Pennsylvania’s downgrade bandwagon
Back in July, Moody’s downgraded Pennsylvania's credit rating after the state relied on one-time fixes to patch a growing structural deficit for its 2015 budget. This week, Standard & Poor’s and Fitch Ratings hopped on the downgrade bandwagon. Both agencies cited the state’s continued budget instability and lack of reserves. The downgrades come a week after the state announced it was borrowing $700 millionto plug a budget deficit just two months into the 2015 fiscal year. And Pennsylvania could borrow as much as $1.5 billion from its own funds to limp through the rest of the year.The Keystone State also failed to address pension reform in its 2015 budget, a move that will continue to haunt the state’s finances. This year, the state is slated to contribute $2.7 billion on a $30 billion general fund budget (9.1 percent). It’s a huge increase over last year’s $600 million and payment amounts in the future will be even higher. “Without structural expense reform, or broad revenue increases,” Fitch said, “pension costs will consume a larger share of state resources and limit the commonwealth's overall fiscal flexibility.”
The Big (Green) Apple
New York may become the first U.S. city to issue so-called “Green Bonds,” debt issued by governments that pay for environmentally sustainable measures. The bonds are tax exempt and typically target projects that meet certain criteria for environmental benefit and usually have additional transparency requirements that allow investors to track projects and expenditures. The federal government started a green bond program in 2004. Bonds have also been issued by several states (Massachusetts has had two high-demand sales each of the past two years) but not yet by any cities.Among the first projects to win green bond financing were Atlantic Station in Atlanta, a site that was developed into a new city sector; Belmar in Lakewood, Colo.; the Georgetown Wire Mill redevelopment in Redding, Conn and Destiny USA, a megamall in Syracuse, NY. Combined, the developers reduced conventional power use by 150 megawatts and installed 900,000 square feet of solar panels and cut sulfur dioxide emissions by 10 tons per day.
In a press release issued Sept. 24, New York City’s comptroller, Scott Stringer, said he hoped NYC could develop a program that other cities would replicate. It’s not going to be simple. First, the Comptroller’s Office and the Office of Management and Budget would have to establish criteria, identify projects and create clear reporting and auditing standards to meet the needs of investors. Stringer issued a more detailed report on his proposed steps to implementing a green bond program this week.
A guessing game
This week’s Municipal Issuer Brief gave a breakdown of the U.S. Securities and Exchange Commission’s approach to its self-reporting initiative launched earlier this year. Aimed at governments and underwriters, the program, called Municipalities Continuing Disclosure Cooperation (MCDC), allows parties involved in a bond issue to review their financial disclosures related to that issue after the initial sale. If they find they’ve omitted anything relevant, they have the chance to report that to the SEC before the commission potentially nails them on it. The latest development in this program is that the SEC extended the deadline for governments to Dec. 1 while keeping the deadline for underwriters at Sept. 9. According to the brief issued by Municipal Market Advisors, the SEC’s keeping mum on who has filed a disclosure to-date and won’t be tipping off governments if their underwriters have filed an addendum to one of their bond issuances.The commission has said it will start processing dealer settlements before MCDC’s Dec. 1 government deadline and it’s also promised to give more details about those settlements. That should help governments better assess what the SEC’s definition is of what constitutes a securities law violation.
