Chicago Park District pension revamp takes fund off road to insolvency

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202106081343SM______BNDBUYER_00000179-ec17-d1ac-a5fb-ef37eda90001_110.1

Excerpt:

The Chicago Park District pension funding overhaul approved by lawmakers moves the fund off a path to insolvency to a full funding target in 35 years, with bonding authority.

State lawmakers approved the statutory changes laid out in House Bill 0417 on Memorial Day before adjourning their spring session and Gov. J.B. Pritzker is expected to sign it. It puts the district?s contributions on a ramp to an actuarially based payment, shifting from a formula based on a multiplier of employee contributions. The statutory multiplier formula is blamed for the city and state?s underfunded pension quagmires.

“There are number of things here that are really, really good,? Sen. Robert Martwick, D-Chicago, told fellow lawmakers during a recent Senate Pension Committee hearing. Martwick is a co-sponsor of the legislation and also heads the committee.

?This is a measure that puts the district on to a path to full funding over the course of 35 years,” he said. “It is responsible. There is no opposition to it. This is exactly more of what we should be doing.”

The district will ramp up to an actuarially based contribution beginning this year when 25% of the actuarially determined contribution is owed, then half in 2022, and three-quarters in 2023 before full funding is required in 2024. To help keep the fund from sliding backwards during the ramp period the district will deposit an upfront $40 million supplemental contribution.

The 35-year clock will start last December 31 to reach the 100% funded target by 2055.

Author(s): Yvette Shields

Publication Date: 8 June 2021

Publication Site: Fidelity Fixed Income

S&P: Kentucky’s pension funding ratios weak despite improvements

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202106031046SM______BNDBUYER_00000179-ce04-d125-a17f-ce353e9b0000_110.1

Excerpt:

Kentucky has taken action to shore up its pension system, but it?s going to take time to reverse the adverse effects of past funding shortfalls, according to S&P Global Ratings.

Kentucky has one of the poorest funded pension systems among all U.S. states, with an aggregate funded ratio of 44% as of fiscal 2019, S&P said. The state?s general obligations are rated A by S&P with a stable outlook.

The state?s Public Pensions Authority is responsible for the Kentucky Employees Retirement System (KERS) and State Police Retirement System (SPRS) while counties and cities are responsible for the County Employees Retirement System (CERS). The Teachers Retirement System is a seperate system with its own board.

The funded ratios for the systems are 14.01% for the KERS non-hazardous and 55.18% for the KERS hazardous, 58.27% for the TRS, 28.02% for the SPRS and 47.81% for CERS non-hazardous and 44.11% for the CERS hazardous.

Author(s): Chip Barnett

Publication Date: 3 June 2021

Publication Site: Fidelity Fixed Income

MTA scare highlights public finance cyber woes

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202106070952SM______BNDBUYER_00000179-d86e-df56-a3fd-f8fe8d120001_110.1

Excerpt:

Subway safety in New York took on a new meaning when the Metropolitan Transportation Authority acknowleged a cyber intrusion, which set off loud alarm bells about the rising threat of system hacks.

The MTA is one of the largest municipal issuers and reports linked China’s government to the episode.

Despite MTA officials? assurances of quick troubleshooting and no evidence of compromise to its operational systems, employee or customer information, this marked the latest chilling cybersecurity event for public finance.

Author(s): Paul Burton

Publication Date: 7 June 2021

Publication Site: Fidelity Fixed Income

Illinois looks to its own coffers to pay off MLF loan

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202105211243SM______BNDBUYER_00000179-8fa2-d80e-a97d-8fa3c5720001_110.1#new_tab

Excerpt:

Illinois will dip into its growing pot of tax revenues to pay off the remaining $2.175 billion of outstanding debt borrowed through the Federal Reserve?s Municipal Liquidity Facility to manage last year?s COVID-19 tax blows.

The Treasury Department?s interim guidance, released May 10, barring debt repayment as an eligible use of American Rescue Plan dollars threw a wrench ? at least temporarily ? into Chicago’s and Illinois? plans to pay down debt issued last year. Illinois borrowed through the MLF and Chicago issued notes ahead of a planned scoop-and-toss borrowing to stave off deep cuts and layoffs as tax revenues plummeted. Both planned to pay off the debt with ARP funds.

Both planned to lobby the Treasury Department for a guidance change during a 60-day comment period, but Illinois was under the gun to make repayment plans ahead of a May 31 deadline to pass a fiscal 2022 budget. The state is receiving $8.1 billion from the ARP.

Author(s): Yvette Shields

Publication Date: 21 May 2021

Publication Site: Fidelity Fixed Income

Providence is ready to roll the dice on a pension bond

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202105211039SM______BNDBUYER_00000179-8608-ddb0-adf9-ff4cb4b00001_110.1

Excerpt:

Red flags waved as Providence Mayor Jorge Elorza proposed issuing $704 million in pension obligation bonds to deal with a pestering unfunded liability problem in Rhode Island’s capital city.

The amount exceeds the city’s annual operating budget. Bond markets often frown on such borrowing and sentiment among state officials who must sign off is uncertain. Skeptics also call the city’s fiscal management track record shaky, while memories linger of a fiasco in Woonsocket, which tried a similar move nearly 20 years ago.

Author(s): Paul Burton

Publication Date: 21 May 2021

Publication Site: Fidelity Fixed Income

Puerto Rico Oversight Board overrules legislature on PREPA privatization spending

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202105141647SM______BNDBUYER_00000179-6c0f-d5f6-a179-7e4fb2ce0001_110.1

Excerpt:

The Puerto Rico Oversight Board voted to overrule the territory’s House of Representatives on spending for the privatization of the Puerto Rico Electric Power Authority transmission and distribution system.

On Wednesday the House voted 43 to 0 with 2 abstentions against authorizing a revision to this year?s General Fund budget allocating $750 million for the privatization.

On Thursday the board said it had used its budgetary powers in the Puerto Rico, Oversight, Management, and Economic Stability Act to overrule the House vote. On Saturday the board had sent a letter to the leadership of the Puerto Rico House of Representatives and Senate asking them to approve the funding and saying that if it did not the board would act without their approval.

The board said the monetary allocation was ?to ensure the necessary levels of working capital to operate PREPA?s electrical grid and comply with the agreement between LUMA Energy, PREPA and the P3 Authority, by which LUMA is to assume the operation and management of PREPA?s transmission and distribution system on June 1.?

Author(s): Robert Slavin

Publication Date: 14 May 2021

Publication Site: Fidelity Fixed Income News

Federal cash infusion won’t erase Illinois’ chronic fiscal strains

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202104131450SM______BNDBUYER_00000178-cc00-d414-abf8-efa2047e0001_110.1#new_tab

Excerpt:

S&P Global Ratings warns of the pressures posed by the Illinois? burdensome pension tab even as it maintains scheduled contributions despite glaring structural woes cited in the recently published three-year budget forecast from the legislature?s non-partisan Commission on Government Forecasting and Accountability.

When applying fiscal 2022 proposed spending levels, the state?s roughly $5 billion bill backlog could jump to $9.9 billion, and $10.6 billion by the end of fiscal 2024, and a $1.2 billion fiscal 2022 deficit rises to $1.9 billion or $2.3 billion if spending grows by five- and 10-year historical rates of 2.7% or 3.2%, respectively.

The numbers look bleaker with the backlog skyrocketing to record levels of between $19.1 billion and $20.5 billion based on a fiscal 2021 spending base.

Author(s): Yvette Shields

Publication Date: 13 April 2021

Publication Site: Fidelity Fixed Income

GASB critics want more transparency for public pensions and other retirement benefits

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202104091435SM______BNDBUYER_00000178-b7cb-d786-af7b-b7efd3e10001_110.1#new_tab

Excerpt:

The question of whether pensions and other retirement benefits should be more prominently reported by state and local governments is a burning controversy for the Governmental Accounting Standards Board.

What?s at stake is whether the public is being misled by when a governmental general fund is listed in financial statements as balanced while omitting those long-term debts.

GASB requires long-term obligations to be reported in governmentwide reports, but critics say lawmakers too often look only at cash flow funds.

?I implore GASB to stop this confusion and bewilderment,? wrote Sheila Weinberg, founder & CEO of Truth in Accounting in a comment letter. ?Our representative form of government is being harmed.?

Illinois is among the states that critics say have downplayed their tens of billions of dollars of unfunded long-term debts and should be forced by new GASB rules to become more transparent.

GASB officials, on the other hand, say that state and local governments have been required to disclose their long-term debts since the publication of GASB 34 about 20 years ago.

Author(s): Brian Tumulty

Publication Date: 9 April 2021

Publication Site: Fidelity Fixed Income

Illinois governor signs bill that increases Chicago’s pension liabilities

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202104061236SM______BNDBUYER_00000178-a783-de03-a7ff-b7e7bf7e0001_110.1#new_tab

Excerpt:

Illinois Gov. J.B. Pritzker signed legislation that benefits retired Chicago firefighters, rejecting city warnings adding to its already burdensome pension tab could damage ratings and drive up taxes.

The added cost to bring cost-of-living adjustments for all firefighters in tier one up to a simple 3% annual increase despite their birth date amounts to $18 million to $30 million annually and up to $823 million in full by 2055 when the fund is slated to reach a 90% funded ratio.

Pending legislation to do the same for the police fund carries a steeper price tag of up to $90 million annually and $2.6 billion through 2055.

Author(s): Yvette Shields

Publication Date: 6 April 2021

Publication Site: Fidelity Fixed Income

Murphy’s full pension payment revives debate over New Jersey overhaul

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202102241328SM______BNDBUYER_00000177-cf67-de3f-a9f7-ffef66580001_110.1

Excerpt:

Gov. Phil Murphy?s call for New Jersey to make its first full pension contribution in 25 years is generating questions about retirement-system overhaul in one of the nation’s lowest-rated states, and how might the capital markets respond.

Murphy on Tuesday revealed the proposal to pay toward pensions roughly $6.4 billion, or about 14% of his $44.8 billion fiscal 2022 budget proposal to lawmakers. Overall spending would rise 10%. Democrat Murphy’s election-year budget would increase aid to schools and provide income-tax rebates to low- and middle-income families.

Making the full actuarially required contribution will need an additional $1.6 billion expense, according to Murphy. New Jersey was initially scheduled to earmark 90% of its full contribution this year under a ramp-up plan.

Author(s): Paul Burton

Publication Date: 24 February 2021

Publication Site: Fidelity Fixed Income

Munis end with largest increase in yields in a week since COVID-induced turmoil

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202102191549SM______BNDBUYER_00000177-baa7-d4af-a9f7-bfb72adb0001_110.1

Excerpt:

Municipals ended weaker Friday with triple-A benchmark curves rising the most in a week since COVID-19 disrupted all markets in March and April of last year.

Muni yields rose another five basis points on the 10- and 30-year Friday, bringing the total cuts to scales to 18 and 17 basis points, respectively, from Tuesday as the asset class moved closer to U.S. Treasury movements after lagging weakness in taxables since the start of the year. Treasury yields hit 1.35% in 10-years and 2.15% in 30 after news of stimulus out of Washington gaining ground.

“In the past several days, tax-exempts have finally started to react, and while it remains to be seen if the adjustment will be minor or a bigger move, an overall defensive portfolio stance is warranted,” said Mikhail Foux, municipal strategist at Barclays (BCS). “At the current extremely low ratios, one could consider whether to buy extremely rich high-quality tax-exempts or simply purchase Treasuries instead, which even accounting for the tax-exemption make more sense, especially for short and medium-dated bonds.”

Author(s): Christine Albano

Publication Date: 19 February 2021

Publication Site: Fidelity Fixed Income

No rating red flags stand out in Illinois’ proposed budget

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202102191505SM______BNDBUYER_00000177-bb7c-d32d-a5f7-bbfd87c10001_110.1#new_tab

Excerpt:

The prospects for new federal aid and a proposed budget that avoids negative rating triggers should preserve Illinois? investment-grade status, but neither moves the needle on the structural and pension albatrosses.

Gov. J.B. Pritzker’s proposed $95.5 billion fiscal 2022 budget, with a $41.7 billion general fund, clears what was estimated late last year as a $5.5 billion gap, using higher revenue projections and a combination of structural and one-time maneuvers.

In addition to higher tax collections and federal Medicaid matching dollars now expected, the budget holds spending level to fiscal 2021. It raises about $900 million in revenue by curbing corporate tax breaks, keeps some funds earmarked for local governments, the capital fund, and transit agencies and delays repayment of some inter-fund borrowing. It does not rely on an income tax or other general tax increases and it does rely on more federal funds as they are not yet approved.

Author(s): Yvette Shields

Publication Date: 19 February 2021

Publication Site: Fidelity Fixed Income