Joseph Krist

Publisher

________________________________________________________________

ISSUE OF THE WEEK

$1,306,200,000

SALES TAX SECURITIZATION CORPORATION

Chicago will sell this issue which is designed to appeal to a very wide range of investors both domestic and international. Nearly $400 million of the issue will come in the form of taxable debt. The deal is structured with many of the features which appeal to taxable investors. As a securitized deal, the structure offers a security and redemption package with which those investors are familiar. They include make whole call provisions. In a number of discussions and presentations, these are the sort of relatively mundane issues which are raised as possible impediments to a fuller expansion of the municipal bond market beyond its traditional buyers.

This type of flexibility will be of enormous importance as the municipal market undertakes to shoulder a greater portion of the nation’s financing burden for infrastructure. With tax policy at the federal level effectively diminishing the attractiveness of municipal bonds to traditional buyers, the ability of the municipal market to innovate and adapt to a changing investment environment will be tested as never before.

The bonds are rated AA- by S&P and AAA by Kroll based on the strength of the lien securing the revenues for the benefit of bondholders. The Act and the City’s home rule powers provided the legal mechanisms by which the City: created the Corporation; assigned and effectively accomplished a “true sale” of the pledged Sales Tax Revenues; and irrevocably directed the State to distribute the pledged revenues directly to an account of the Trustee for these Bonds. Further, the Act provides covenants by the State to refrain from impairing these mechanisms or altering the basis upon which the City’s share of transferred revenues is derived. The Act also provides that Bonds issued by the Corporation are secured by a “statutory lien” on those transferred revenues, providing additional protection to bondholders in the unlikely event of a City bankruptcy.

The issue also takes advantage of the relatively calmer perception of the credit position of the State which has had benefits for the City as well. Whether that perception is well founded – the ship may not be taking on any more water but it’s not as if the water is not still deep – remains to be seen.

__________________________________

ECONOMIC DATA SENDS MIXED SIGNALS

The recent GDP report indicated that growth is still strong at 3.5% but there are signs of slowdown in the economy. Growth in the second quarter was over 4% but that was before the full implementation of tariffs. Now there are signs that those tariffs are having a negative effect on incomes across the economy, especially in the farm belt.

Based on many reports we have seen, even ardent supporters of the tariff based trade policies acknowledge that they will cause short term pain for the agricultural sector. prices for crops are lower and the Administration’s $12 billion farm bailout is not replacing even half of the income lost to tariffs. Now it appears that the woes of the agricultural sector are impacting the broader economy especially for manufacturers who sell to farmers.

The latest example is Caterpillar. It’s third quarter earnings release indicated that Cat sees tariffs negatively impacting its bottom line. The company specifically cited the rising cost of basic steel and aluminum inputs as dampening demand and expected profits. “Manufacturing costs were higher due to increased material and freight costs. Material costs were higher primarily due to increases in steel prices and tariffs,” the company says.

The company said the impact of tariffs for third-quarter material costs was about $40 million. “For the full year of 2018, we expect the impact of recently imposed tariffs will be at the low end of the previously provided range of $100 million to $200 million,” the company said. Cat will raise prices having informed its dealers in the third quarter of an upcoming price action of 1 to 4% worldwide on machines and engines with certain exceptions. The new, higher prices will take effect in January 2019.

Over the past year, a 36% rise in the price of hot rolled steel has impacted heavy machinery producers. We will monitor the impact of the tariffs on state budgets from those states with significant agricultural components to their economies.

MEDICARE PROVIDER SEES WEAKENED CREDIT

Temple University Health System (TUHS) is the largest Medicaid provider in the Commonwealth of Pennsylvania. Located in Philadelphia, the system’s finances have always been precarious reflecting the ebbs and flows of the Philadelphia economy. With the vast array of changes challenging hospital credits, weaker players have less flexibility to deal with them and less financial resilience. TUHS is a $1.8 billion academic health system anchored in northern Philadelphia. The Health System consists of TUH-Main Campus; TUH-Episcopal Campus; TUH-Northeastern Campus; Fox Chase Cancer Center, an NCI designated comprehensive cancer center; and Jeanes Hospital a community-based hospital offering medical, surgical and emergency services. TUHS also has a network of community-based specialty and primary-care physician practices. TUHS is affiliated with the Lewis Katz School of Medicine at TU.

Now, Moody’s Investors Service has revised its outlook on THUS’ Ba1 rated credit from stable to negative.

Moody’s cites ” elevated execution risks as TUHS pursues major changes to its corporate structure and business model during a period of weak margins and growing competition. Despite some recent improvement, expectations of continued deep operating deficits in the absence of one-time favorable events, will continue to foster TUHS’ heavy reliance on Commonwealth supplemental funding. Though Temple University (TU) engaged consultants and has appointed a Chief Restructuring Officer to improve operations, adjust the system’s business model and right size operations, efficiencies will be difficult to realize as industry headwinds grow and consolidation in the Philadelphia market further disadvantage TUHS.”

THUS isn’t going anywhere due to the unique socioeconomic profile of its patient base. moody’s notes that It is also anticipated that TUHS will be challenged to grow revenues due to disproportionately high exposure to governmental payers at nearly 75% of gross revenues. Without significant operating improvement, capital spending will be constrained and/or liquidity will likely decline over time. So the rating is maintained at its current level.

The membership of the obligated group reflects the high level of change which has been a constant feature of the Philadelphia health landscape over the last two to three decades. The obligated group consists of Temple University Hospital, Inc.(TUH), TUHS, Jeanes Hospital, the Fox Chase Entities, Temple Health System Transport Team, Inc. and Temple Physicians, Inc. Each member of the obligated group is jointly and severally liable for all obligations issued under or secured by the Loan and Trust Agreement.

Each member of the obligated group has pledged its respective gross receipts as security for the obligated group’s obligations .

PUERTO RICO ECONOMY SLOWS

The Economic Development Bank for Puerto Rico (EDB) published the Economic Activity Index (EAI) for August, which remained above the threshold of 100, indicating expansion, and remained virtually unchanged when compared with July and August 2017.

The EDB-EAI is made up of four indicators: Total Payroll Employment (Establishment Survey/ Thousands of employees). The establishment survey provides employment, hours, and earnings estimates based on payroll records of business establishments in Puerto Rico. Total Electric Power Generation (Millions of kWh). This indicator includes the electric power generation produced by petroleum, natural gas, coal and renewable energy sources. Cement Sales (Millions of 94-pound bags) and Gas Consumption (Millions of gallons) round out the data set. The bank says that the index “is highly correlated to Puerto Rico’s real GNP [gross national product] in both level and annual growth rates,”

Average nonfarm payroll employment for August 2018 was 859,900 employees, an increase of 0.2% over the month of July 2018 and a reduction of 2% when compared with August 2017. The preliminary estimate for gasoline consumption in August was 75.7 million gallons, or 9.2% less than in July and a 4.9% reduction from August 2017. Power generation was of 1.52 billion kWh in August, or 2.2% less than in July and 10.9% less than in August last year.

SANCTUARY CITIES

With all of the attention on the immigration front focused on family separations and the “caravans” moving toward the border, the ongoing issue of sanctuary cities and the Administration’s effort to thwart their goals can recede into the background. A federal court has ruled against the Trump administration in a lawsuit over funding for the cities of Seattle and Portland, the two plaintiffs named in the lawsuit.

The decision found that part of President Trump’s executive order to end federal grant funding for sanctuary cities is unconstitutional. Seattle filed its lawsuit in March 2017 seeking to clarify Trump’s executive order. The order gave the Justice Department and Department of Homeland Security the power to withhold federal grants to cities that did not comply with federal immigration law.

“Because Section 9(a) of Executive Order 13,768 directs Executive Branch administrative agencies to withhold funding that Congress has not tied to compliance with 8 U.S.C. § 1373, it would be unconstitutional for Executive Branch agencies to withhold appropriated funds from plaintiffs Cities of Seattle and Portland pursuant to Section 9(a) of the Executive Order.”

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website 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.

Joseph Krist

Publisher

________________________________________________________________

ISSUE OF THE WEEK

$447,200,000

Tarrant County (TX) Cultural Education Facilities Finance Corporation

Revenue and Refunding Bonds

Moody’s: A1

CHRISTUS is a Catholic not-for-profit health system. The system owns and/or operates facilities in four states in the United States (Texas, Louisiana, Arkansas and New Mexico), and in Mexico, Chile and Colombia. The health care facilities owned and operated by members of the system include general acute care hospitals, long term care facilities, skilled nursing and nursing home facilities, and clinics with an aggregate of 5,963 available beds (1,534 of which are located in Mexico, Chile and Colombia), as well as independent facilities for the elderly with an aggregate of 251 units (all figures as of June 30, 2018). Texas operations account for nearly 71% of revenue, 15% Louisiana, 9% New Mexico and 5% Latin America. The largest market as measured by both bed count and revenue base is Northeast Texas which includes recently acquired Trinity Mother Frances and Good Shepherd Medical Center.

The bonds are secured by a pledge of the obligated group members’ gross revenues, including their respective accounts receivables and receipts, as defined in the bond documents. The obligated group members include: CHRISTUS Health Northern Louisiana, CHRISTUS Health Central Louisiana, CHRISTUS Health Southeast Texas, CHRISTUS Health Ark-LA-Tex Health System, CHRISTUS Santa Rosa Health Care Corporation, CHRISTUS Spohn Health System Corporation, Mother Frances Hospital Regional Health Care Center, The Good Shepherd Hospital, Inc., CHRISTUS Good Shepherd Medical Center and Good Shepherd Health System Inc.

The bonds will provide some funding for future capital improvements but the majority of the proceeds will refinance bank lines, construction financing, and some existing debt. The financing also allows for the amendment of the Master Trust Indenture  securing the debt. These amendments include a change in the amount of bond holders required to request acceleration of debt in an event of default (from 25% to 50%), a change in the number of years the system must be below a 1.0x debt service coverage (from 1 year to 2 years) to constitute an event of default, and a restatement of the definition of “expenses” that removes non-cash items related to the pension plan. Additional financial covenants that remain unchanged include a 75 days cash on hand, 65% debt to capitalization, and 1.0x MADS.

The rating outlook was lowered to negative from stable. The change was based on a view of higher proforma leverage and the absence of a longer track record of sustained operating improvement to support incremental debt. Moody’s warned that an  inability to generate further cash flow improvement and at least maintain proforma liquidity levels could result in a downgrade.

__________________________________

FOREIGN CHEMICAL MAKERS BENEFIT FROM TAX EXEMPT BONDS

Rates are in the midst of their upward adjustment in the face of aggregate data pointing towards a booming economy. Many perceive the end to be closer than the beginning so those among them desiring to lock in more favorable borrowing costs on outstanding debt. This would be especially true for businesses requiring favorable cyclical turns in the economy to support the debt.

So on the basis of all these factors we are not surprised to see some of the more exotic projects and credits take their shot at a municipal refinancing. Should the initial signs portend a trend, the upcoming refinancing for the Mission (TX) Economic Development Corporation. The debt to be issued will refinance construction debt which built a 5000 ton per day methanol production facility.

The market for methane and its role in the development of fertilizer give producers access to their products on a global scale. Much of the primary production infrastructure is owned by non-US companies. The significant growth in the market for methane and its derivatives is occurring in China. Given the current Administration attitude has been toward trade in general and China in particular, this raises a risk long-term.

The reliance of the end market for many if not all methane based products is commercially and industrially driven produces a cyclical risk to changes in regional and global economies. This plant was built in a period of favorable  market trends however, operations only commenced in April of this year. Plant economics would seem to depend on those metrics remaining positive.

There are also issues which raise concerns among the socially minded or oriented investors prior financings in the large scale fertilizer production industry. those concerns range from safety related to political. The perceived safety image associated with the production of volatile yet highly demanded chemical products gives others pause. There has even been a national security concern on the part of some investors. Much of the production and demand for chemicals comes from the politically volatile Middle East. The corporate entities which produce and market their product are subject to a higher than typical level of scrutiny which has in the past raise concerns about the ultimate end buyers for these products. These concerns have worked against regulatory approval and/or public support for these facilities.

PUERTO RICO

Luc Despins was hired by the island’s fiscal oversight board to negotiate a settlement between commonwealth bondholders and those holding COFINA debt. Recent comments by Mr. Despins may have complicated efforts to reach a consensual settlement in the dispute between the parties. After months of litigation and mediation, on June 5, 2018, Despins and COFINA’s agent executed an agreement in principle to resolve their respective party’s dispute, in which each side agreed to share sales and use tax revenues.

Now Mr. Despins is challenging the authority of the oversight board to file a motion seeking approval of its settlement of the Commonwealth-COFINA Dispute. The agent says that the board’s move to revised the May 30 fiscal plan’s long-term projections “materially downward” in connection with another certification of the fiscal plan on June 29, 2018 “renders a settlement along the lines of the Agreement in Principle neither feasible nor desirable.”

Understandably, the COFINA bondholders are upset with the Agent’s move. “While it’s disappointing the Commonwealth Agent is looking to delay the very deal it negotiated and filed with the Court, we hope for the sake of the island the path to plan confirmation will be speedy and efficient. The Agent cannot dictate to the congressionally-established Oversight Board and the democratically-elected government how and when to settle its debts and free up its sales taxes from ongoing litigation.”

While the scale of the default and potential settlement are huge, politics would seem to be an even greater hurdle. This was one of the great concerns overhanging any potential settlement process. The oversight panel also announced it certified, by unanimous consent, a revised fiscal plan for COFINA.  COFINA’s is the first adjustment plan submitted in the debt restructuring process under Promesa, and “covers the totality of the $17.6 billion in COFINA debt, which in turn represents 24% of the total of Puerto Rico’s bonded debt to be restructured,”

The fiscal board has said the terms agreed to by the parties, now contained in this Plan of Adjustment, provide for more than a 32% reduction in COFINA debt, gives Puerto Rico approximately $17.5 billion in debt service savings, enables local retail bondholders in Puerto Rico to receive a significant recovery and paves the way for achieving a consensual restructuring of COFINA debt by the end of 2018.”

BIG CATHOLIC HEALTH MERGER RECEIVES VATICAN BLESSING

The merger and acquisitions sector takes potential regulatory approval requirements as standard operating procedure as a part of that process. In the tax exempt  sector, the religious orientation of some entities primarily hospitals introduces some unique “regulatory” hurdles into the approval process. The latest example of this is the pending CHI-Dignity Health merger for which a definitive agreement was announced last November. When it was announced, the Archbishop of Denver issued a list of six conditions which must be met in order for the merger to be approved. The “nihil obstat”  (Latin for nothing stands in the way) outlined six conditions be met to ensure that CHI would not be cooperating with any “morally illicit” procedures as part of the deal.

One of those conditions was that the proposed merger be reviewed by the Vatican’s Congregation for the Doctrine of Faith. That review and approval has been delivered. As a result, the Archbishop announced that as long as the other five conditions continued to be met, his nihil obstat will no longer be considered conditional.

The remaining hurdles primarily consist of state regulatory approvals. One can argue as to which is the “highest authority” overseeing the merger but the Vatican approval was likely the highest hurdle to overcome. In the meantime, Dignity’s 15,000 unionized employees have reached and ratified new labor agreements settling issues of pay (13% raises spread over five years, a 1% bonus in the second year, and insurance (they will maintain their defined benefit pension).

HURRICANE IMPACT ON STATE FINANCE

In the wake of Hurricane Florence, North Carolina has enacted the 2018 Hurricane Florence Disaster Recovery Act. The Act will provide aid to local governments and public higher education institutions. The entities will receive state aid to help pay for recovery costs related to Hurricane Florence The state spending package will cover hurricane recovery costs not covered by federal aid or private insurance.

The immediate impact on the state’s finances have become clearer. A total of $756.5 million will be transferred to the Hurricane Florence Disaster Recovery Fund from the state’s rainy day fund, reducing the fund’s projected balance at the end of fiscal 2019 to $1.3 billion from $2.0 billion. The remainder of the $850 million allocation will come from other various state funds, including $65 million from the highway fund. North Carolina’s $850 million allocation is equal to approximately 3.6% of the state’s fiscal 2019 (ending 30 June 2019) general fund budget.

These expenditures are not seen as having long term negative impacts on the State’s finances. Of the $454.9 million appropriated thus far, $60 million has been allocated to the Department of Public Instruction, which will benefit public K-12 schools. The package also allocates about $30 million for the University of North Carolina (UNC) system campuses most affected by the hurricane: UNC Wilmington (Aa3 stable), UNC Pembroke and Fayetteville State University. The universities anticipate that the state’s $30 million, along with insurance coverage and FEMA assistance, will cover a significant portion of damage at each campus. UNC Wilmington, which was closed to students for about four weeks, is likely to receive the largest share of these funds given the extent of the damage to its campus, which is currently estimated to be $140 million.

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website 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.

Joseph Krist

Publisher

________________________________________________________________

ISSUE OF THE WEEK

$850,000,000

State of Connecticut

Special Tax Bonds

Pledged revenues include taxes and fees on motor vehicle fuel, casual vehicle sales and licenses. All taxes on oil companies’ gross earnings and a designated portion of the statewide sales tax are now deposited directly to the State Transportation Fund (STF) and pledged to bondholders; the sales tax deposit was phased in through fiscal 2018. The 2018 legislature accelerated by two years the five-year phase-in of the sales tax on motor vehicle purchases at dealerships deposited to the STF, which had been agreed to in a 2017 special session, and changed the rate of the deposits to the fund. The phase-in began in fiscal 2019, from the earlier fiscal 2021, and will reach 100% in fiscal 2023.

The state estimates a beginning $29 million addition to the STF in fiscal 2019, escalating over the phase-in period to $368 million in fiscal 2023. In 2017, the legislature also referred a constitutional amendment for voter consideration in November 2018 that would ensure that all monies once deposited to the STF are solely applied to transportation purposes, including debt repayment. The legislature would retain the ability to adjust rates and revenue allocations prior to pledged revenues deposit to the STF.

The issue sells as the State faces continuing financial pressure and continuing pressure to maintain if not lower current tax rates. As of fiscal 2018 estimates, the major revenues in the STF consist of motor fuels tax (30%), motor vehicle receipts (15%), oil company tax (19%), license, permit and fee revenues (8%), and a portion of statewide sales tax (20%). Sales tax revenue as a component of the STF is expected to increase to 32% in fiscal 2022 as part of the most recent agreement.

The ballot initiative comes as the state faces significant choices as it attempts to maintain infrastructure (Let’s Go CT), stop erosion of the economic base, and work to reduce its significant unfunded pension liability. With some uncertainty about the economic outlook, investors should recall that interdependence with the state general fund has led to revenue or cost shifts during periods of general fund fiscal stress, most recently in fiscal 2016. Although the “Let’s Go CT!” initiative included the statutory designation of the STF as a perpetual fund, limiting the use of resources to only transportation, the new designation did not prevent the state from delaying the originally planned sales tax allocation phase-in to address general fund revenue underperformance.

__________________________________

MEAG DISPUTE HITS JACKSONVILLE RATING

The City of Jacksonville is caught between a rock and a hard place as it attempts to deal with the fallout of its decision to sue MEAG in the face of the decision to plunge forward with the Votgle nuclear plant upgrade. That fallout includes Moody’s announcement that it was reducing its rating on the City’s $2.1 billion of debt. The action was directly attributed to the MEAG dispute.

The city is a participant as a plaintiff in litigation with JEA, a component unit of the city, against Municipal Energy Authority of Georgia (MEAG), in which JEA and the city are seeking to have a Florida state court invalidate a “take-or-pay” power contract between JEA and MEAG. The city’s action calls into question its willingness to support an absolute and unconditional obligation of its largest municipal enterprise, which weakens the city’s creditworthiness on all of its debt and is not consistent with the prior Aa rating category. The contract in question was signed in 2008 and is the sole source of repayment for $1.4 billion of outstanding MEAG Power Project J debt bonds.

JEA continues to make payments in full and on time for amounts billed by MEAG Power under the PPA and intends to do so unless and until a court invalidates the PPA. So it must be frustrating to the City to see that its only potential avenue to rid itself of the obligation to pay for what seems more and more of a failed project. Perhaps the involvement in the project should have been more of as rating issue since the risks and factors which were associated with participation in a nuclear power plant construction were pretty clear from the start.

ILLINOIS PENSION WOES CLAIM ANOTHER LOCAL CREDIT

The Village of Oak Lawn’s current pension contributions are not in compliance with state law and therefore state revenues could be diverted if requested by the local pension boards. While such a diversion is reportedly not imminent, such risk is heightened by the village’s limited reserve position. The village does have a degree of budgetary flexibility given declining debt service costs and certain operating revenues designated for capital that could be redirected to operations.

The situation led Moody’s to downgrade the City’s debt from Baa2 to Baa3. The outlook was listed as negative. Village actions to increase pension funding will slow the rate at which unfunded liabilities are growing, plan status will continue to worsen and potentially strain the village’s budget over the next several years. The outlook also considers the direct risk to liquidity created by current funding levels given the village is not in compliance with state law.

We will see more of these actions without significant improvement in the overall state and local pension situation.

PHILADELPHIA

The last time the City Controller commented on the City’s financial management those comments concentrated on what was described as lost or unaccounted for cash. Now the Controller has released the results of a review which paint a more positive picture of the City’s cash position. The Office of the City Controller released its first Cash Report, a quarterly review of Philadelphia government’s cash position (available liquid assets). This interactive report focused on the City’s cash position at the end of the fourth quarter of fiscal year 2018 (FY18), as of June 30, 2018, comparing the City’s end-of-fiscal year cash balances to end-of-fiscal year data back to fiscal year 2007. The report shows the City’s cash position as historically strong.

In FY18, the City saw substantial gains to its cash balances. It was the first time in the last ten years that the General Fund, Grants Fund and Capital Fund all saw increases in their end-of-fiscal year balances. The General Fund, with revenues generated primarily from local taxes and costs including employee payroll and benefits, pension payments, purchases of service and equipment and supplies, had a cash balance of $769 million, the highest balance in a decade. This is attributable to continued economic growth and tax rate increases.

The General Fund balance ($769 million) represents 18% of annual cash expenditures, or a little over two months-worth of General Fund expenditures. The combined total of these three major funds, plus some additional smaller funds, make up the Consolidated Cash account balance, which was also noteworthy in FY18. After the largest single-year increase since 2007, Consolidated Cash had a fiscal year closing balance of $993 million – the highest balance since before the Great Recession.

PORTLAND OR MULLS PENSION BOND

In late June, Portland Community College’s elected board approved the issuance of $200 million in new pension obligation bonds, an amount that would roughly equal its entire unfunded liability with Oregon’s pension system. Since it’s not a general obligation bond, and no new taxes are being imposed to repay it, the additional debt does not require voter approval.

Last year, PCC’s total pension outlay was $23.5 million, or more than 10.5 percent of its total expenditures. Come July, those costs will increase by another $6 million annually. The idea to use pension bonds is being pushed hard by bankers who the local press notes have become the major source of pension funding advice. We see no need to harp on the obvious conflict of interest associated with relying on a banker for policy advice. We will note that with rates rising there is some timing pressure on potential issuers. At the same time as they evaluate the rate risk associated with waiting, the recent week’s action in the equity markets should give any investor pause. While the recent year’s results in  the stock market have been favorable, we note that we are likely closer to the end of the cycle than the beginning. This does introduce an element of risk for the District as they will need to get their assumptions right as they also cope with potential market risk.

It should come as no surprise to regular readers that we look askance at the plan.

CALIFORNIA REVENUE UPDATE

State Controller Betty T. Yee reported the state received $12.10 billion in revenue in September, exceeding projections in the 2018-19 fiscal year budget by 5.1 percent, or $582.4 million.  This month, all of the “big three” revenue sources –– personal income tax (PIT), corporation tax, and sales tax –– came in higher than assumed in the enacted budget.

For the first quarter of the 2018-19 fiscal year, revenues of $28.71 billion are 5.2 percent ($1.43 billion) higher than projected in the budget enacted at the end of June. Total revenues for FY 2018-19 thus far are 10.8 percent ($2.79 billion) higher than for the first quarter of FY 2017-18.
For September, PIT receipts of $8.44 billion were 3.7 percent ($297.4 million) more than expected in the FY 2018-19 Budget Act.

September corporation taxes of $1.30 billion were 11.2 percent ($130.9 million) above FY 2018-19 Budget Act estimates. Sales tax receipts of $2.00 billion for September were 10.6 percent ($191.9 million) more than anticipated in the FY 2018-19 budget.

SALT LAKE CITY AIRPORT

Salt Lake City is planning to finance the latest airport modernization and expansion. SLC is considering issuing approximately $875 million of tax-exempt fixed-rate Airport Revenue Bonds. Bonds will be payable from and secured by a pledge of Net Revenues of the Airport. The project is being funded by user fees–primarily by airlines serving SLC–as well as savings, car rental fees, passenger facility charges and airport revenue bonds. No local tax dollars are being spent on the project.

SLC is the 23rd busiest airport in North America and the 85th busiest in the world. More than 340 flights depart daily to 95 nonstop destinations. (SLC) serves more than 24 million passengers a year. The proposed expansion includes new terminals as well as new parking and car rental facilities. In that sense it represents the current “state of the art”.

It is notable that the only real nod to the coming impact of technology on transportation is that Salt Lake City International Airport has installed 24 electric vehicle (EV) charging ports for public and employee use. The 12 EV charging stations are dual port, Level 2 with standard connectors to accommodate all models of electric vehicles. Each port supplies up to 7.2 kilowatts of power and there is no charge to use the stations. Thanks to Rocky Mountain Power is covering 50% of the project costs.

HOUSTON MOVES ON TAXES BEFORE THE BALLOT

Houston City Council approved a nominal increase in the city’s property tax rate, the first rate hike at City Hall in two decades. The increase comes as the City faces a potentially  turbulent Election Day. A battle over whether to grant firefighters the same salaries as police of corresponding rank and seniority — the “parity” referendum is Proposition B on the Nov. 6 ballot.

The mayor, who has sheparded pension reform through the local and state legislatures says that passage of the parity measure would cost the city more than $100 million a year and force the layoff of as many as 1,000 city employees, including firefighters and police. The firefighters union disputes that cost and has called the layoff estimates a scare tactic

The City continues to send mixed signals. It has instituted a hiring freeze, saying there is no point hiring people who would be laid off if the parity measure passes. At the same time, the mayor and council approved a new police contract this month that will give officers a 7% raise over the coming two years and another 2% raise the following year if a new deal is not struck by the end of 2020 — raises that would drive up the costs of Prop. B.

All of this must happen within the limits of the voter approved property tax cap limiting the City’s ability to raise taxes.

 

Disclaimer:  The opinions and statements expressed in this column are solely those of the author, who is solely responsible for the accuracy and completeness of this column.  The opinions and statements expressed on this website 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.