The Week in Public Finance: The 2014 Elections Edition
A roundup of money (and other) news governments can use.
With Election 2014 in the books (for most races), credit rating agencies and analysts are weighing in on what some results mean for public finance. This week’s public finance roundup is dedicated to the topic. On the whole, Americans continue to remain budget-conscious, rejecting tax increases and approving measures that help financial stability. For more analysis on what the election means for politics, health, transportation and other areas, click here for Governing’s comprehensive coverage.
California voters passed Prop. 2, which will revamp the state’s rainy day fund, require paying down debt and establishes a deposit rule for the savings fund. In a post-election report released Nov. 5, Moody’s called the passage a positive for the state. Standard & Poor’s went further this week – it actually upgraded California’s credit rating one notch to A+. But Prop. 2 is a negative for school districts' credit. The measure contains provisions that will limit districts’ reserve accounts and “will limit school districts’ overall financial flexibility and stability,” Moody’s said.
Meanwhile, Maryland and Wisconsin voters passed measures that will bar legislators from raiding transportation funds, a positive credit development for both states. Maryland has $1.6 billion of outstanding Consolidated Transportation Bonds and Wisconsin has $1.9 billion of outstanding Transportation Revenue Bonds.
Georgia voted to cap its income tax at 6 percent. Individual income tax is Georgia’s largest revenue source accounting for 47 percent ($9.5 billion) of the state’s fiscal 2015 general fund budget. Moody’s is neutral on the move but did point out that placing a constitutional cap on its largest source of revenue gives Georgia one less tool to offset revenue declines. Additionally, South Carolina and Kansas both saw significant revenue declines the year after they cut their income taxes. However, Moody’s said Georgia has a good history of quickly and soundly addressing revenue declines.
Meanwhile, Wichita, Kan., voters rejected a 1 percent sales tax aimed at raising $400 million to fund four distinct priorities: water supply, job creation, transit improvements and street maintenance. Moody’s said the “rejection is credit negative for the city because the measure offered a new revenue source to address priorities the city will now need to fund by increasing property taxes and water rates.”
Kankakee County, Ill., residents also voted against a 1 percent sales tax increase that officials projected would generate $7.6 million annually for the cash-strapped county. The outcome leaves the county with few options to close a projected $3 million budget gap in fiscal year 2015. “Failure to enact sufficient expenditure reductions would further weaken the county’s already stressed financial position and would likely require increased amounts of cash flow borrowing, a credit negative,” Moody’s said.
Massachusetts also got a strike against it as residents voted to repeal a requirement that the commonwealth’s gas tax be adjusted for inflation each year. That hurts the credit of the state’s bonds that are funded from the tax “because the gas tax will be frozen at 24 cents per gallon, limiting the growth of pledged revenues,” Moody’s said.
Financially troubled Pennsylvania and Illinois will have new governors (with new agendas) in January, but Fitch warns that both need to cooperate with their legislatures if they want to address looming fiscal problems. Illinois faces an expected structural budget deficit and temporary tax revenues scheduled to roll off at the end of December. “Inaction would be a return to past choices and leave the state particularly poorly positioned when the economy experiences another downturn,” Fitch said. As for the Keystone State, the Fitch warns the legislature may challenge Gov.-elect Tom Wolf’s idea to raise the state's contribution to schools' budgets to 50 percent from 32 percent by raising the income tax.
Phoenix voters soundly rejected a measure that would have addressed “pension spiking” and shifted investment performance risk to employees by turning their pensions into 401(k)-style plans. “The vote is a long-term credit negative for the city which is grappling with a $4.4 billion Moody’s Adjusted Net Pension Liability as of fiscal 2012,” said Moody’s. Naturally, pension advocates hailed the win as a victory for middle class workers. “Voters understand that public employees work hard, play by the rules, and contribute toward their retirement benefits with every paycheck,” Jordan Marks, executive director of the National Public Pension Coalition, said in a statement. “Anti-pension ideologues would do well to remember that before putting another ill-conceived pension gutting effort on the ballot.”
Massachusetts voters upheld casino gambling, which will allow the state to start competing with long established gaming businesses in Connecticut and Rhode Island. The vote gave pending casinos the OK to start construction in Everett, Plainville and Springfield. Moody’s said the business will be a credit positive to those towns. That’s because in addition to millions in upfront cash and thousands of new jobs, annual casino payments to the towns will combine for nearly $60 million – big boosters to those budgets.