as a share of personal income) from 2008-2012 were the following:
- Louisiana (27%),
- Texas (21%),
- Washington (20%),
- Utah (15%),
- Vermont (15%),
- South Carolina (14%),
- Kentucky (13%),
- Delaware (13%),
- Michigan (13%), and
- Indiana (13%).
Still, the report contained generally good news for states as a whole and said the economy is poised to reach 3 percent real GDP growth this year, the fastest since 2005. “Strong job gains and more appreciable wage increases should result in stronger tax revenue growth,” it added.
Rhode Island’s big win
Let’s end with some positive news, at least for those who are pushing for cuts by states to pension plans. Rhode Island on Thursday announced a huge settlement with six of the nine unions challenging the state’s 2011 pension reform. The agreement is a big win for Gov. Gina Raimondo, who shepherded that legislation through the state legislature in her former role as treasurer. Four years ago, she persuaded the Democrat-controlled legislature to pass pension changes that she projects will save up to $4 billion by delaying retirement, suspending cost-of-living adjustments and changing existing and new workers’ plans to a hybrid pension/401(k)-style plan.
The settlement, which still must be approved by the General Assembly, would also change the minimum retirement age and allow a chance for more frequent cost-of-living increases, among other changes. In a statement Thursday, Raimondo said the state had a strong case but “the uncertainty of a trial threatened to reverse that progress.” She called the settlement an important step toward providing certainty for public employees and municipalities, and keeps Rhode Island on a path toward financial stability.