Internet Explorer 11 is not supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

The Week in Public Finance: A First in Pay for Success Programs, Pension Updates and Puerto Rico's Superhero

A roundup of money (and other) news governments can use.

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

A First in Pay for Success Programs

At a Washington, D.C., event this week on the rising popularity of "pay for success" programs, Salt Lake County Mayor Ben McAdams of Utah said the programs his county has implemented have “rewritten our DNA” and put more focus on policymaking based on evidence that programs are working. “I now hear councilmembers asking, ‘What is your outcome and how are you going to pay for it?’” McAdams said at the Oct. 14 event. “It’s this culture we’re starting to see now throughout the county.”

Pay for success programs get private investors (like Goldman Sachs in Salt Lake County's case) to pay for preventative public programs. The government only has to pay back investors if the desired results are achieved. So far, investors around the country had yet to see any money from pay for success programs -- until now.

Salt Lake County last week broke new ground when it announced its early childhood program had yielded impressive results in just its first year. That meant that the private financiers of the program received a so-called success payment, which is the first time any investor in the still new practice across the U.S. has received one.

The event was hosted by the Urban Institute, which is launching an initiative to help state and local governments that want to pursue a PFS program.

Pension Updates

A new analysis by Fitch Ratings says the median funded ratio for major state pension systems was almost unchanged for the second straight year in 2014 at 71.5 percent. A strong stock market in recent years has helped most plans regain their investment losses from the recession, but that doesn’t mean pension plans have recovered their pre-recession funded ratio. “Pension liabilities have risen steadily for all but a handful of closed systems because active employees continue to accrue benefits as they work,” said Fitch Senior Director Douglas Offerman. “Additionally, few pension systems have implemented benefit reforms that immediately reduce liabilities.”

Still, Fitch reports that more governments are starting to contribute the full, actuarially required amount to their pension systems. In fiscal 2014, 53 percent of major statewide systems received at least 100 percent of the actuarially-calculated contribution, which is up from 42 percent in fiscal 2011. Not contributing the full amount can cause the unfunded liability to increase the following year.

Puerto Rico's Superhero?

Puerto Rico’s continuing financial spiral isn’t likely to provoke enough sympathy from Congress for a financial bailout, but Moody’s Investors Service said this week that the U.S. Treasury Department could take a more active role. The kicker is that it shouldn’t cost U.S. taxpayers any more money, according to Senior Credit Officer Ted Hampton.

The treasury is reportedly considering a “superbond” proposal, where the federal government would hold certain commonwealth revenues in a trust used to pay for newly issued debt. Meanwhile, some in Congress are suggesting establishing a federal financial control board to put the island nation on a path to fiscal health. In a report issued this week, Hampton said if a superbond came to fruition along with a financial control board, it could accelerate the restructuring negotiations on Puerto Rico’s $73 billion debt load.

A related problem for Puerto Rico is health care. Moody’s said the largest and most immediate impact on the commonwealth’s financial stability would be stabilizing current federal health-care funding on the island. That funding is scheduled to decline in coming years even as the share of citizens participating in Medicaid is higher in Puerto Rico (48 percent) than in any U.S. state.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
Special Projects