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October 13, 2017
THE WEEKLY MUNICIPAL PERSPECTIVE Executive Summary: Municipals were modestly weaker this week after a larger new-issue slate, led by the North Texas Tollway Authority, which actually saw very high interest and was oversubscribed. After last week’s modest outflows from municipal bond mutual funds, Lipper reported a modest $43 million of inflows. Not a very compelling case for continued strength especially as the 30-day visible supply figure looks to be getting more on track with the historical trend of October with about $10 billion scheduled to come to market this week. In our Credit Focus, Partner, Joseph Krist, details some new state revenue reports in a State Revenue Scoreboard and why other issuers could follow suit and provide more detailed disclosure. He looks at New York’s consolidation plans; West Virginia’s road bonds get approved; California’s situation with the devastating wildfires; The Jones Act waiver expires; Texas requests additional aid; and, the state of Kanas’ school funding.
Munis Digest Large Supply With Much More to Come The first full week of October saw municipal bond interest rates move into lower ranges amid larger supply and continued anemic fund flow figures. The end of the third quarter saw high-grade bonds track about 20 basis points higher in the intermediate and longer-ranges of the yield curve. Apparently this new range is bringing buyers back into the marketplace.
AAA 30-Yr Muni to UST (Source: Bloomberg) 3.5 3.4 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 11/30/16
12/31/16
1/31/17
2/28/17
3/31/17
4/30/17
30yr AAA Muni
Court Street Group Research
5/31/17 30yr UST
6/30/17
7/31/17
8/31/17
9/30/17
Most notable of this last week was the North Texas Tollway Authority deal, rated A1/A2 by Moody’s in two different series. This $2 billion transaction was apparently 7-times oversubscribed and bumped in response. That’s right — about $14 billion in orders were put
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in for a single-A Texas credit. Maturity
Coupon
Yield
+/-AAA BVAL
1/1/22
5%
1.46
+3
1/1/27
5%
2.2
+20
North Texas Tollway Authority 5 and 10-year yields (Source: Bloomberg)
There were a lot of transportation credits in the market last week: The Los Angeles Metropolitan Transportation Authority sold a competitive deal of higher-rated green bonds (see CSG’s thoughts on green bonds here) and the levels were pretty much on point with current BVAL and MMD yields. Maturity
Coupon
Yield
+/-AAA BVAL
7/1/22
5%
1.21
-18
7/1/27
5%
1.88
-12
LA MTA 5 and 10-year yields (Source: Bloomberg)
After last week’s modest outflows from municipal bond mutual funds, Lipper reported a modest $43 million of inflows. Not a very compelling case for continued strength especially as the 30-day visible supply figure looks to be getting more on track with the historical trend of October with about $10 billion scheduled to come to market this week.
10-Yr AAA Muni to UST (Source: Bloomberg) 2.8
2.6
2.4
2.2
2
1.8
1.6
1.4
1.2
1 5/2/16 6/2/16 7/2/16 8/2/16 9/2/16 10/2/16 11/2/16 12/2/16 1/2/17 2/2/17 3/2/17 4/2/17 5/2/17 6/2/17 7/2/17 8/2/17 9/2/17 10/2/17 MUNI 10YR
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UST 10YR
With this larger-than-usual new-issue calendar (for 2017, anyway), we’ll see Illinois, California, New York, Philadelphia Schools, Connecticut, Massachusetts, among many others, coming to market this week. There will be a lot to digest and with the backdrop of a federal government supposedly releasing tax reform proposals. So this is not so surprising as issuers come to market in a still relatively lowinterest environment.
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The competitive slate is much larger than usual as well. California — with its continued better-thanexpected revenues (see Credit Focus below) and its dealing with the wildfires ravaging the State — will bring $1.5 billion competitively the same day as a competitive deal of $1.5 billion from junk-rated Illinois, not to mention a competitive Massachusetts GO deal on Wednesday. We’ll have more on Connecticut, as well, next week, as CSG attended the Municipal Analysts Group of New York (MAGNY) this week in which a representative of the state spoke about Hartford and the state's finances. Stay tuned. Puerto Rico GO - 8s of 2035 (Source: Bloomberg) $60
24 22
$55
Price ($)
18 $45 16 $40
Yield (%)
20
$50
On the (negative) credit side, Puerto Rico was downgraded yet again by Moody’s and the 8s of ‘35 traded at their all-time lows according to Bloomberg’s BVAL (see chart left). Take a look at our thoughts on Puerto Rico in our Credit Focus.
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We’ll have more thoughts on tax reform as it moves forward as well as $30 10 the fate of the state and local tax Price Yield deduction (SALT) about which we detailed the effects of removing it last week. It was reported this week that President Trump was unhappy with it being on the chopping block, according to Bloomberg, and several Representatives from “blue” states spoke out that they would not approve tax reform if it was included. $35
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10-Yr AAA Muni to UST (Source: Bloomberg) 2.8
2.6
2.4
THIS WEEK’S NEW DEALS FROM AROUND THE COUNTRY: 2.2
2
1.8
1.6
1.4
1.2
1 5/2/16
6/2/16
7/2/16
8/2/16
9/2/16
10/2/16
11/2/16
12/2/16
MUNI 10YR
1/2/17
2/2/17
3/2/17
4/2/17
5/2/17
6/2/17
7/2/17
UST 10YR
$1.5 billion of general obligation bonds for the State of Illinois, Baa3/BBB-/BBB, is set to come competitively on 10/17. $1.5 billion of taxable, tax-exempt, tax-exempt refunding general obligation bonds for the State of California, Aa3/AA-/AA- and is expected to come competitively on 10/17. $990 million of tax-exempt and taxable future tax-secured bonds for the New York City Transitional Finance Authority, Aa1/AAA. Goldman Sachs & Co. LLC is head underwriter. $1 billion of bond anticipation notes for the New York Metropolitan Transportation Authority, Fitch: F1+, KBRA: K1+ Moody’s: MIG 1 S&P: SP-1+, competitively on 10/19. $818 million of consolidated loan general obligation bonds for the Commonwealth of Massachusetts, Aa1/AA+/AA, expected competitively on 10/18.
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CREDIT FOCUS: by Joseph Krist, Partner State Revenue Scoreboard: California, Massachusetts, Missouri, Arkansas, Georgia, and Mississippi release revenue reports It seems that the states are realizing that more regular and timely disclosure of state revenues can have a beneficial impact in supporting their debt both during and after the marketing for their bonds. They seem to be realizing the municipal analysis is moving in a more quantitative direction all the time and that data is the key to this analysis. The demand for information — historically available to a limited number of inside government players — is bolstered by a more information savvy generation of analysts and investors as well as the ability of states to disseminate data through the internet that satisfies any regulatory concerns. As a result, the availability of such information expands constantly. As as a result, we are able to comment on current state revenue results like the following: California reported last week the state brought in $10.92 billion in September, exceeding revenue projections in the state budget by $50.9 million, or 0.5%. Total revenues of $25.92 billion for the fiscal year to date are $583.4 million, or 2.3% higher than projections in the state budget enacted in June with all of the “big three” tax revenue sources beating expectations. Revenues for the first quarter of the 2017-18 fiscal year were $1.36 billion higher than one year ago. Personal income tax (PIT) receipts of $7.62 billion in September were $3.3 million higher than 2017-18 Budget Act estimates. For the current fiscal year, California collected total PIT receipts of $17.58 billion, $216.2 million more than anticipated in the 2017-18 Budget Act. September corporation tax receipts of $1.06 billion were up $133.1 million from 2017-18 Budget Act projections. Fiscal year-to-date corporation tax receipts of$1.52 billion are $222.0 million above budget estimates. Retail sales and use tax receipts of $1.90 billion for September were $1.6 million below budget estimates. Sales tax receipts in September were $102.2 million, or 5.1% lower than the $2.00 billion collected in September 2016. For the fiscal year to date, sales tax receipts of $5.93 billion are $150.3 million higher than expected. Massachusetts released a mid-September revenue report. Total Tax collections for the month-to-date period were $1.481 billion, up $181 million or 13.9% versus the same period last year. This is not necessarily predictive of the month. Income Taxes totaled $833 million, up $152 million or 22.4% from the equivalent Court Street Group Research
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period in September 2016. Sales & Use Tax collections were $101 million at mid-month, which is $5 million or 5.5% above the 2016 figure. Regular Sales and Meals Tax revenues are heavily weighted toward the second part of the month. Therefore, the mid-month revenue figure is not predictive. Corporate & Business Taxes were $471 million for the September month-to-date period, which is $21 million or 4.6% more than the last year. September is a major month for business tax revenues. Other Taxes totaled $76 million at September mid-month, which is $2 million or 3.4% more than the 2016 figure. Missouri reported September 2017 net general revenue collections decreased 1.8% compared to September 2016, from $891.1 million last year to $875.4 million this year. Individual income tax collections increased 2.5% for the year, from $1.57 billion last year to $1.61 billion this year. Increased 2.8% for the month. Sales and use tax collections decreased 0.1% for the year from $536.2 million last year to $535.5 million this year. Decreased 9.6% for the month. Corporate income and corporate franchise tax collections increased 8.8% for the year, from $98.8 million last year to $107.5 million this year. Increased 6.3% for the month. All other collections increased 18.6% for the year, from $94.5 million last year to $112.1 million this year. Decreased 27.8% for the month. Arkansas reported Year-to-date net available general revenues total $1,379.2 million, $46.9 million or 3.5 % above year ago levels. After three months into the fiscal year, net available revenue is above forecast by $2.2 million or 0.2%. Year-to-date gross collections total $1,579.2 million, representing an increase of $59.1 million or 3.9% above last year. Gross general revenues are above forecast by $8.0 million or 0.5%. Year-to-date individual income tax collections total $729.4 million, $28.9 Court Street Group Research
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million or 4.1% above FY 2017 collections and $7.2 million or 1.0% above forecast. Income tax refunds total $29.2 million, up $13.0 million or 80.8% compared to last year and $8.4 million or 40.2% above forecast. Amounts above forecast in refund categories reduce net available revenue results. On a year-todate basis, sales and use taxes total $599.3 million, an increase of $9.7 million or 1.7% from FY 2017 and $11.5 million or -1.9% below forecast. Georgia’s net tax collections for September totaled nearly $2.08 billion, for an increase of approximately $62 million, or 3.1%, compared to last year when net tax collections totaled roughly $2.01 billion. Year-todate, net tax revenue collections totaled $5.48 billion, for an increase of $171.5 million, or 3.2%, compared to September 2016, when net tax revenues totaled $5.31 billion. The changes within the following tax categories contributed to the overall net tax revenue increase in September: Individual Income Tax: Individual Income Tax collections for the month totaled $1.05 billion, up from nearly $1.02 billion in September 2016, for an increase of $36.7 million, or 3.6%. The following notable components within Individual Income Tax combine for the net increase: Individual Income Tax refunds issued (net of voided checks) were down $4.2 million, or -6.6 %. Individual Withholding payments were up $38.7 million, or 4.7%. Non-Resident Income Tax Return payments were down $11.5 million, or -25.1%. All other Individual Tax categories, including Estimated payments, were up a combined $5.3 million. Sales and Use Tax: Gross Sales and Use Tax collections deposited during the month increased by $66.7 million, or 7.6 %, over last year, when gross sales tax totaled $879.3 million. Net Sales and Use Tax totaled $480.5 million for the month, an increase of $14.2 million, or 3%, over September 2016 when net sales tax totaled $466.3 million. The adjusted Sales Tax distribution to local governments totaled $451 million, an increase of roughly $45 million, or 11.1%, over September 2016. Finally, Sales Tax refunds increased by $7.5 million, or 106.7%, over last year. Corporate Income Tax: Corporate Income Tax collections for September totaled $199.6 million, for an increase of $16.1 million, or 8.8%, compared to last year, when net Corporate Tax revenues totaled just under $183.5 million. Mississippi reported total revenue collections for the month of September FY 2018 are $7.7 million, or 1.56% below the last legislative revenue estimate. Fiscal YTD revenue collections through September are $20.2 million or 1.70% above the estimate. Fiscal YTD total Court Street Group Research
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revenue collections through September 2017 are $30 million or 2.60% above the prior year’s collections. September FY 2018 General Fund collections were $22.9 million or 4.47% below September FY 2017 actual collections. Sales tax collections for the month of September were above the prior year by $1.8M. Individual income tax collections for the month of September were above the prior year by $6.1 million. Corporate income tax collections for the month of September were below the prior year by $20.2 million. As this information becomes more widely available through internet access and the increasing understanding of the value of transparency to all state and municipal stakeholders. The information generates better understanding and feedback and helps to contribute to a more precise and quantitatively based valuation process. This likely generates a fairer cost of issuance on a relative basis rewarding those issuers who better maintain their “fiscal houses” which should benefit tax and ratepayers. New York Tries Consolidation Consolidation is a dirty word among most government officials. It is associated with job losses, loss of local control, and a loss of political power for officials who choose to use it as an efficient service provision tool. However, as technology and communication improve and competing demands of local revenue bases continue to expand, the word has begun to gain some currency among those officials. One of the places where there are initial steps being taken is New York State, a jurisdiction which one does not normally think of first for innovation by local government. The Initiative suggests some relatively straightforward items which could be in such a plan: 1) the elimination of duplicative services; 2) shared services, such as joint purchasing, shared highway equipment, shared storage facilities, shared plowing services, and energy and insurance purchasing cooperatives; 3) reduction in back office administrative overhead; and 4) better coordination of services. Ultimately, the initiative aims to save property taxpayers money by implementing shared services and other cooperative arrangements between governments.. All 57 counties outside of the City of New York are required to prepare Shared Services Plans. The “chief executive officer” (CEO) of each county is required to prepare a property tax savings plan for shared, coordinated and efficient services among the county, cities, towns and villages within such county. The CEO of the county is also required to conduct a public presentation of the Plan, and to certify and submit the approved final Plan and its projected tax savings to the New York State Division of the Budget. The type of services range from the relatively mundane (garbage collection, graffiti removal, sign making, line painting) to the more complex such as utility operations, purchasing, and equipment maintenance.
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October 13, 2017
Two simple examples: In Long Island’s Suffolk County include a machine that removes graffiti from public structures which is owned by one of the Towns but not used on a daily basis. That machine can be rented to other towns on days when it would be idle. The renting town gets additional revenue from the rental and the renting towns only pay for operation with no capital cost. The other is a Town which is able to make street signs at one third of the prevailing cost, thereby reaping revenue from its sign making equipment and lowering the cost of signage to the other towns in the county by two thirds. Consolidation has been a fact of life in jurisdictions in and around Minnesota’s Twin Cities and the major Tennessee municipalities. It has generated expenditure savings and operational efficiencies and would be expected to do so if adopted on a wider scale. State and local governments could monitor other jurisdictions to see how they might replicate any benefits gleaned from these changes. Country Road, Take Me Home States and localities continue to take the reigns when it comes to funding infrastructure even as the federal government has yet to produce an infrastructure plan. Take West Virginia: a majority of West Virginians who voted last week approved a road bond referendum, approving the sale of up to $1.6 billion in state bonds to improve state roads. Participation was low (about 10% of eligible voters chose to participate, which is typical for non-presidential election cycles) but the impact will be significant. The Roads to Prosperity plan will allow for the sale of up to $1.6 billion in state bonds over the next four years and they will fund major highway projects, including the expansion of Interstate 64 from Huntington to Charleston. Meanwhile, WV has a number of other infrastructure initiatives underway. A package of Legislature-approved raises to the gasoline tax, Division of Motor Vehicles fees and turnpike fees were enacted earlier in the year, and work has already begun on smaller projects, such as repaving two-lane roads across the state. Of the projects approved or under consideration across the state, 34 are in Cabell County. Seven of the 34 projects are already approved for construction. Among them are repairs to Interstate 64 from Milton to U.S. 35 in Putnam County, repaving W.Va. 2 from Millersport to Green Bottom, and resurfacing/repaving rural roads like Little Fudges Creek Road, McComas Road and Irving Road. Bigger ticket projects that are intended to have regional impacts include widening I-64 from Huntington to Charleston, plus a new Nitro-St. Albans bridge and widening the turnpike. The plan is predicted to create 48,000 immediate jobs, according to a study done by Duke University. Gov. Jim Justice said they will said they will attempt to fill those open positions with as many West Virginians as possible. The governor says he'll send out an official call for a special legislative session to do just that Thursday, and lawmakers should be back to the Capitol on Monday, Oct. 16. The first immediate jobs after the road plan passage could come directly within the Department of Transportation which is looking for engineers, inspectors, maintenance workers, and other employees to fill the department. Court Street Group Research
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Many States and localities put bond referendums on their ballots, and as we have witnessed, a large majority pass. There is an appetite from the public to fund roads, bridges and schools if it’s clearly explained where the tax dollars will go. It again shows the power of the vote. California Wildfire Consequences — Intended and Unintended Nearly two dozen huge fires had burned 170,000 acres of Northern California since Sunday. While the images and recounting of individual victim experiences are heart wrenching, the good news is that the wildfires are unlikely to affect the region’s long term credit picture in our view. There will be federal disaster aid available and the biggest uncertainty has to do with how smoothly the private insurance process takes. There will be population disruption as residents must find housing and schooling, but on the commercial side, especially the wineries are protected by the fact that their location benefits from long-term climatic conditions that are not easily replicated, although one winery that has been completely destroyed. Clearly, Santa Rosa has suffered major impacts on all fronts. Governor Brown has made the necessary declarations of emergency so that the impacted jurisdictions will qualify for available federal aid. The U.S. House of Representatives was expected on Thursday to approve $36.5 billion in emergency relief for hurricane-hit areas such as Florida, Texas, Puerto Rico and the U.S. Virgin Islands, as well as California. Funds in the legislation include $576.5 million to be directed to the federal government's wildfire control efforts. The Senate is expected to take up the relief package later this month after it returns from a week-long recess. One overlooked sector (but never by yours truly) is the impact on California's now legal marijuana crop. According to county surveys, the number of cannabis gardens in Sonoma County might be anywhere from 3,000 to 9,000. Revenues from cannabis are unknown but likely total in the hundreds of millions of dollars annually. Unlike wineries, cannabis farmers generally cannot obtain crop or fire insurance. Those that do get insured pay exorbitant rates for skimpy coverage. An acre of cannabis is worth an estimated $1.7 million. Jones Act Waiver Expires; Debate to Repeal Begins As we continue to monitor Hurricane relief in Texas, Florida and Puerto Rico, we note that the original 10 day waiver granted to Puerto Rico from the requirements of the Jones Act, which restricts the use of foreign flag ships to deliver goods to Puerto Rico expired on Saturday. Despite entreaties to extend it and the existence of proposed legislation sponsored by Sens. John McCain (R-AZ) and Mike Lee (R-UT), the Trump Administration has indicated that it does not support loosening the restrictions for the benefit of Puerto Rico. It is the usual practice for an administration to temporarily waive the Jones Act after natural disasters to help deliver gasoline and other critical supplies quickly and cheaply to devastated areas. The Trump administration quickly issued a weeklong waiver for Texas and Florida after hurricanes Harvey and Irma, extending it for an additional week in September. In the case of Puerto Rico, the White House did not initially lift the shipping restrictions after Hurricane Maria until some eight days after landfall had passed.
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October 13, 2017
At McCain’s request, the bill was fast-track procedure that allows it process, but it has not been Democrats have proposed a bill the Jones Act if it would help Currently, the law can only be national security and if there aren’t
put on the Senate calendar under a to bypass the normal committee scheduled for any floor time. House that would allow Trump to waive humanitarian relief efforts. waived if it’s in the interest of enough U.S. ships to deliver cargo.
Twenty days after Hurricane Maria without power, 40% is without stores are still closed. Thirty-six Now the President is complaining of funding and length of time island. The federal government Orleans for nearly a year after that the government took more over all. It is likely that FEMA Texas for up to two years.
made landfall 84% of the island is potable water, and 14% of grocery people have died from the storm. about the level of support in terms federal assets may be located on the kept at least some military in New Hurricane Katrina hit in 2005 and than five years for recovery efforts related assets will be in Florida and
Puerto Rico’s Resident supplementary FEMA funding bill would include $4.9 billion would be both Puerto Rico and the USVI Development Loan Program to governments until the end of the assigned to the Emergency Program (SNAP). While the Rico because it has its own (PAN by its Spanish acronym), the to the island in light of the the Department of Defense to needed.
Commissioner said the under consideration in Congress assigned to government loans for under the Community provide liquidity to both Caribbean year. Moreover, $1 billion would be Supplemental Nutrition Assistance program does not include Puerto Nutritional Assistance Program administration agreed to extend it emergency. The measure authorizes maintain its level of support until
Repeal of the Jones Act would benefit consumers everywhere as it would likely lower the cost of goods moved by ship. It could, in fact, make shipping more competitive versus rail or truck shipping. The owners of US flag ships and US maritime unions are expected to pushback against any attempt at repeal. The facts however show that despite the existence of the Jones Act, the number of US flag ships providing shipping between US ports has declined by over 50% since the turn of the century. Railroads and the trucking industry will lobby for repeal. US ports are likely indifferent as to what ships generate their volume.
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October 13, 2017
Texas Requests Additional Aid The Congressional delegation from Texas has requested that the Chairpersons of the relevant Congressional committees move on a request for additional federal recovery aid in the aftermath of Hurricane Harvey. The request include: $10 billion for the US Army Corps of Engineers. The purpose of these funds would be to rehabilitate and repair damages to completed USACE projects and those under construction, to implement authorized projects ready for construction, to dredge Federal navigation channels, and for emergency response and recovery operations, repairs, and other activities; $7.4 billion Community Development Block Grant Disaster Recovery funding. Early estimates from the State of Texas indicate a total need of over $40 billion in CDBG-DR funds. Other requests include: $800 million of funding for Local Educational Agencies (LEA), schools and institutions of higher education that were affected by natural disasters; $450 million in SBA low interest disaster loans to businesses, private non-profit organizations, homeowners and renters. $300 million in economic assistance to local governments for long-term recovery planning, reconstruction and resiliency in response to presidentially declared disasters or emergencies through EDA grants; and $150 million in funding for the U.S. Department of Transportation's Emergency Relief Program and the Public Transportation Emergency Relief Program. Assured Withdraws its Lawsuit Against Puerto Rico for Now Bond insurer Assured Guaranty voluntarily withdrawn without prejudice their lawsuit challenging the legality of the Commonwealth’s Fiscal Plan as certified by The Financial Oversight and Management Board for Puerto Rico (Oversight Board). The complaint, filed on May 3, 2017, asserted that the certified Fiscal Plan violated multiple provisions of PROMESA and the United States Constitution. Assured said “Now is no time to be arguing over these issues, when residents of the island are suffering. The current focus should remain on restoration and relief for Puerto Rico. Additionally, it would be an avoidable misallocation of time, money and judicial resources to litigate issues about a Fiscal Plan that is expected to change.” Assured Guaranty urges the Oversight Board to use this opportunity to reset its relationship with creditors, correct the defects in the current Fiscal Plan and work collaboratively with creditors on a new fiscal plan that complies with the mandatory statutory requirements of PROMESA, the Commonwealth Constitution, and the United States Constitution." Bottom line: Assured knows that conditions have changed so radically in Puerto Rico after Hurricane Maria that the existing financial plan will have to be radically changed to reflect the resulting new economic realities. So there is nothing to be gained by continuing the suit now. By withdrawing without prejudice, Assured has retained all of its rights to litigate over any subsequent plan adopted by the fiscal control board.
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October 13, 2017
Kansas Court Maintains Pressure On The State The Brownback era may be over in Kansas but the trail of wreckage to the State's fiscal position remains. The Kansas Supreme Court has given a thumbs down to the $488 million of school funding added by Senate Bill 19 for the current biennium and gave the state until April 30 to present an adequate funding plan. The unanimous ruling was based on a number of factors. The spending plan included funding to some districts to cover the costs of absorbing lower-income children into their schools yet some of those districts received funds to serve more children from low-income families than those districts actually enroll. The state argued that districts with a low percentage of children from low-income backgrounds still have their share of kids who are struggling academically. Hence, they should get a cushion of extra funding to serve those academically struggling kids. The Court disagreed with the selective provision of that funding instead taking the view that all districts in the state should receive funding on that basis. Revisions to school finance laws, allowed some districts to enlarge one part of their budgets that comes primarily from local taxpayers — without approval from those taxpayers. The Legislature later closed this window and grandfathered in those districts. The Court found that this denies the rest of the state’s schools equal access to funding. This spring lawmakers wanted school districts to start paying their utilities and some of their insurance bills with a specific local property tax fund that is otherwise meant for things like building construction and computer purchases. A key feature of this fund is that the amount of money poorer and richer school districts have in it varies. The Court disagreed. Another change in state law caused the State to change how it calculates some of the money it gives to poorer districts. Instead of taking into account current data from local school budgets, it decided to start using data from a year earlier. The state argued this offers budget stability and predictability. Those changes cut an estimated $16 million from the state’s aid to schools in 2017-18 — savings that come from reducing payments to districts with weaker tax bases. The concept underlying all of these issues is equal treatment for all school districts. The Court wants the Legislature to put effort into figuring out what amount is needed and then show the court how it came up with it. And the court wants reasoning and calculations that make sense. The court calls this “showing your work.” The Legislature offered up a four-page statistical analysis of how much money schools need in order to be successful. The justices devoted some 14 pages to criticizing weak documentation, methodology and reasoning. Two prior school finance studies the Legislature commissioned in t took analysts at least half a year to complete oughts. One resulted in more than 340 pages of analysis and supporting documentation. The other had more than 160 pages. The ruling was anticipated when the budget was adopted and was seen by outside observers as a huge risk to the State's budget and credit. Nevertheless, the legislature went ahead and challenged the Court to find in favor of the plaintiffs. Now that the legal process has effectively been fully tested, the Legislature must Court Street Group Research
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address the issues raised by the Court while also addressing the State's weakened budget position and outlook.
Disclaimer: The opinions and statements expressed in this report are solely those of the author(s), who is solely responsible for the accuracy and completeness of this report. The opinions and statements expressed in this report are for informational purposes only, and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned. Opinions and statements expressed reflect only the view or judgment of the author(s) at the time of publication, and are subject to change without notice. Information has been derived from sources deemed to be reliable, but the reliability of which is not guaranteed. Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professional and advisors prior to making any investment decisions.
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