Joseph Krist

Municipal Credit Consultant

CALIFORNIA

The May update of the budget proposed by Gov. Jerry Brown included  millions more dollars for the university system than he had originally proposed, in exchange for a tuition freeze for in-state students in the 10-campus system. The revised $115.3 billion budget plan ends a dispute between the Governor, who did not support a tuition increase and the president of the University of California. She had threatened to raise tuition unless the state gave more money to the schools. The plan freezes tuition for California residents over the next two years, while out-of-state tuition could increase by as much as 8 percent in each of the next two years and 5 percent in the third year.

The new plan, if approved would provide 4 percent increases in spending for the system in each of the next four years and provides $436 million for the system’s pension obligations. Last fall, the University of California’s regents approved annual tuition increases for in-state students of as much as 5 percent for five years. There has been pressure from the legislature to limit tuition and increase state support. One avenue of cost savings opposed by the system president is massive online open courses (MOOC) as a way to save large sums of money.

The plan also calls for university employees hired after July 2016 to choose between a pension with a defined contribution plan or a defined benefit plan capped at $117,000 per year, a significant decrease from the current cap of $265,000. Tuition and fees for in-state students is more than three times the rate in 2002 at $12,000 a year. The figure does not including room and board or other additional charges on some campuses.

Non-education provisions of the governor’s updated proposal include a new earned-income tax credit to help low-income workers.

PUERTO RICO

Puerto Rico Governor Alejandro Garcia Padilla and lawmakers agreed on a proposal to raise the island’s sales tax. The plan would raise the rate  to 11.5 percent from 7 percent for nine months, in a transition to implementing a value-added tax. The increase is estimated to generate $1.2 billion of revenue. Lawmakers also agreed to recommend $500 million in spending cuts as part of a $9.8 billion budget for fiscal 2016. Puerto Rico’s House of Representatives and Senate must vote on the plan. A sales-tax boost would be a temporary alternative to the governor’s proposal for a value-added tax applied at each level of production and distribution.

SAN DIEGO STADIUM PLAN DEBATE BEGINS

A mayoral committee Monday proposed a financial plan for building an approximately $1.1-billion NFL stadium in hopes of persuading the Chargers to stay in San Diego. The plan includes major public contributions – $121 million from the city of San Diego and $121 million from San Diego County – but not a tax increase.

The plan would also include $300 million from the Chargers, $200 million from the NFL, $173 million in construction bonds, $225 million from the sale to a developer of 75 acres at the site of the existing Qualcomm Stadium. It  includes asking the Chargers to pay $1 million per game in rent. The mayor hopes for negotiations with the Chargers to begin by June 1. If a deal can be struck, he said, negotiations will deal with when the public vote would be scheduled.

This plan competes with two rival stadium proposals which have been announced. One is in Inglewood from the owner of the St. Louis Rams and a plan announced by the Chargers and Oakland Raiders to build a joint-use venue in Carson. Officials in Inglewood and Carson have opted not to put the land-use proposals to a vote of the public. In San Diego, however, Mayor Faulconer has promised a public vote even though the funding plan does not require it. A tax-funded proposal would require a two-thirds vote for approval which is widely viewed as a political impossibility.

Putting the issue to a public vote might be the undoing of the plan. The NFL has warned that waiting to hold a vote until November 2016, the next general election, might mean that the city would be too late to persuade the team to remain. The mayoral committee, made up of nine civic leaders, had earlier recommended that the 166-acre, city-owned site in Mission Valley would provide the quickest and least expensive location to build a stadium. A Chargers plan for a stadium in downtown San Diego, near the waterfront convention center, was rejected as too expensive and too fraught with problems with multiple ownership.

To avoid a tax, the committee’s proposed city and county contributions would come not in lump-sum payments but as annual payments. The city, the committee suggested, would be able to redirect money that otherwise would be used for the upkeep of Qualcomm. Once built, the new stadium would be self-supporting, the committee report said. It would be home to the Chargers, the San Diego State Aztecs, the Holiday and Poinsettia Bowls and events including bar mitzvahs, weddings, proms, reunions, corporate gatherings, monster truck jams, music festivals and religious ceremonies, the mayoral committee suggested.

TRANSPORTATION FUNDING INCHES FORWARD

Like the traffic many of you will face this weekend, federal transportation legislation made a small bit of progress this week. The House on Tuesday approved a two-month extension of funding for transportation projects which would maintain funding for the Highway Trust Fund through July 31. The bill now goes to the Senate, which has just two legislative days left before a scheduled week long Memorial Day recess. The transportation program’s spending authority is set to expire during that break, on May 31.

The program has for years relied on fuel taxes that are no longer keeping pace with the nation’s transportation needs.  The last full plan expired in 2009. Federal gasoline and diesel taxes that provide most of the financing were last increased in 1993. There is little support for raising the fuel tax, so Congress needs to find an alternative source of funding. The fight over financing has forced Congress to pass numerous short-term extensions, often just before leaving town for recess. This would be the 33rd short-term extension in recent years.

The House bill faces some resistance in the Senate where Democrats said the short-term extension, perpetuates  uncertainty that has made it difficult for state and local officials to build and maintain infrastructure. The Obama administration released a statement shortly before the House vote saying it did not oppose the stopgap measure because more time was needed to come to a long-term agreement.

Some Republicans would like to pair consideration of a long-term highway bill with tax reform. But there is great skepticism that this could be accomplished within 60 days. The chairman of the Senate Committee on Commerce, Science and Transportation, said he was for a multiyear highway bill and raised the possibility of funding it while extending a series of business tax breaks that are renewed annually, known as tax extenders.

GAS TAX INCREASE

One state has chosen not to wait for Congress to act. In Nebraska, the state’s unicameral legislature overrode Gov. Pete Ricketts’ veto of a 6-cent-per-gallon gas tax increase to pay for road and bridge repairs. The increase would raise Nebraska’s total gas tax over four years to 31.6 cents per gallon and is estimated to generate an additional $25 million annually for the state and $51 million for cities and counties once fully implemented.

The bill received 30 yes votes — the minimum required; 16 senators voted against it. Sen. Jim Smith, the bill’s sponsor, said the gas tax remains the most effective way to pay for construction work to help improve road safety and the economy. “The need is great. The options are few. Waiting is not an option,” said Smith, a fiscal conservative who usually supports tax cuts. In a statement released after the override, Ricketts said the tax will hit low-income Nebraska residents hardest because they pay a larger share of their income on gas than wealthier drivers.

The legislature apparently agreed instead that the road situation has grown too large to address without additional revenue. In a 2014 report, the Department of Roads identified $10.2 billion in projects it says are needed over the next 20 years. Nebraska has more than 100,000 miles of roads and 20,000 bridges, mostly owned by counties and cities. Roughly 10,000 miles of road and 3,500 bridges belong to the state. The state’s share of Federal Highway Trust Fund money has fallen faster than the national average in recent years. Funding from the federal gas tax has declined for most states as vehicles became more fuel efficient and motorists cut back on driving.

The higher tax was cast the tax as a “user fee” because it’s only paid by motorists, including those from out-of-state. Smith said repairing roads and bridges would help save motorists money by reducing car maintenance costs.

 

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