AML Municipal Matters

There are two things that stand out for me this week as big, systems issues that will have to be addressed.

First, if increasing the BSA is important to us then we must have all sides continue negotiating within realistic expectations of one another. Failure will look like one side or another walking away and blaming the other. There are some basic ingredients to this that we recognize at this point:

• To increase the BSA to a level that is fully inflation-adjusted requires new revenues or puts extreme pressure on a fragile budget. We don’t see how that’s possible this year.
• Some portion of the Governor’s interests need to be met and we have to figure out how to get there on the most important items. Just like in addressing fiscal policy, it’s a combined approach that is needed.
• If nothing comes of it all, and there’s no deal, it’s a bad deal for local governments and school districts, residents and students. Everyone will be to blame, at that point.
• What can we argue for that helps to overcome the politics of this, as well as the fiscal reality?

Second, PERS/TRS is in dire straits. Here is a presentation we’ve been working on. I don’t know exactly what a clarion call looks like, but here’s what we are thinking about:

• Actuaries currently predict only 92% funded in 2039, when it was supposed to be 100%.
• We have not made progress on the net pension liability in a decade, and it remains hovering around 65%.
• Assumptions continue to be wrong – they are too optimistic, and the outcome is returns that have underperformed and an increase in liabilities beyond projections.
• Actuaries have stated that they are making these choices to save the State money, and the ARM board is adopting them with this in mind.
• This seems like a clear failure to follow statute, and we should evaluate this accordingly.
• The choices for the State will be to change the assumptions and take on more costs, with an increased state contribution; or consider reamortization beyond 2039, which will shift additional costs to munis.

Budget subcommittees in the House will start closing out; the Senate’s are getting started. The Senate has identified revenue measures. I wouldn’t be surprised if the conversations starts to include income or sales taxes. One of the concerns expressed by the Legislature this week was related to the impact of federal activities, including the potential cost-shifting related to Medicaid and other benefits. That will be something to watch for.