Joseph Krist

Publisher

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ISSUE OF THE WEEK

Water Replenishment District of Southern California Financing Authority, CA

Revenue Bonds

S&P: AA+

Fitch: AA+

The Water Replenishment District of Southern California Financing Authority, CA  has been serving for 60 years replenishing groundwater resources not replenished naturally by purchasing recycled or imported water and, to a lesser extent, through the capture of storm water runoff. Water is injected into the aquifers or spread on the surface to percolate down to the basins. There are 43 cities within the district’s boundaries that are groundwater pumpers, including the cities of Los Angeles and Long Beach.

The district derives the majority (95%) of its annual revenues through a replenishment assessment on each of the users based on their annual extraction.  Assessments saw significant increases over the last decade to address the rising cost of imported water and reduced groundwater pumping from the basins during the drought. In the next several years assessments are expected to continue to increase (5%-6%, annually) to provide for increased annual debt service costs.

In a time of drought and other climate changed events making water more scarce and reducing the reliability of water sources, the District’s role takes on greater importance. The recent updates to the Colorado River compact highlight the need to reduce the amount of water that southern California imports from outside and/or out of state sources. The latest bond issue occurs as the District’s Albert Robles Center  comes on line. The Center will purify approximately 10,000 acre feet (3.25 billion gallons) of tertiary treated (recycled) water annually to near-distilled levels through an advanced water treatment facility. Together, with another 11,000 acre feet (3.6 billion gallons) of recycled water, the District will deliver 21,000 acre feet of water to the San Gabriel Coastal Spreading Grounds where it will percolate into the Central Basin.

The bonds are payable from installment payments made by the district from its system net revenues, including replenishment assessments. The district’s obligation to make installment payments is absolute and unconditional as governed by the installment purchase agreement between district and the authority.

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BET THE INVESTORS WISH THIS WAS TRUE

The latest absurdity out of the White House is the existence of multiple reports that President Trump believes that aid from FEMA and other sources is covering Puerto Rico’s debt service requirements. Axios reports that Trump also told senior officials last month that he would like to claw back some of the federal money Congress has already set aside for Puerto Rico’s disaster recovery, claiming mismanagement.

We do not think that such an effort would be The comments are more likely a future indicator of the Administration’s willingness to ask for or authorize additional aid. The news of the President’s sentiments reinforces the views he expressed in a late October tweet. “The people of Puerto Rico are wonderful but the inept politicians are trying to use the massive and ridiculously high amounts of hurricane/disaster funding to pay off other obligations. The U.S. will NOT bail out long outstanding & unpaid obligations with hurricane relief money!”

The President apparently believes that any positive movement in prices in the secondary market for Puerto Rico debt reflects use of disaster funds for debt repayment. One would think that after the President’s extensive experience with defaulted debt and bankruptcy proceedings, he would have a better understanding of the process.

WHAT IS TRUE

The Puerto Rico legislature has approved a proposed COFINA restructuring agreement which has been submitted to the court overseeing Puerto Rico’s bankruptcy. The agreement, the first to be submitted to the court for approval, reduces COFINA debt overall by 32% and gives senior bondholders 93% of the value of the original bonds and junior bondholders 55%. It also saves Puerto Rico about $17.5 billion in debt service.

The approved bill establishes COFINA’s ownership of a portion of the island’s sales and use tax. It also creates a lien to benefit COFINA bondholders, establishes certain agreements in the name of the commonwealth and allows the sale of certain COFINA bonds held by the Puerto Rico Infrastructure Financing Authority.

A decision in the case is expected to be rendered in January.

BRIGHTLINE BECOMES VIRGIN USA

Richard Branson will become a minority investor but that is enough to cause the All Aboard Florida (AAF) high speed rail project to rebrand itself as Virgin USA. The partnership was announced as AAF faces a yearend deadline to secure tax exempt bond financing for its build out across the state. The company hopes to launch rail service along the Interstate 4 corridor from Tampa to Orlando in 2021 and it expects ridership to take two years to ramp up. Construction for the Tampa-to-Orlando service has an estimated cost of $1.7 billion.

Travel time between the two cities is projected to be an hour — Virgin’s trains will have a top speed of 125 mph — compared with 90 minutes by car and 2 hours and 5 minutes for Amtrak’s Silver Star. Travel time between the two cities is projected to be an hour — Virgin’s trains will have a top speed of 125 mph — compared with 90 minutes by car and 2 hours and 5 minutes for Amtrak’s Silver Star.

The project’s outlook remains cloudy as unaudited financial statements reveal Brightline struggled in the first half of the year, losing $28.2 million in the first quarter of this year and $28.3 million in the second quarter. It is reported that reported in October that Brightline’s passenger volume increased to 106,090 in April, May and June, up from 74,780 during the first three months of the year, but far below projections.

The partnership comes as Brightline’s major investors announced plans to buy the rights to build a high-speed railroad between Southern California and Las Vegas. Service there is to launch in 2022, and eventually could expand into the Los Angeles area, according to Brightline. Brightline says that “Virgin has built a respected and trusted brand in travel and hospitality.”

In Britain, there is no shortage of those who would beg to differ with that characterization. Virgin is one of the entities which took over rail lines when British Rail was privatized. That has produced at best mixed results in spite of promises to invest in equipment and improve operating performance. Virgin Group’s existing high-speed railroad in the United Kingdom, also called Virgin Trains, has had its own financial struggles and faced criticism earlier this year for accepting a government bailout.

Those issues have not received the same level of attention here on this side of the Atlantic. The hope seems to be that the Brightline’s below projection operating results will be boosted by “access to millions of customers with the potential for increased ridership from other Virgin branded travel and hospitality businesses, including Virgin Atlantic, Virgin Hotels and Virgin Voyages.”

LOOKING TO THE COURTS TO LOWER OBLIGATIONS

Platte County, Missouri sold $32 million in bonds in 2007 to provide up-front financing for two public parking garages. The bonds would be paid back over time by sales taxes generated at Zona Rosa. Zona Rosa is an approximately 500,000 square feet, mixed-use development located in Kansas City, Platte County, Missouri. The project opened in 2004 and was expanded by an additional 500,000 square feet in early 2009.

Now in the face of a changing environment in the retail sector, Zona Rosa has not generated enough in sales tax revenue to pay annual debt payments. The County is being looked to as a source of funds to cover the debt service shortfalls. The shortfall on the annual debt payment to bondholders, which is due on Dec. 1, exceeds $1 million.

Now Platte County is taking a fairly aggressive stance in court. The lawsuit asks a judge to declare that Platte County is not legally responsible for shoring up Zona Rosa’s debt, and that it would be unconstitutional for the county to do so. Explicitly, the suit states that “The decision of whether to pay will be made by the Platte County Commission based on the law and the best interests of Platte County taxpayers, not the demands of a Trustee representing investors that accepted the risks of their investments.”

The County has already felt the ratings impact of its position losing its investment grade status in the face of its initial opposition to making payments. Moody’s said in association with its action that “the downgrade of the county’s GOLT rating to Ba1 from Aa2 reflects the county’s lack of willingness to fulfill a contractual obligation to make payments sufficient to pay principal and interest on the Industrial Development Authority of the County of Platte County, Missouri Transportation Refunding and Improvement Revenue Bonds (Zona Rosa Retail Project), Series 2007 (NR), and the amount of any deficiency in the bond reserve fund, if the Trustee has not otherwise received sufficient funds. The county’s lack of willingness to honor its intentions under the financing agreement with the Industrial Development Authority (IDA) represents a lack of willingness to pay on an obligation that supported debt issued in the capital markets.

WHY PEOPLE IN NY ARE UPSET ABOUT THE AMAZON DEAL

Where do we begin? Questions about whether or not Amazon even needs the subsidies to want to be in the center of finance and the center of political power for a start. The same week that the $1.7 billion package of inducements was announced, the MTA announced that it would increase bus and subway fares 4%. Why? A funding shortfall of some $1 billion annually. So let’s see – the Amazon deal increases the mass transit burden facing the city and state. The amount of subsidies would actually cover about 1.7 years of revenue shortfall. So why wouldn’t current residents wonder if the fares could have been maintained?

In theory, Amazon’s 25,000 incoming employees might wonder about things like schools for their children. Well Amazon has pledged to donate space at its new Astoria campus for a school. Not funding for its construction or operation – just space. Likely space to be obtained through eminent domain. Housing? The recent experience in Seattle is instructive regarding its effort to generate funding from the tech industry.

So if you live by the Amazon site say in the nation’s largest public housing project, you might ask: Will this deal generate resources to improve my home or will it continue to be without heat but with lead for the winter? Will my child have a chance to go to a modern school equipped in order to enable my child to get a job across the street at this employment behemoth? Lacking that will my neighborhood have better transportation so that my child and I can get to better educational and employment opportunities?

These are reasonable questions to be asked not a cover for NIMBYism. Especially in light of the really mixed results from many other subsidy schemes. They are questions which should be asked by the neighborhood but also by objective analysts of the plan (muni analysts).

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.

We try each week to provide the observations and commentary which we think will be most useful for all who make their living in the area of municipal credit. With a light calendar and the many distractions of Thanksgiving looming over the whole week, here is some helpful information to help with your Thanksgiving meal.

https://www.offthegridnews.com/how-to-2/how-to-raise-and-slaughter-turkeys-on-your-homestead/

Enjoy your weekend. We return next Monday.

Joseph Krist

Publisher

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ISSUE OF THE WEEK

What caught my eye this week was not the underlying credit stories behind some of the deals but the number of sizable in the water sector.  The condition of older water systems and threats to local supplies as the result of infrastructure deterioration will likely drive more rather than less difficulty with issue surrounding the state of repair of the infrastructure. This week Los Angeles, Philadelphia, and the New York State Revolving Fund all provide examples of the service needs of varying types of systems.

Los Angeles which is dealing with long term supply concerns, the impact of droughts (climate change), and a continued growth in population reflect those issues. Philadelphia must deal with the constant need for upkeep of physical plant to insure delivery reliability and water quality. The NYS revolving fund program allows smaller often rural systems a source of financing for their water infrastructure needs. A small NY community was in the news in recent months over contamination issues with the community’s drinking water supply.

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S&P EXPLAINS ITS RECENT CHICAGO RATING ACTIONS

It is understandable that a criteria change at a rating agency which results in a significant downward adjustment in ratings is frustrating to issuers and bond holders alike. The latest instance in which such an action has occurred is in S&P’s treatment of the sales tax revenue bonds. Late last month, S&P lowered the rating of Illinois’ Build Illinois senior- and junior-lien sales tax bonds to ‘BBB’ from ‘AA-‘.

When the Build Illinois bonds were first issued they were hailed as a way to provide a secure and lower cost credit that would be somewhat insulated from changes in the general credit standing of the State of Illinois. As the state’s overall credit fundamentals of the State deteriorated over time, Build Illinois bonds provided a bit of a safe haven for investors. With this criteria change and its attendant negative impact on ratings, this is no longer the case.

So what has changed? The criteria change reflects a view that deterioration in an issuer’s general creditworthiness can reflect a diminished capacity to make all payments, including debt statutory or contractual claim on revenues with a higher priority than competing claims. Priority lien ratings factor in the fundamental credit quality of the obligor, not solely the revenue stream pledged to the bonds. Under the new criteria, a priority lien rating is limited to a maximum of four notches above the obligor’s creditworthiness (captured in an issuer’s general obligation [GO] rating), and four notches can only be attained in limited circumstances.

S&P cites the fact that the issuing entity collects its own priority-lien revenue and the revenue is used for general operating purposes (i.e., there is no lockbox arrangement). Second, after the priority-lien obligations are satisfied, there is no meaningful limitation on the use of the revenues. S&P takes the view that the State’s funding of pensions was a violation of state law which raises concerns about willingness to pay, despite legal structures supporting payment of the Build Illinois bonds. S&P notes that Illinois would first look to local share sales tax revenue reductions or violations of state law in times of liquidity distress.

Nonetheless, despite the level of coverage (1.82x) and favorable history of funding debt service the rating on the Build Illinois bonds is now tied directly to that of the State. The rating on the bonds now will move in tandem with the State’s GO ratings. So much for the insulation from the State’s problems which the credit was designed to address.

As for the Chicago the Sales Tax Securitization Corporation (STSC), Ill.’s outstanding sales tax securitization bonds issued for the city of Chicago, a different view prevails. S&P cites the Illinois Public Act 100-0023 authorization for home rule municipalities to sell their interest in revenues or taxes received from the state of Illinois to special purpose entities. This is meant to insulate bond holders from operational risk associated with Chicago.

Illinois Public Act 100-0023 authorizes home rule municipalities to sell their interest in revenues or taxes received from the state of Illinois to special purpose entities. The Illinois Department of Revenue collects revenues and then passes them directly to the corporation or its bond trustee. There is a legal opinion that  once sales taxes are sold, they are no longer property of the city and would not be treated as such in a bankruptcy case.

PENSION CHANGES IN ARIZONA

In 2017, the state enacted legislation which made numerous changes to benefits offered under the Corrections Officer Retirement Plan (CORP). Many participating employees in the CORP hired after 1 July 2018 no longer receive defined benefit pensions, which will gradually reduce pension risks, for the state and other sponsoring governments, associated with investment performance and employee longevity.

In aggregate, participating employers in CORP must currently contribute 29% of payroll to the pension system, 21% of which is to amortize past unfunded liabilities. In comparison, employer contributions to the defined contribution plan are only 5% of payroll, with no risk of future unfunded liabilities developing. New cost-of-living adjustment (COLA) formulas will apply prospectively to current employees and retirees.

The key to these changes is their prospective nature. Making changes going forward typically gets around statutory and constitutional issues which speak to the diminishment of benefits for retirees. There usually is no prohibition against changes made on a going forward basis. So when we look at the debate around public employee pensions, we wonder why so many jurisdictions spend their time spinning their wheels trying to diminish vested benefits when they could take the immediate step of closing existing schemes and imposing new terms for new employees while adjusting benefits on a going forward basis.

Had these types of steps had been taken there would still be a significant problem requiring substantial resources in the future. The scale of the problem would not be as severe as it is. Jurisdictions which have taken the approach of tiered benefits schedules are better off than those which have not. Even a union friendly state like New York has successfully implemented tiered approaches to pensions without producing the adversarial approach which so many states and municipalities currently face.

WHEN LOSERS ARE WINNERS

In the aftermath of the apparent decision by Amazon to build new headquarters facilities in northern VA and in New York City, the notion of whether or not those cities which did not make the cut actually win in the long run has taken hold. Those who believe that the Amazon facilities would be at best a mixed blessing are noting that both markets are already facing significant negative impacts in the form of increased demand on already overburdened housing stocks and mass transit systems.

Both proposed sites have much in common in terms of location near major centers of finance and politics. They both have significant cohorts of educated and younger workers. The areas both have significant rapid transit infrastructure. Both of those transit systems are however, better known for their poor service and deteriorated infrastructure. The adjacent airports are both slot limited and, while the closet to their respective downtowns are also limited as to their scope of service due to their small size relative to current airport designs.

Only time will tell if the way to win this competition was to lose competitively. It will be interesting to watch.

“Health care was on the ballot, and health care won.”

This is true from just about any perspective. Medicaid expansion won in the three states with initiatives designed to accomplish the task. It also won in terms of the election of governors in states like Maine where outgoing governor Paul Le Page has fought requirements to expand Medicaid pursuant to a 2016 initiative. Kansas elected a Democratic governor who supports the expansion of Medicaid. While the Trump Administration will continue its assault on the Affordable Care Act, we believe that the ballot box will out.

So who benefits? The provider system which will always be better off if everyone has insurance. Any reduction in the reliance on the emergency room as the primary patient entry point to healthcare system is a credit positive. The hospital sector will step back on stage and allow the pharmaceutical industry to occupy center stage in the effort to control healthcare costs. With the Administration and Congress in broad agreement on the need to lower prescription drug costs, we would expect to see a legislative effort in that direction.

When hospitals return to center stage, issues like the restoration of disproportionate share (DSH) payments for rural and safety net providers. Small rural hospitals can hope to get some relief through state expansion of Medicaid and restored DSH payments. There is a real crisis in the rural healthcare space which is now a significant source of default in the healthcare sector.

CALIFORNIA REVENUES

State Controller Betty T. Yee reported the state received $6.57 billion in revenue in October, falling short of assumptions in the 2018-19 fiscal year budget by 5.9 percent, or $412.2 million. This month, sales tax was the only major revenue source to come in higher than projected in the enacted budget. Personal income tax (PIT) and corporation tax –– the two other revenue sources in the “big three” –– were lower than assumed in the enacted budget.

Four months into FY 2018-19, revenues of $35.28 billion are 3.0 percent ($1.02 billion) higher than projected in the budget enacted at the end of June. Total revenues for FY 2018-19 thus far are 8.1 percent ($2.63 billion) higher than through the first four months of FY 2017-18. Sales tax receipts of $1.03 billion for October were 8.2 percent ($77.9 million) more than anticipated in the FY 2018-19 budget.

For October, PIT receipts of $5.13 billion were 8.4 percent ($472.0 million) less than expected in the FY 2018-19 Budget Act. October corporation taxes of $254.8 million were 10.9 percent ($31.1 million) below FY 2018-19 Budget Act estimates.

CHARTER SCHOOLS FACE HEADWINDS

One under the radar issue is the potential impact on the charter school movement and industry in light of the revised post-election map. The turnover of seven governorship and an increase in Democratic Party control would seem to result in a slowing of momentum for the industry. In some states, the issue was a significant one in the governor races.

Wisconsin’s rejection of Gov. Scott Walker replaces him with a much more union and public education friendly governor. Illinois Governor elect Pritzker is in favor of slower creation of charter schools and the incoming governor in Michigan has explicitly opposed the policies (pro charter) of Michigan resident and education secretary Betsy deVos.

For charter school operators the potential for more regulation and transparency in terms of their results and finances is seen by some as an unwelcome burden. That is the most likely significant result of “regime change” at the state level. The new regulations could include more stringent requirement and supervision of the provision of facilities to accommodate the disabled.

 

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

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RURAL HEALTH

A Government Accountability Office report requested by U.S. Sen. Claire McCaskill reinforces our concerns for the rural hospital sector. The GAO found that although only about half of all rural hospitals are in states that didn’t expand Medicaid, 83% of the ones that closed from 2013 to 2017 were in those states. The data shows part of the story supporting voter initiatives which would seek Medicaid expansion under the Affordable Care Act.

Now the non-expansion state Kansas, is the site of another rural hospital closing. Mercy Hospital in Fort Scott is a 46 bed facility in eastern Kansas. Without expanded Medicaid these hospitals face a variety of pressures dealing with reimbursements and high rates of uninsured. Mercy Hospital says it spent $2.56 million in fiscal year 2017 on uncompensated care, as well as the traditional charity care write-offs it’s obligated to make to maintain nonprofit status. One estimate puts the benefit to Mercy of an expansion at an additional $2.7 million in revenue each year on average, according to the Kansas Hospital Association.

The current facility scheduled for closure opened in 2002. It has 230 employees who in 2017 admitted about 1,000 patients, performed about 1,500 surgeries and saw another 70,000 people on an outpatient basis. The hospital will close Dec. 31, including all inpatient services, the emergency department and ambulatory surgery.

Researchers from Northwestern Kellogg School of Management have found that hospitals in Medicaid expansion states saved $6.2 billion in uncompensated care, with the largest reductions in states with the highest proportion of low-income and uninsured patients. Consistent with these findings, the vast majority of recent hospital closings have been in states that have not expanded Medicaid.

There is not an initiative on the Kansas ballot regarding Medicaid expansion. It is seen as a major factor in the race for Governor. So while not a direct referendum on the issue, the Kansas governor vote can be grouped with the results of direct initiatives in Utah, Idaho, and Nebraska calling for Medicaid expansion.

CALIFORNIA PROPERTY TAX BALLOT INITIATIVES

The proposed California ballot initiative Proposition 5  amends the State Constitution to expand the special rules that give property tax savings to eligible homeowners when they buy a different home. Beginning January 1, 2019, the measure: allows moves anywhere in the State. Eligible homeowners could transfer the taxable value of their existing home to another home anywhere in the state.

It would allow the purchase of a More Expensive Home. Eligible homeowners could transfer the taxable value of their existing home (with some adjustment) to a more expensive home. The taxable value transferred from the existing home to the new home is adjusted upward. The new home’s taxable value is greater than the prior home’s taxable value but less than the new home’s market value.

It Reduces Taxes for Newly-Purchased Homes That Are Less Expensive. When an eligible homeowner moves to a less expensive home, the taxable value transferred from the existing home to the new home is adjusted downward. It also removes Limits on How Many Times a Homeowner Can Use the Special Rules. There is no limit on the number of times an eligible homeowner can transfer their taxable value.

According to the LAO, schools and other local governments each probably would lose over $100 million per year. Over time, these losses would grow, resulting in schools and other local governments each losing about $1 billion per year (in today’s dollars). Current law requires the state to provide more funding to most schools to cover their property tax losses. As a result, state costs for schools would increase by over $100 million per year in the first few years. Over time, these increased state costs for schools would grow to about $1 billion per year in today’s dollars.

The case for includes the view that as the measure would increase home sales, it also would increase property transfer taxes collected by cities and counties. This revenue increase likely would be in the tens of millions of dollars per year. Because the measure would increase the number of homes sold each year, it likely would increase the number of taxpayers required to pay income taxes on the profits from the sale of their homes. This probably would increase state income tax revenues by tens of millions of dollars per year.

RESILIENCE AS A CREDIT ISSUE

Austin, the Texas state capital, had to put into effect a boil water notice for all of its customers due to elevated levels of silt from last week’s flooding. This is the first time in the utility’s history that a notice of this kind has been issued for the entire system.  Nonetheless, the city was more concerned not with a surplus of water but with a real supply deficit. That is because the silty, debris filled river supplying Austin’s three water treatment plants is delivering more water than the plants may treat.

Normally, Austin Water can process more than 300 million gallons per day, but because of the extreme weather the utility was not able to process much more than 100 million gallons daily at the height of the flooding. Customers were asked to reduce water usage as much as possible.

This is a state capitol, home of the state’s flagship university, and a major economic center. So it is clear that resilience is an important issue as the city attempts to expand and modernize its economy.  Clearly, the greater frequency of major storms must be considered when any estimate of resilience is made. The likely solution is expansion of the regional flood management infrastructure. This will introduce extra costs onto the regional tax and economic base.

Meanwhile, The New York Academy of Sciences released the results of a study which reviewed the potential cost of climate change resilience for Los Angeles County. The report already has a high level of exposure to flooding (e.g. people, ports, and harbors), climate change and sea level rise will increase flood risk. The study covers a number of technical issues which we do not need to review here. What is important to us is the potential cost of resilience projects to manage this change. The research suggests three adaptation pathways, anticipating a +1 ft (0.3 m) to +7 ft (+2 m) sea level rise by year 2100. Total adaptation costs vary between $4.3 and $6.4 billion, depending on measures included in the adaptation pathway.

FLORIDA TOLL DISPUTE MOVES TO COURT

The Florida legislature passed the Florida Expressway Authority Act this and the previous summer which was designed to lower tolls on the state’s various toll roads. The legislation provides for a number of changes allowing for things like P3 partnerships but it also seeks to alter the process by which tolls may be raised. Included amendments, among other things, mandated a reduction in toll rates, limited the amount of toll revenue that can be used for administrative expenses, and changed auditing procedures.

Those changes in the ability of the individual issuers to raise revenues are now the subject of a lawsuit by the Miami Dade County Expressway Authority (MDX).  MDX alleges these tolling requirements should be rendered null, as they usurp authority granted to MDX via a transfer agreement signed in 1996. That agreement “granted to MDX full financial control” of the five expressways located in Miami-Dade County.

MDX is asking for a declaratory judgment that the amendments are unconstitutional. MDX claims that the toll provisions clash with non impairment provisions included in the bond resolution.

ATLANTIC CITY ON THE LONG CLIMB UP

Moody’s Investors Service has upgraded the City of Atlantic City, NJ’s Long-Term Issuer Rating to B2 from Caa3. The outlook remains positive. The upgrade is a positive notch in the belt of the state overseers managing the city’s finances. The mid-B rating still takes into account the city’s continued, albeit reduced, financial and economic distress. The agreement with the city’s casinos securing payments in lieu of taxes is a positive as is material budgetary improvements undertaken under State oversight.

The city still needs to further its economic diversity to reduce reliance on the casino industry. The gaming industry is still seeing new entities coming into the regional marketplace and those facilities while not achieving their projected operating results still serve as a source of serious competition for the marginal gaming dollar.

DOMINION OFFERS TO MANAGE SANTEE COOPER

Dominion Energy, a major Virginia investor owned utility, has offered to buy SCANA, the parent company of South Carolina E&G. That would place them in  the position of managing the Sumner nuclear expansion which was put on hold earlier this year. Now, Dominion is making an offer to the other major utility partner in the project – South Carolina Public service Authority (Santee Cooper) to manage Santee Cooper to help it save costs after the state-owned power company racked up $4 billion in debt on the failed nuclear project.

The letter including the proposal makes some bold promises. The offer would save Santee Cooper’s electric customers “hundreds of millions of dollars in overhead, fuel and capital related costs.” It purports to provide a vehicle to stabilize rates especially for large industrial and electric cooperative customers. Santee Cooper retail customers already pay an additional $5 monthly due to Sumner costs and face an additional $13 monthly until project related debt is retired.

Dominion claims that this proposal is superior to a sale of Santee Cooper to an investor owned utility. Dominion would not say whether the offer would stand if the Virginia-based power utility does not complete its proposed purchase of Cayce-based SCANA. According to the state, a handful of utilities privately have expressed interest in buying it.

The offer is a bit of an end run around the framework established by a South Carolina state committee charged with evaluating alternatives to the status quo. Dominion asked the S.C. Public Service Commission to reject Santee Cooper’s request for a $351 million payout if the Virginia-based utility is allowed to buy SCAN. Dominion claims that the arrangement would allow Santee Cooper to remain state owned, tax exempt and keep an “A+” credit rating.

BROWARD HEALTH MANAGEMENT UPHEAVAL

Broward Health which runs the former North Broward Health System has dismissed its chief counsel. The move comes as doctors complained that her office’s failure to get contracts through was costing the system essential physicians and Broward Health’s own chief executive complained about a “pervasive culture of fear” that the counsel helped create.

The board was a creation of outgoing Governor Rick Scott whose antipathy to the public provision of health services is well established. At the same time, five current and former Broward Health leaders indicted last year on charges of violating Florida’s open-meetings law. One of them is the departing chief counsel.

The counsel had angered board members with a series of investigations undertaken by outside attorneys whose fees were paid by the district. These investigations were seen as a part of an effort to discredit board members who oppose some of the Governor’s health policies. The period of oversight by the board – appointed by Scott – has included a massive federal fine, the suicide of its CEO, the decline of its bond rating and unending controversies and investigations.

The move to fire the counsel comes amidst charges that patient care has suffered, as physicians fled its hospitals and a failure to sign contracts on time cost the system necessary medical equipment. The negotiation and execution of contracts was under the purview of the counsel.

In the meantime, the district’s tax supported Baa2/BBB+.

MEDICAID UNCERTAINTY IN CALIFORNIA

The California State Auditor has released results of its payments that the Department of Health Care Services (Health Care Services) made from 2014 through 2017 because it failed to ensure that counties resolved discrepancies between the state and county Medi-Cal eligibility systems. Counties are generally responsible for determining Medi-Cal eligibility and for recording this information in their eligibility systems, which then transmit the beneficiaries’ information and Medi-Cal eligibility to the State’s eligibility system. Health Care Services uses the information from the State’s eligibility system to determine the amount that it pays for Medi-Cal beneficiaries.

Statewide comparison of Medi-Cal beneficiary eligibility data identified pervasive discrepancies between the state and county systems. Specifically, the analysis of 10.7 million Medi-Cal beneficiary records from December 2017 revealed more than 453,000 beneficiaries marked as eligible in the State’s eligibility system although they were not listed as eligible in the counties’ eligibility systems for at least three months. Upon examining the data for these beneficiaries from 2014 through 2017, we found that 57 percent of these discrepancies had persisted for more than two years. Many of these discrepancies resulted from Health Care Services failing to ensure that counties had evaluated the Medi-Cal eligibility of beneficiaries transitioning from other programs. One reason counties failed to complete those evaluations promptly was because of the implementation of the federal Patient Protection and Affordable Care Act which created a backlog of Medi-Cal applications and eligibility redeterminations.

It is not clear as to whether a County has any financial obligation as the result of these “overpayments”. If they do, then Los Angeles County is one to look at as some 50% of the questionable eligibility cases are concentrated there. Ironically, LA County is one of three who blame their eligibility problems on implementation of the Affordable Care Act. Effectively, the counties claim that the expansion created an unmanageable burden for them. State law gives the county of residence the responsibility for determining eligibility and providing ongoing case management; however, health care providers use the state’s Health Care Services’ records to authorize care.