The Week in Public Finance: A Hockey Brawl in St. Louis, New Jersey's Pension Plan and Another Illinois Impasse
A roundup of money (and other) news governments can use.
St. Louis Faces Off With the Blues
St. Louis Comptroller Darlene Green is being sued by the city's hockey team for refusing to sign off on a $64 million bond issuance. The bonds are part of a $105 million public financing package to upgrade the city-owned, 23-year-old Scottrade Center, where the St. Louis Blues play. The package was narrowly approved by city aldermen earlier this year.
Green issued a statement this week saying she is just "doing her job” and cited her concerns that the additional debt burden will negatively impact the city’s credit. Over the past six months, St. Louis has been downgraded twice by Moody’s Investors Services. It also raised taxes and fees to help cover a budget shortfall.
Green also says she is urging the Blues ownership group to “find an alternate financing strategy -- one that would not draw upon the city’s general fund and take money away from essential city services or harm the city’s credit.”
The Takeaway: St. Louis has heard this tune before. Just 19 months ago, the NFL Rams rejected the city’s proposal to upgrade its 21-year-old football stadium and decamped to Los Angeles, where the team has been promised a new stadium. When the Rams left, St. Louis was still paying off the stadium bonds it issued to woo the team there in the first place.
So it should come as no surprise that some city leaders aren't too keen on taking on more debt for yet another sports venture: Earlier this month, three aldermen filed a suit against the city to stop the financing deal. The move is indicative of a wider skepticism toward stadium financing nationwide. In August, for example, a deal to build a new ballpark for a minor league baseball team in Prince William County, Va., fell through after concerns were raised by board members about taking on debt for the project.
A Pension Positive in New Jersey
There has been plenty of skepticism regarding New Jersey's recent decision to fold its lottery and the related $1 billion in annual revenues into its pension system. But Moody’s says the plan has at least one positive aspect: The state is guaranteed to meet some part of its annual contribution requirement, which is saying a lot given that New Jersey has skipped contributions for years and underpaid in many more. That habit is one major reason the pension system has such precarious finances today.
Moody’s also applauded New Jersey's short-term plans to massively ramp up its general fund contributions over the next five years from about $1.2 billion in 2018 to $5 billion in 2023. After that point, the state’s contributions would stay flat.
The Takeaway: How this approach will ultimately play out depends a lot on whether the state keeps its promise to increase those general fund contributions. Moody’s identifies this factor as a “key risk” in the whole deal.
We've been here before: In 2011, the state passed historic pension reform that required concessions from labor and mandated a schedule for the state to make its full pension payments. But facing annual budget deficits, New Jersey didn't keep its end of the bargain.
Given the increasing pressure these days from pension liabilities, it's not surprising that New Jersey is far from alone in its search for new money. North Carolina’s treasurer is proposing the state put savings from refinancing debt into pensions, rather than keeping it in the general fund. California is loaning its pension system $6 billion to help boost its funded status and lower costs. And Jacksonville, Fla., recently approved dedicating a portion of sales tax revenue into its pensions, starting in 2030.
Living on Borrowed Time in Illinois. Again.
A little more than a month after Illinois lawmakers ended a historic, two-year budget impasse, they’re at it again. This time, it’s over the state’s school funding formula.
The state was recently forced to delay its first payment to districts for the 2017-2018 school year after Gov. Bruce Rauner vetoed the portion of school funding legislation that gave $450 million to Chicago. The bill, the first major change to the way public schools are financed in two decades, increases schools' baseline funding over time. It also reworks the formula to be more needs-based, rather than strictly population-based, with the goal of closing major inequities between school districts. In vetoing a portion of the bill, Rauner said it unfairly favored Chicago schools with a "bailout" for a mismanaged system.
The Senate has passed an override of Rauner’s veto and the House has scheduled a vote on it next week.
The Takeaway: The good news in all of this for school districts is that many of them have unusually high reserves -- enough to last for at least half the school year, according to Moody’s.
Nevertheless, it’s hard to imagine the legislature dragging this out as they did with the budget. Not funding schools will have an immediate and devastating impact. Already, Chicago Public Schools has announced 1,000 layoffs. One of the reasons the state’s budget impasse lasted so long was that most residents were not immediately affected: Illinois kept paying for its basic services -- K-12 education included -- over the two years. It was only when those services were threatened that lawmakers found a solution.
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*CORRECTION: A previous version of this misstated that the St. Louis Comptroller Darlene Green refused to sign off on a bond issuance worth $64 billion. In fact, it was worth only $65 million.