The Week in Public Finance: Money, Pink Floyd and State Revenues

A roundup of money (and other) news governments can use.
by | April 17, 2015

For past editions of The Week in Public Finance column, click here.

Get a good job with good pay and you're okay

A new study has found that granting undocumented immigrants’ legal status in the United States could increase state and local tax collections by a total of more than $2 billion a year. The April 16 report by the Institute on Taxation and Economic Policy noted that the 11.4 million undocumented immigrants currently living in the country already pay a substantial contribution in taxes -- a collective $11.84 billion in 2012. That could increase to $14 billion annually if Congress passed comprehensive immigration reform, the report said. On a smaller scale, under full implementation of President Barack Obama’s 2012 and 2014 executive orders making temporary immigration reprieve available to up to 5.2 million undocumented immigrants, tax contributions would increase by $845 million.

“The fact is, undocumented immigrants already are paying billions in taxes to state and local governments, and if they are allowed to work in the country legally, their state and local tax contributions will increase significantly,” said Matthew Gardner, executive director of ITEP.

The report includes state-specific information on sales and excise taxes, personal income taxes and property taxes. It calculated what undocumented immigrants are currently contributing compared with what they would pay if granted legal residency. Contributions range from less than $3.2 million in Montana, with an estimated undocumented population of 6,000, to more than $3.2 billion in California, home to more than 3.1 million undocumented immigrants.

Money, it’s a gas

A new Moody’s Investors Service analysis said the recent drop in oil prices to nearly a six-year low has helped ramp up gas tax collections as consumers are buying more fuel and driving more often. Driving was up 6 percent in January compared to the same period last year. This boon means states can issue more debt to pay for capital projects. The report noted that capacity for new debt under bond programs paid from gas and highway-related taxes increased from approximately $46.7 billion in 2011 to $56.2 billion in 2014. Still, Moody’s said most states view the increase in gas tax collections as temporary and will choose to fund capital projects with the extra cash on hand (also called a “pay-go basis”).

This influx is good news as states have curbed their spending on transportation due to the uncertain status of the U.S. Highway Trust Fund, which helps states pay for about half of all highway and bridge capital projects. “The looming May 31 expiration of the latest funding authorization for the HTF has already caused $800 million of highway projects in four states to be canceled or deferred, and placed $1.8 billion of projects in another nine states into question,” Moody’s notes. “As the authorization deadline gets closer, the agency added, “we expect the deferral of more state projects.”

Money, it's a hit

Janney Montgomery Scott recently asked 162 municipal bond credit analysts what they thought of the market and found that they think public pensions (especially funding levels and the practice of issuing bonds to cover pension obligations) is the most pressing issue facing governments today. A full 86 percent of analysts said pensions were among their top five concerns in a survey the financial firm released earlier this month. Most analysts (61 percent) also believe state and local government credit quality has recovered from the Great Recession.

The survey also asked the respondents, most of whom said part of their main job is to look at whether a municipal bond is a good purchase, about their opinion of credit ratings agencies. Moody’s and Fitch ratings led favorability with 57 percent of municipal credit analysts saying they have a “very” or “somewhat” favorable opinion of ratings from these two agencies. Standard & Poor’s total favorability was not far behind at 43 percent while the upstart Kroll’s total favorability was only 7 percent (most respondents said they were undecided or did not consider Kroll ratings). A full 27 percent of analysts said they had a “very” or “somewhat” unfavorable opinion of S&P's ratings, followed by Moody's at 18 percent, Kroll at 13 percent and Fitch at 5 percent.