Joseph Krist

Publisher

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We take this opportunity for indulging my interests as we go off for the Christmas holidays. We wish you a hopeful Christmas. We wish you a brave new year. All anguish pain and sadness, leave your heart and let your road be clear.

IMMIGRATION POLICY AND HIGHER EDUCATION

Total international student enrollment is level (0.0 percent change) among responding institutions. Similar to data from Open Doors 2018, the number of international students pursuing employment opportunities following their academic studies on Optional Practical Training continued to increase (+7.1 %), while the number of enrolled students declined (-1.7 %). New enrollment numbers continue to vary based on institutional characteristics and geographic regions with Associate’s and Master’s institutions, less selective colleges and universities, and the Midwest reporting steeper declines. Research universities indicate an uptick in new international student enrollment. 49 % of institutions describe a drop in new international student numbers. However, 44 % of institutions report an increase, and another 7 % indicate new enrollment was stable. Overall,responding institutions report a 1.5 % decrease in the number of international students enrolling for the first time at a U.S. institution, which indicates a third consecutive year of falling new enrollment. The drop is not as steep as the new enrollment decline in Fall 2017 (down 6.6 % according to Open Doors 2018).

Compared to Fall 2017, more institutions attribute Fall 2018 declines in new enrollment to problems with visa delays and denials (83 percent), the U.S. social and political climate (60 %), and student decisions to enroll in another country (59 %). The common thread linking these issues: immigration policy and attitudes. The unending focus on the “danger” posed by foreigners generally cannot be expected to have anything other than a negative impact on foreign demand.

HUD WILL CONTINUE ITS PLAN TO PRIVATIZE PUBLIC HOUSING

One of the quietist privatization efforts has been underway at the Department of Housing and Urban Development. There have been so many larger issues/scandals during the Trump Administration that efforts led by more low key cabinet members have been able to move under the radar in terms of low income housing policy.

His image may be based primarily on parodies (Trevor Noah crushes it) but HUD has been far from sleepy under the leadership of Dr. Ben Carson. One of his biggest “accomplishments” to date has been to steadily shepherd efforts to get the federal government out of the business of managing and funding low income housing. The more obvious methods of doing so have focused on some large situations (NYCHA comes to mind)which are characterized by a wide range of issues. These other issues – day today infrastructure; funding; and local politics – have successfully obscured HUD’s continuing efforts to shift public housing residents into private housing with Section 8 vouchers.

Carson has suggested raising tenant rents and has held listening tours to encourage more private landlords to accept vouchers as public housing complexes are sold or demolished. That arguably makes sense but only when there are facilities and landlords willing to accept Section 8 vouchers. Recent news has not been favorable regarding the acceptance of Section 8 vouchers.

One example of the push to privatize is the situation with NYCHA. Here HUD has quietly used the potential for direct federal supervision of NYCHA, the nation’s largest public housing agency. In order to fight off such supervision, the DeBlasio administration has revived a previously panned Bloomberg era idea to build market rate housing on open spaces and parking lots included in those properties’ footprints. The plan faces significant political and popular opposition.

In other places, HUD is planning to take projects under its receivership and determine if there are grounds to close those facilities. HUD has done so once before and is in the process of undertaking another such action presently. The current situation in Missouri would mark the second time that the agency has exited a receivership by abolishing a housing authority (the first was in Orange County, Texas, in 2004), and the first time HUD has proposed demolishing or selling all of the public housing complexes in the process.

We will see more of this as the agency’s inspector general prepares to send teams of agents out to examine dozens of “troubled” housing authorities nationwide, which it has never done before, officials said. It is a rough process involving evictions.

The troubled projects share characteristics including incompetent if not criminal management and crumbling infrastructure. Municipal market participants will have noticed a decline in issuance for repairs to public housing facilities. These financings were backed by payments from the federal government to local housing which levered those revenues to support municipal bond debt. That program has been hampered by consistent pressure to cut appropriations to the program as well as uncertainty in funding levels through their inclusion in the annual circus known as the federal budget process.

ANOTHER EFFORT TO PUBLICLY FUND PRIVATE SCHOOLS

The State of Montana operates a tax program designed to help to support private-school scholarships. Many are used for attendance at religiously operated schools.  The Montana Supreme Court struck down the state-run program that gives tax credits to people who donate to private-school scholarships, saying the program violates a constitutional ban against giving state aid to religious organizations.

The program giving tax credits of up to $150 for donations to organizations that give scholarships to private-school students amounts to indirect aid to schools controlled by churches. There is a ban in the Montana Constitution on any direct or indirect state aid to such schools, regardless of how large or small the amount is.

Initially a local judge issued an order last year siding with parents who argued that the program is constitutional because it doesn’t use state funds, only taxpayer money. The law was enacted in 2015 as an alternative to a school voucher program designed to give students who want to attend private schools the means to do so. Most private schools in Montana have religious affiliations, and more than 90 % of the private schools that have signed up with scholarship organizations under the program are religious.

The case marks a longstanding effort by religiously based and operated schools to obtain funding from states. I can remember being asked as a fourth grader to write a letter to the Legislature asking for money for books. It was only considered educational if it paid direct costs of which books were not one. This was in the mid 1960s so it isn’t like the internet was around to help if we didn’t get the books.Unsurprisingly, the effort failed as the arguments that the books were not part of education turned out to be unpersuasive. The more things change, the more they stay the same.

It is of interest here because it goes to the root of funding education. The effort to find workarounds to shift funding from public to non-public schools is continuing. Regardless of one’s views on the politics of the issue, the fact remains that every student who moves from public to private is one less source of state aid based on average daily attendance to the public and one more to the private. In the current environment, the supporters of state aid for religiously based schools will continue their campaign. Conflicts like this make school funding and overall budget adoption more complicated and therefore not supportive of credit.

HOSPITAL DSH MAY NOT BE PILED SO HIGH

It appears that the Medicaid and CHIP Payment and Access Commission (MACPAC) is willing to recommend that Congress slowly phase in disproportionate-share hospital (DSH) cuts that are slated to start in October. Congress hasn’t revised its DSH statute since 1992 despite all of the changes in the healthcare space over a quarter century.

MACPAC is considering a proposal for Congress to change how HHS should divide up the DSH payment cuts, as the program’s allotments vary widely among states. The draft recommendation suggested HHS would favor states with the highest total population of poor adults who don’t qualify for Medicare. A state that doesn’t spend its full allotment would see that money deducted from its share the following year. We note somewhat cynically that some of those states would do so as the result of refusal to expand Medicaid under the ACA. It would also incentivize actions to permit short-term insurance providing minimal coverage.

DSH payments are supposed to decrease by $4 billion starting Oct. 1. By October 2020 they will decrease by $8 billion. So even under the status quo, change would be coming. The current debate is over timing and absorption of the lower funding into hospitals’ overall financial position.The decline in these payments, like just about every other policy twist, will work against smaller providers and single site DSH providers. That remains a sector full of credit danger.

MTA WILL CATCH UNENDING BAD PRESS – BUT DOES IT MATTER TO THE BONDS?

As we move closer to the start of the longawaited 15-19 month shutdown of the Millenial Express (to we natives the Ltrain) tunnel connecting the flannel clad beards with their jobs in Manhattan. It is becoming clear that even if the Authority surprisingly completed its project on time and on budget. there will be much to antagonize all sides of the long term transit debate as various governmental agencies  as various governmental agencies seek to mitigate the closure. And the Authority received an early lump of ratings coal in the form of a negative outlook from Moody’s.

But the relevant question for investors is does any of this matter? It will be a brutal period filled with sad commute stories,whining about the impact on real estate, and potential economic interruptions for businesses on both sides of the East River. The MTA will have  little to do with that other than to focus on getting the job done right in the least amount of time.

What will actually be interesting is to see how the many interest groups and companies will position themselves to be beneficiaries of the “disaster”. They include bicycle proponents,anti-car activists, congestion pricers, TNCs, and the like.

MARIJUANA WILL GROW

The upcoming year could mark a turning point in the movement to legalize marijuana for recreation at the state level. Now that the election time is over, the potential for changes has become clearer. New Jersey is in the midst of debating a plan to legalize recreational use.  Recently, Governor Cuomo’s office has confirmed that “the goal of this administration is to create a model program for regulated adult-use marijuana. We expect to introduce a formal,comprehensive proposal early in the 2019 legislative session.”

The debate has seemed to be less about whether cannabis will be legalized but where and how. Those issues will be settled in part by how the expected revenue pie is to be divided. The timing reflects the expansion of legal cannabis to Vermont and now Massachusetts in the last year. In a kind of domino effect, as one state legalizes the next adjacent state seems to move towards it.

We anticipate that the move to legalize cannabis will continue. While some doctors argue about how much research has been done, medical marijuana patients success with cannabis is expanding support for the concept. Medical marijuana seems to be a testing ground for implementation of cannabis deregulation before the tide of public opinion drives approval.

TRADE WILL CONTINUE TO THREATEN JOBS AND REVENUES

The moves may be against tariffs but if the apparent replacement is “quotas”, then the impact on municipal revenues will still be negative. Steel quotas will not lower the cost of infrastructure projects. Less than hoped for relief from agricultural tariffs will alter planting plans, possibly be a basis for longer lasting loss of marketshare and income, drive costs higher thereby pressuring income, and add a level of revenue volatility which did not need to occur.

There are already signs that the trade war is dampening US economic performance. Clearly trade war fears are a significant factor in equity market volatility and performance. Weaker equity markets will hit both the revenue side of the income statement and contribute to underperformance versus pension fund benchmarks. this will require increased spending as well as weaken balance sheets.

PRIVATE HIGHER ED WOES WILL CONTINUE

The latest casualty in the battle by small independent colleges to survive financially, Newbury College in New England announced that it would close at the end of the 2018-2019 academic year. Newbury has been on probation with accreditors since the summer because of financial issues. The school has suffered for several years from declining enrollment. The college was founded in 1961 and has an enrollment of 620,according to U.S. News and World Report.

According to the school, it is”still exploring potential partnerships that would allow us to remain open, but the Board of Trustees and I have concluded that it is in the best interests of our students, prospective students, faculty and staff to notify them immediately, so they can make the best decisions for their future. Financial challenges, the product of major changes in demographics and costs, are the driving factors behind our decision to close at the end of this academic year. “

Newbury will not be the last to suffer this fate. The challenging demographic trends pointing towards an increasingly competitive environment in terms of recruitment will not change and the relative scarce resources available to fund that competition will perpetuate the spiral.

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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ISSUE OF THE WEEK

$1,720,000,000

New York State Personal Income Tax (PIT) Bonds

State Personal Income Tax Revenue Bonds are secured by a pledge of payments made pursuant to a financing agreement entered into by DASNY and the state Director of Budget, backed by a dedication of 50% of New York State personal income tax receipts and 50% of receipts of the ECEP. The Employer Compensation Expense Program (ECEP) established a new optional Employer Compensation Expense Tax (ECET) that employers can elect to pay if they have employees that earn over $40,000 annually in wages and compensation in New York State.

The state created security for the bonds through statutory dedication of personal income tax revenues and more recently, ECEP receipts. The comptroller is required to deposit personal income tax withholding receipts and ECEP receipts into the dedicated revenue bond tax fund (RBTF) in an amount equivalent to 50% of the state’s total monthly receipts from each tax. In addition to withholding, personal income tax receipts include estimated taxes, delinquencies, and final returns. Financing agreement payments are made from the RBTF to the trustees for debt service.

The state comptroller deposits the dedicated personal income tax and ECEP receipts into the revenue bond tax fund upon certification of revenues by the commissioner of the state’s Department of Taxation and Finance. The funds are set aside daily from withholding or ECEP receipts to result in 50% of PIT and ECEP receipts set aside monthly. There must be a legislative appropriation to pay debt service and the monthly financing agreement payments must be made in order for receipts in excess of debt service requirements to be transferred to the general fund and used for any other purpose.

The lockbox structure has been a proven winner in terms of credit for the State of New York. Additional security stems from the enabling act which requires the comptroller to transfer funds from the general fund to satisfy debt service requirements if appropriated and certified receipts set aside for the bonds are insufficient to make the certified financing agreement payments. The comptroller is empowered to do so without appropriation. However, if funds are insufficient to pay debt service on the state’s general obligation bonds, the comptroller is also empowered to direct first revenues of the state to that purpose. If those revenues are insufficient, the comptroller may transfer funds from the dedicated PIT or dedicated sales tax funds to pay general obligation debt service. 

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One of our recurring themes is that consolidation remains a significant credit factor in the hospital sector. While it is not determinative, size is one way to mitigate credit risk as those entities with larger and stronger balance sheets remained the best positioned to withstand the various winds of change buffeting the industry. So to that end, here is a list of the 15 largest (by number of hospitals) non-profit hospital systems in the US.

1. Ascension Health (St. Louis) — 76 Aa2
2. Trinity Health (Livonia, Mich.) — 45 Aa2
3. Kaiser Permanente (Oakland, Calif.) — 37 AA-
4. Dignity Health (San Francisco) — 36 A3
5. Catholic Health Initiatives (Englewood, Colo.) — 33 Baa1
6. Adventist Health System (Winter Park, Fla.) — 31 A
7. Sutter Health (Sacramento, Calif.) — 26 Aa3
8. Providence Health and Services (Renton, Wash.) — 26 Aa3
9. Northwell Health (Great Neck, N.Y.) — 21 A3
10. Banner Health (Phoenix) — 20 AA-
11. Baylor Scott & White Health (Dallas) — 19 Aa3
12. CHRISTUS Health (Irving, Texas) — 19 A1
13. SSM Health Care (St. Louis) — 18 A+
14. Intermountain Health Care (Salt Lake City) — 17
15. Mercy Health (Cincinnati) — 17 A

The credits are all rated in at least the A category with the exception of one which has always been characterized by above average leverage. The larger systems tend to have balance sheets with significant resources to survive as they navigate mergers and expansions and changes in reimbursement. We are not surprised by the correlation.

LESS HEALTHCARE CONTROL FOR STATES

Certificates of Need were a significant tool used in the healthcare space to limit uncontrolled and eventually wasteful spending on health delivery facilities like hospitals and nursing facilities. In an era when efficiency is at the core of nearly every aspect of the provision of healthcare and its finance. While they have their detractors, there has largely been little public support for building additional hospital facilities. Current trends in the industry towards consolidation would seem to indicate a market view that the current rate of capital expansion works.

So it is interesting that in the face of those trends, The US Department of HHS’ new report about ways to improve “choice and competition” in the U.S. health care system includes repealing state laws that require providers to ask for permission to build new facilities.  Some observers believe tha tthe Administration might use requests for waivers as a vehicle for pressuring repeal on states.

The effort to repeal CONs is generally considered to be a conservative issue. Repeal would theoretically allow for the opening of more independent free standing facilities privately owned by physician groups.  These facilities have had checkered financial and health related outcomes so their revival would be an issue from a credit perspective.

WHILE HEALTHCARE SPENDING SLOWED DOWN

Overall national health spending grew at a rate of 3.9 % in 2017, almost 1.0 percentage point slower than growth in 2016, according to a study conducted by the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS). Medicare spending grew at about the same rate in 2017 as in 2016, while Medicaid spending grew at a slower rate in 2017 than in 2016. According to the report, overall healthcare spending growth slowed in 2017 for the three largest goods and service categories – hospital care, physician and clinical services, and retail prescription drugs. 

Hospital spending (33% of total healthcare spending) decelerated in 2017, growing 4.6 % to $1.1 trillion compared to 5.6 % growth in 2016. The slower  growth for 2017 reflected slower growth in the use and intensity of services, as growth in outpatient visits slowed while growth in inpatient days increased at about the same rate in both 2016 and 2017.

Physician and clinical services spending (20 % of total healthcare spending) increased 4.2 % to $694.3 billion in 2017. This increase followed more rapid growth of 5.6 % in 2016 and 6.0 % in 2015. Less growth in total spending for physician and clinical services in 2017 was a result of a deceleration in growth in the use and intensity of physician and clinical services.

Retail prescription drug spending (10 %of total healthcare spending) slowed in 2017, increasing 0.4 % to $333.4billion. This slower rate of growth followed 2.3 % growth in 2016, which was much slower than in 2014, when spending grew 12.4 %, and in 2015, when spending grew 8.9 %. These higher rates of growth in 2014 and 2015 were primarily the result of the introduction of new, innovative medicines and faster growth in prices for existing brand-name drugs. Retail prescription drug spending growth slowed in 2017 primarily due to slower growth in the number of prescriptions dispensed, a continued shift to lower-cost generic drugs, slower growth in the volume of some high-cost drugs, declines in generic drug prices, and lower price increases for existing brand-name drugs.

Closer to the hearts of municipal analysts are the subjects of Medicare and Medicaid.  Medicare spending (20% of total healthcare spending) grew 4.2 percent to $705.9 billion in 2017, which was about the same rate as in 2016 when spending grew 4.3 %. In 2017, slower growth in fee-for-service Medicare (Medicare FFS) spending (1.4 % in 2017 compared to 2.6 % in 2016) offset faster growth in spending for Medicare private health plans (10.0% in 2017 compared to 8.1 % in 2016). The trends in Medicare FFS and Medicare private health plan spending are attributed in part to an increasing share of all Medicare beneficiaries enrolling in Medicare Advantage.

Medicaid spending (17 % of total healthcare spending) growth slowed in 2017, increasing 2.9 % to $581.9 billion following growth of 4.2 % in 2016.  The slower growth in total Medicaid expenditures in 2017 was influenced by a deceleration in enrollment growth and a reduction in the net cost of Medicaid health insurance resulting from an increase in recoveries from Medicaid managed care plans for favorable prior period experience. State and local Medicaid expenditures grew 6.4 %, while federal Medicaid expenditures increased 0.8 % in 2017.  In 2017, states were required to fund 5 % of the costs of the Medicaid expansion population, while in prior years these costs were funded entirely by the federal government.

In 2017, the federal government’s spending on healthcare slowed, increasing 3.2 % after 4.9 % growth in 2016. The deceleration was largely associated with slower federal Medicaid spending due to lower Medicaid enrollment growth, a reduction in the federal government’s share of funding for newly eligible Medicaid enrollees, and a decline in the net cost of insurance for Medicare and Medicaid enrollees in private plans in 2017. 

CALIFORNIA AND PENNSYLVANIA NOVEMBER REVENUES

State Controller Betty T. Yee reported the state received $9.69 billion in revenue in November, exceeding projections in the 2018-19 fiscal year budget by 15.1 %, or $1.27 billion. Personal income tax (PIT), sales tax, and corporation tax –– the state’s “big three” revenue sources –– all were higher than expected in the enacted budget.

For the fiscal year, revenues of $44.97 billion are 5.4 % ($2.29 billion) higher than projected in the budget enacted at the end of June. Total revenues for FY 2018-19 thus far are 9.8 % ($4.02 billion) higher than through the same five months of FY 2017-18.

For November, PIT receipts of $5.96 billion were 22.3 % ($1.09 billion) more than expected in the FY 2018-19 Budget Act. Sales tax receipts of $3.52 billion for November were 12.4 % ($388.4 million) greater than anticipated in the FY 2018-19 budget.
November corporation taxes of $26.9 million were 2.8 %higher than FY 2018-19 Budget Act estimates. 

The Commonwealth of Pennsylvania’s Department of Revenue reported that year-to-date through November revenue collection in the state general fund had reached $12.4 billion for fiscal 2019, which started  July 1. The growth in total general fund revenue is the highest the state has recorded in almost 10 years. Current year revenue collection is trending 2.8%higher than the state had forecast through November of this fiscal year. Income taxes and sales taxes are growing at rates higher than in most years of the current decade. These are the two largest sources of General Fund revenue to the Commonwealth. Income taxes through November are below forecast, but only by 1.4%. Sales taxes are 3.1% higher than the state anticipated through November and up 9% relative to the same time last year.

How enduring a trend this is may be subject to question. Like many other states, federal tax law changes increased the pool of available taxable income. Businesses may have shifted some income from last year to this year to take advantage of the lower federal tax rate. The Commonwealth changed the way corporations report net income, which the state estimated would moderately increase corporate tax revenue.

Underlying all of this is a clear improvement in many of Pennsylvania economic performance metrics. While there has not been a significant improvement in Pennsylvania’s long-term manufacturing outlook,increases in healthcare employment (especially around the state’s medical centers Philadelphia and Pittsburgh) are generating higher incomes. It is also not a sign of significant budget improvement as FY 2018 showed a small surplus in the Commonwealth budget. This after the Commonwealth bonded out the previous accumulated deficit.

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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ISSUE OF THE WEEK

MUNICIPAL ELECTRIC AUTHORITY OF GEORGIA

$245,000,000

$175,000,000* Power Revenue Bonds

$70,000,000* General Power Revenue Bonds

Moody’s A1  Fitch A-

In the midst of ongoing dispute and litigation between and among owners of the Votgle expansion units, MEAG comes to the market with refunding bonds. According to Moody’s, these bonds have “the strongest bond security provisions versus peer agencies in the U.S.”. MEAG is unusual in that its participants have also pledged their general obligation to levy unlimited ad valorem taxes in order to meet their contractual obligations to MEAG. The contracts have been court tested and validated in the State of Georgia.

The bonds from this issue are refunding bonds. The refunded debt matures in 2026 but the refunding generates savings for the Authority by extending maturity. So while the refunding lessens the near term pressure on the participants, it offsets some of the benefit by extending the life of the liability. The extension exposes MEAG to greater risk from major regulatory changes or delays which push up costs significantly at MEAG Power’s existing generation facilities thus causing MEAG Power participants to question contract terms and affect their compliance.

Our issue with the credit has to do with concerns that substantial additional cost increases and delays will erode rate payer support for the credit. Yes the legal provisions are strong but legals which are not supported by strong underlying economic fundamentals are not enough to offset the economic issues. Legal provisions let you know where you are in line at bankruptcy court but they don’t magically create money.

What happens if JEA is successful in its efforts to extricate itself from its obligations to pay for now unwanted nuclear capacity? According to Moody’s, this risk is mitigated by the fact that in the case that JEA defaults on its obligation, MEAG Power would still be required to fund future construction costs related to what Project J had been scheduled to finance due to its 22.7% ownership interest. Provisions in a new agreement with GPC provide for up to $300 million of financing capacity to help address this worst case situation.

Additionally MEAG Power and its participants could decide to use available internal liquidity or access external liquidity to fund such a funding requirement. in the case that JEA defaults on its obligation, MEAG Power would still be required to fund future construction costs related to what Project J had been scheduled to finance due to its 22.7% ownership interest. Provisions in a new agreement with GPC provide for up to $300 million of financing capacity to help address this worst case situation. Additionally MEAG Power and its participants could decide to use available internal liquidity or access external liquidity to fund such a funding requirement.

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HOSPITAL MERGERS AND ACQUISITIONS

The California Department of Justice has given conditional approval to the ministry alignment agreement between Dignity Health and Colorado-based Catholic Health Initiatives. The resulting organization, CommonSpirit Health, will operate nearly 140 hospitals in multiple states, including 30 hospitals in California.

CommonSpirit Health is required to maintain emergency services and women’s health services for 10 years. The new entity must also create a health initiative to help homeless patients.

Community Health Systems, Inc. (NYSE: CYH) announced that subsidiaries of the Company have signed a definitive agreement to sell four South Carolina hospitals – 82-bed Chester Regional Medical Center in Chester, 225-bed Springs Memorial Hospital in Lancaster, 396-bed Carolinas Hospital System in Florence, and 124-bed Carolinas Hospital System – Marion in Mullins – along with related businesses, including physician clinic operations and outpatient services, to the Medical University Hospital Authority in Charleston, S.C.(A1 by Moody’s)

In calendar year 2017, the four hospitals combined delivered care through more than 129,000 emergency department (ED) visits, 159,000 outpatient visits (excluding ED visits), 18,800 hospital admissions, and 339,000 clinic visits with physicians. Once the acquisition is completed, MUSC will employ more than 16,400 team members throughout the state. MUSC is the South Carolina’s only comprehensive academic medical center. Founded in 1824, the university is located in Charleston and has awarded more than 36,000 degrees over its history.

The university includes six colleges with more than 1,700 faculty members and awards degrees in 50 specialties. MUSC includes University Medical Associates, a group practice for faculty and clinical professionals and MUSC Foundation, a fundraising organization that also aids in management of endowed funds. The academic medical center also includes Medical University Hospital Authority which owns and operates an over 700 bed full service hospital. When combined the organizations had operating revenue of over $2.3 billion in FY 2016. The medical center is an NCI-designated Cancer Center and Level 1 Trauma Center.

The Massachusetts attorney general approved the merger between Beth Israel Deaconess Medical Center and Lahey Health with various conditions. The combined system will be barred from raising prices beyond the state’s own healthcare cost growth benchmark, which is currently set at 3.1%. It must also participate in the state’s Medicaid program indefinitely, increase access to mental health and substance use disorder treatment and funnel significant investments to its safety net hospitals and programs.

Looking at it from an investment standpoint, the deal should be positive. The Massachusetts​ Health Policy Commission has said that BILH’s market share would nearly equal that of Partners HealthCare System (Partners), market concentration would increase substantially, and BILH would have significantly enhanced bargaining leverage with commercial payers.”

QUESTIONABLE NUMBERS FROM PUERTO RICO AGAIN

The Financial Oversight and Management Board for Puerto Rico announced that after its review of the pension forecasts and projected PayGo payments in the new fiscal plan it had certified on Oct. 23, it concluded that the pension forecasts and projected PayGo payments through fiscal year 2058 were understated by $3.35 billion. The revisions to the existing pension forecasts result in “no net material impact during the first 20 years of the projections (through 2038), and are concentrated in the last 20 years of projections (2039-2058),” according to the board.

The board said it will “further refine” the pension forecasts and projected PayGo payments after it “receives and analyzes more accurate information from the actuaries for the Commonwealth’s pension plans in the coming months.” It is yet another example of what can be so maddening about the effort to restructure the Commonwealth’s debt.

Now there are complaints from some quarters in Puerto Rico about the fact that Congress has been making suggestions to the fiscal oversight board about what actions could or should be take. It continues to astound that there is a view that when one asks for a financial bailout that the party being asked to provide the resources is not entitled to have input over how the funds are spent. In this case, some are objecting to the suggestion that PREPA be privatized. I have always compared this to a child asking a parent for money and then objecting to any strings being attached. One pretty much goes with the other.

It’s not condescending or taking a colonial attitude to want to make some suggestions as to how resources are expended especially when the funding is not generated locally. The unwillingness on the part of multiple administrations in Puerto Rico to admit that there was anything wrong is a large part of the story of how they got in the position in which they find themselves today. I have asked various representatives on multiple occasions about why cities like D.C. and New York had to accept restrictions and oversight in return for outside financial help but that somehow the idea of controls and oversight should not apply to Puerto Rico. We are still waiting for an answer.

REALITY BITES

The outgoing Governor of Maine has made the fight against Medicaid expansion in the Pine Tree State a centerpiece of his administration. Despite being term limited and being replaced by a pro-expansion candidate, he continues to fight on in court against being compelled to expand Medicaid under the ACA. This despite the fact that Maine’s voters approved expansion in a vote. Voters approved Medicaid expansion — a key component of the Affordable Care Act — 59 to 41 percent in the 2017 referendum.

The Maine Department of Health and Human Services requested a stay of a judge’s order that would compel the LePage administration to move ahead with Medicaid expansion. The judge hearing the case had ordered that Maine DHHS had to implement expansion by Dec. 5.  The LePage administration argues that because the federal government has yet to approve the state’s expansion plan, Maine would be at risk of paying the full cost of expansion from July through December, instead of 10 percent of the cost as required by the Affordable Care Act.

Medicaid expansion will cost state taxpayers about $50 to $60 million per year, but Maine will receive more than $500 million annually in federal funds to help pay for health care for newly-eligible Medicaid enrollees. The incoming Governor intends to implement expansion as one of her first official acts.

SMALL STEPS OF PROGRESS IN CYBERSECURITY

Two Iranian nationals were indicted by a federal grand jury for crimes in their connection with cyberattacks over recent months and years which affected a number of governmental and non-profit entities. The two men collected more than $6 million in ransom payments and caused $30 million in damages in attacks that began in December 2015.

“These defendants allegedly used ransomware to infect the computer networks of municipalities, hospitals, and other key public institutions, locking out the computer owners, and then demanded millions of dollars in payments from them”, according to federal prosecutors. Who are some of the victims? Hollywood Presbyterian Medical Center in Los Angeles; Kansas Heart Hospital; MedStar Health in Maryland; Nebraska Orthopedic Hospital; and Allscripts Healthcare Solutions in Chicago .

Atlanta, Newark, the Colorado Department of Transportation and the University of Calgary were among the government agencies attacked. The Atlanta and Colorado attacks were well publicized and this is the first reference we have seen regarding the source of the Atlanta attack which is one of the most extensive so far in terms of municipalities.

While a step forward on the law enforcement front, the news should serve as a warning to other municipal entities. It also reinforces the notion that cybersecurity is and should be a source of increased inquiry and analysis and hopefully will support the efforts of by some investors to press for far more disclosure about the risks of cyber attacks  against municipal credits.

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