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Muni Week Review / Preview 3/28/2016

Monday, Mar 28, 2016

CONSENSUS EMERGING ON PUERTO RICO AID BILL. CHICAGO NEEDS NEW WAYS TO SHORE UP PENSIONS. GOVERNOR CHRISTIE SAYS ‘NO’ TO UNION POLITICS. PENNSYLVANIA BUDGET IMPASSE MAY END SOON.

Consensus Emerging on Puerto Rico Aid Legislation… House Republicans have drafted aid legislation that would likely create a “powerful” control board, and have authority to facilitate court-supervised debt restructuring where necessary, if terms of a voluntary reorganization couldn't be met. It seems to be the type of package that may garner bipartisan support and with alterations can get enacted by early summer. Details remain fluid as the Puerto Rico Oversight, Management & Economic Stability Act (PROME-SA) makes its way through Capitol Hill. Taken straight out of a 1995 law that imposed federal oversight on Washington D.C., proposed House legislation to help Puerto Rico does not give Puerto Rico broad bankruptcy authority. It appears a five-member oversight board designed to audit the commonwealth and create new budget plans would decide whether or what amount of debt restructuring is necessary. Certain conditions would have to be met before the board could proceed with debt restructuring, including mediation among various debtors and creditors, audited financial statements and a fiscal plan and budget. If a consensual solution can’t be reached, the board would have the power to file for restructuring in federal court on behalf of the commonwealth, through a territorial bankruptcy proceeding to be established pursuant to PROMESA. In any such case, there must be audited financial statements in place, as well as a balanced budget and long-term fiscal plans. Lawmakers are also considering safeguarding Puerto Rico from legal action by temporarily prohibiting creditor lawsuits. All Board members would be appointed by the U.S. president, and at least two of them must reside or do business on the island. A Chief Management Officer would be named to assist the board in fulfilling its responsibilities. Under the Oversight Board, a Revitalization Coordinator will nominate infrastructure projects for federal review in consultation with the Governor and Commonwealth agencies. Governor Padilla voiced concerns about granting too much power to the federal board while Puerto Rico’s Resident Commissioner Pedro Pierluisi said that it was unreasonable to expect Congress to grant Puerto Rico debt restructuring authority without requiring fiscal over-sight adding “This bill can and will evolve.” Legislation to help Puerto Rico with its economic woes won’t be acted on until after lawmakers return from their Easter break on April 12, House Speaker Paul Ryan tells reporters, “The Natural Resources Cmte is doing a very good job working on this issue. They’re on track. They’re off by a week because of the Easter recess.” On April 13, a House Natural Resources Committee hearing on legislation that would help Puerto Rico is anticipated. PROMESA puts the federal oversight board in charge until five consecutive years of balanced budgets and market access are in place. Bipartisan talks are ongoing and changes as well as additions to the draft bill are expected.

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Puerto Rico Recovery Act Hearing… There was a mixed reception from the U.S. Supreme Court for the Puerto Rico Recovery Act at an hour-long hearing. The Recovery Act, proposed by Puerto Rico seeking to force a debt restructuring on bondholders, has been struck down twice. A federal appeals court said a U.S. bankruptcy law bars Puerto Rico from setting up its own debt-restructuring system. Bondholders, including Blue-Mountain and Franklin Resources, oppose the Act. Only seven justices will rule on the appeal after Samuel Alito's recusal and Antonin Scalia's death. At least some of the justices were still formulating their views, and the case ultimately may divide the court. If the Supreme Court should favor Puerto Rico, which is unlikely, there will be lawsuits as contract law and bond indentures would be broken.

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PREPA Update… Puerto Rico Electric Power Authority creditors agreed to give officials until March 30 to submit their petition to implement a new customer fee, called a securitization charge, to the Puerto Rico Energy Commission. The commonwealth’s three-member energy commission will have 75 days to weigh in on the new fee once it’s submitted. To keep matters out of court, bondholders agreed to a consensual deal under which some 70% of investors agreed to take a 15% loss by swapping their legacy bonds for new bonds to be repaid by the proposed securitization charge.


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Chicago Pensions Update… “My administration will continue to work with our labor partners on a shared path forward that preserves and protects the municipal and laborers’ pension funds, while continuing to be fair to Chicago taxpayers and ensuring the City’s long-term financial health,” Mayor Emanuel said as his plan to ease Chicago’s public pension deficit was struck down by the Illinois Supreme Court as unconstitutional. The Mayors’s plan required the city and employees to boost contributions to the municipal and laborers’ retirement funds and cut future cost-of-living increases. The court ruled that it violated safe-guards to public pensions enshrined in Illinois’s constitution, illustrating the difficulty Chicago faces in reducing a $20 billion debt to its retirement funds. Citing Chicago’s diverse economy and growing property values, a Nuveen analyst said, “They have time and they have the resources to work this out. I think other reform models that could pass muster are still being worked on.” Asking state lawmakers to back his agenda of limiting unions Illinois Governor Rauner said, “I’m not going to bail out Chicago, but our reforms structurally will allow Chicago to solve a lot of its own prob-lems.” Chicago is the lowest rated major U.S. city (Moody’s Ba1, S&P BBB+, Fitch BBB-).


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No To ‘Union Politics’ Says NJ Governor Christie… The Governor opposes putting the interests of unionized power ahead of taxpay-ers. Denying a short term bridge loan of $8.5 million to Atlantic City, Governor Christie said he can’t fix the city’s finances with “one hand tied behind my back.” Through state control of New Jersey finances, New Jersey’s Republican Governor and Senate Democratic leader Stephen Sweeney want to put an end to unions’ collective bargaining rights. Okay with personnel changes but wanting to preserve collective bargaining agreements, Assembly Speaker Democrat Vincent Prieto is stalling the bills. “If he would put the bill up, between Democrats and Republicans, there would be enough votes,” urged Assembly Majority Leader Lou Greenwald, also a Democrat. Come April 8, Mayor Guardian will be forced to shut down city nonessential services for a month unless lawmakers reach agreement. Looking to save the junk-rated city from bankruptcy, the Assembly Majority Leader said, “Does it matter if it has collective bargaining, or does it matter that the city is losing money and can’t pay its bills? This is about fixing the city’s financial troubles.”


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Pennsylvania Nears Budget… “It’s time to move on. The real battle is in the 2016-17 budget. I’ve convinced myself this is the right thing to do,” said Governor Tom Wolf, as the first term Governor ended an eight-month long budget stalemate, the longest in history. Republican controlled state legislature pushed back the Governor’s tax hike plan in favor of adjusting state worker benefits to ease pension underfunding. The budget deadlock, which meant ratings downgrades for PA schools, community colleges and agencies dependent on state funding, is seeing light at the end of the tunnel.

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Local Governments’ Tax Base Growth… 2014 full value medians reflect the stabilization of property values for cities, counties and school districts following several years of declines. Medians for fund and cash balances as a percent of revenue will remain stable as year over year growth has leveled off following consecutive years of increases after the recession. However, net pension liabilities continue to grow and will remain a long-term drag on the sector.

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Muni Bond Sales Decelerate… Municipal bond sales are set to decrease in the next month while the amount of redemptions and maturing debt rises. States and localities plan to issue $5.9 billion of bonds over the next 30 days per Bloomberg. Municipalities have announced $7.6 billion of redemptions and an additional $8.4 billion of debt matures in the next 30 days. Issuers from New York have the most debt coming due with $1.18 billion, followed by California at $1.07 billion and Massachusetts with $649 million.

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Information obtained from sources deemed reliable; GMS does not purport Review/Preview contains all available information.

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