The Week in Public Finance: Atlantic City’s Intervention, New Pay-for-Success Projects and Arizona's Pension Reform

A roundup of money (and other) news governments can use.
by | February 19, 2016

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

Intervention in Atlantic City

Top New Jersey lawmakers have finally announced details of their plan to take over Atlantic City’s finances.The proposal was unveiled this week in a state Senate bill that gives more power to state financial overseers.

Atlantic City’s tax revenues have dropped dramatically in recent years as multiple casino closures have dried up the city’s main industry and revenue source.

"The intervention plan will enable the state and the city to work together to accomplish what Atlantic City can't do on its own," said Senate President Stephen Sweeney, a co-sponsor of the bill. "The city's fiscal crisis is severe and immediate. ... The state has to take a more direct role."

The bill would expand the role of the state's Local Finance Board chief so that they could not only renegotiate the struggling city's debt but also dissolve or consolidate city agencies and departments, share services with Atlantic County and sell city assets.

The legislation, which was introduced Wednesday, comes several weeks after Gov. Chris Christie declared the state would intervene in the former gambling town’s finances. The New Jersey House has not yet introduced a companion version of the bill, although one is expected.

According to Mayor Don Guardian, the city will run out of money at the end of March. If the state doesn’t intervene before then, he said, Atlantic City would likely have to file for bankruptcy.

The spiral has also affected Atlantic County’s budget, as the city accounts for nearly one quarter of the county’s tax base, according to a recent Moody’s Investors Service analysis. County officials plan to release a budget next week that will likely include a combination of spending cuts and tax increases to offset the revenue drop from its main population center.

New Pay-for-Success Projects

Social impact bonds, otherwise known as "pay for success" programs (PFS), attract money from private interests and charities for public programs that governments only pay back if and when positive results, such as cost-savings or reduced recidivism rates, are achieved. Just one such project launched last year, but 2016 has already seen three more kick off.

This past week, the Boston nonprofit Social Finance announced it helped design PFS projects launching in Connecticut and South Carolina.

The Connecticut project focuses on an in-home intervention for families where one or both parents struggle with substance abuse. The project will pay for new treatment teams to visit a client's home several times a week to help parents end their addictions and provide better care for their children. It wasn't immediately clear how much the program will cost, but it's scheduled to serve 500 families over more than four years.

Connecticut estimates that it spends more than $600 million a year on child abuse and neglect. If the new program is successful, it would ultimately save money by keeping kids with their parents and out of foster care, while also keeping parents productive and out of the judicial system.

South Carolina's PFS project aims to improve health outcomes for mothers and children living in poverty. The new program is a so-called nurse-family partnership that pairs vulnerable first-time mothers with specially trained nurses to support healthy pregnancies and positive child development.

About 27 percent of South Carolina’s children live in families struggling with poverty, according to the governor’s office. The project is being funded by $17 million from a handful of philanthropic organizations and about $13 million from Medicaid. The state will pay back up to $7.5 million to keep the program going if evaluators find it's helping moms and kids stay healthy.

Lastly, Denver this week announced a new PFS program that will provide permanent housing and support services to at least 250 chronically homeless people over five years. The help is meant to not only improve their lives but also to reduce the annual $7 million sum the city spends on several hundred heavy users of emergency services like police, jail, the courts and emergency rooms.

The city aims to reduce the time that participants spend in jail by 35 percent, compared with a control population. The second goal is to increase housing stability -- days spent in housing -- by 83 percent over a control group. The program is financed in part by $8.7 million in private investment. Denver will pay $15.12 for each stable housing day, minus any days spent in jail.

A Pension Assist

Arizona has become the latest state to change its pension system with help from a nonprofit think tank. On Tuesday, Gov. Doug Ducey signed a law making sweeping reforms to the state’s Public Safety Personnel Retirement System, which covers police and firefighters.

The system has only about half the assets it needs to meet $12.7 billion in liabilities. Required payments from the state and local governments have skyrocketed in recent years, accounting for as much as 60 percent of payroll costs in many jurisdictions throughout the state.

The new law is projected to save the state $1.5 billion over 30 years, but most of that reduction will occur down the road. A good share of the savings will come from restructuring the way retirees’ cost-of-living pay increases are calculated. That part of the law, though, needs to be approved by voters this spring.

Other savings will come from offering new workers a choice between a 401(k)-style plan and a traditional pension plan; requiring new employees and their employers to share equally in retirement costs; and lowering the cap on pension payments from $265,000 a year to $110,000.

The legislation was given unanimous approval in the state Senate and passed on a 49-10 vote in the state House.

Think tanks were brought in to help develop the legislation early on. The libertarian-leaning Reason Foundation provided policy options and actuarial analysis for a work group that included retirees, lawmakers, employees and financial experts. In addition, Pew Charitable Trusts and the Laura and John Arnold Foundation -- which have paired up to help pass pension law changes in Kentucky and consulted with lawmakers in Colorado, Florida and Montana -- also lent their expertise.