The Week in Public Finance: Ray Rice, Cleveland Clinic's 100-Year Plan and Commitment-Phobes
A roundup of money (and other) news governments can use.
More bad news from Atlantic City
Atlantic City has already been in the headlines this week after a security video emerged on Sept. 8 from the now-closed Revel Casino Hotel that showed running back Ray Rice punch the woman who is now his wife in an elevator. Rice was suspended indefinitely from the NFL and dropped by the Baltimore Ravens. The incident is also the latest (and arguably one of the most alarming) stain on a city that’s been on a downward slide for years.
On Friday, Moody’s released a report saying that the announcement from Gov. Chris Christie that he would move forward with sports betting across the state “would further erode Atlantic City’s gambling market, already battered by the closures or announcements of closures by four other casinos.” At least one more closure could be near; Trump Entertainment Resorts Inc. declared bankruptcy last week. The operator of the Trump Taj Mahal hinted it could shut down that casino by mid-November -- more evidence, Moody’s said, that Atlantic City’s gaming industry is struggling amid competition from new casinos in neighboring mid-Atlantic states.
Tax me baby one more time
Slowly but surely, more Americans are supporting an online sales tax, said a new poll commissioned by the International Council of Shopping Centers (which wants the tax on their online competitors). Now, seven in ten Americans support legislation requiring online-only sellers to collect sales tax at the time of purchase, an increase of six percentage points since 2013 and eleven percentage points since 2012. The poll also found that 82 percent of the 1,016 adults surveyed last month think collecting sales tax from online-only vendors at the time of purchase is easier. That’s up by four percentage points since 2013.
The legislation, called the Marketplace Fairness Act, has languished in Congress for years. It’s picked up steam in this session of Congress, with the Senate finally passing a version of the bill last year. But a companion bill in the House is collecting dust. “With precious few legislative days left in 2014 it is time for Congress to make Marketplace Fairness a reality this year,” said Michael Kercheval, president and CEO of ICSC.
No commitment-phobes here
Not more than two months after we saw the first so-called century bond issued by a public utility, a not-for-profit healthcare system is set to become the first of its kind to do the same. This week, Moody’s rated the Cleveland Clinic Health System’s proposed $400 million bonds Aa2/stable and issued an accompanying credit focus citing its “national reputation, exceptional fundraising [and] strong investment position.”
Century bonds are rare -- only a few have been issued in recent years and they’re primarily used by higher educational institutions. That’s because the life of the bond debt typically coincides with the life of the project it’s funding. For example, a lot of infrastructure projects can go 15 or 20 years before major repairs are needed, so many bonds are structured to be paid back in that time frame. But in July, Washington, D.C.’s Water and Sewer Authority sold a total of $350 million in bonds to be paid back over 100 years to help finance a major tunnel project. The key reason the utility was able to issue the bonds was because engineers designed the tunnel not to need significant maintenance for at least 100 years.
In the Cleveland Clinic Health System’s case, its “high demand for specialized patient services and exceptional fundraising capabilities support the long-term viability necessary to meet a 100-year obligation,” Moody’s said. The analysis added that strong management policies and a big investment portfolio also gives investors confidence that the 93-year-old system can keep the century-long commitment.
Hitting the mark
This week’s Municipal Market Advisors issuer brief takes a look at which of the seven bigger budget states that have reported their annual earnings actually made their revenue projections for the 2014 fiscal year that ended on June 30. The report found that California, Massachusetts and Ohio reported actual revenues above their projections while New Jersey, Pennsylvania, Connecticut and Florida revenues came in below forecasts (even though these states still outperformed the previous fiscal year’s actual performance). “The takeaway here,” said MMA, “is that the estimates in these states were overly aggressive, possibly to use revenue to ‘balance’ the budget while spending more in the interim.”
Whether a state makes its revenue target is important to investors and credit analysts. But it also sends a crucial signal to localities within a state. “Revenue performance can indicate whether shortfalls (or surpluses) are in the future, possibly meaning painful budget cuts and even rating downgrades,” MMA said.