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Muni Week Review / Preview 11/16/2015

Monday, Nov 16, 2015

PUERTO RICO SAYS DECEMBER DEBT SERVICE PAYMENT HIGHEST PRIORITY. DECEMBER 1 U.S. JUDICIARY HEARING ON PUERTO RICO. TEXAS MUDS SELL AT RECORD PACE.

PR Dec. Debt Payment a High Priority... The President of GDB, Melba Acosta, was emphatic that December and January debt service payments be considered the highest priority. “The debt of January and December is the most significant debt and we must do everything possible to pay,” said House President Jaime Perello a member of the Governor’s political party. Moody’s has said that some GDB debt may not be paid based on reviewing recent financial filings containing actual cash balances through September and projections. Acosta also said the government would present a proposal for restructuring debt to municipal bondholders on either November 18/19. The Governor has stated that if bondholders do not agree to new terms, he will choose to pay for the needs of Puerto Ricans before paying creditors. In the recent past the Governor has made misleading and contradicting statements and his words are now taken with a grain of salt. Such a scenario could put him at odds with Section 8 of the Puerto Rico Constitution “In case the available revenues including surplus for any fiscal year are insufficient to meet the appropriations made for the year, interest on public debt and amortization thereof shall be paid first and other disbursements shall thereafter be made in accordance with the order of priorities established by law.” The GDB President has stated “The critical date is December 1, and we are evaluating alternatives,” Melba Acosta said on Tuesday’s testimony to a House Committee. Melba Acosta warned the legislature that failure to pay December debt service could bring further complications because it is constitutional debt guaranteed by the government of Puerto Rico.

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U.S. Judiciary Hearing on Puerto Rico… Senate Judiciary Committee headed by Chairman Sen. Grassley will hold a Dec 1 hearing on the fiscal crisis in Puerto Rico. The hearing will examine causes of the Island’s fiscal problems, discuss what’s currently being done and consider available options to address the situation. Sen. Grassley has said restructuring debt and throwing taxpayer money at the island, without ensur-ing the creation and implementation of structural and fiscal reform, fails to resolve the underlying problems required to create economic growth. Chapter 9 doesn’t take care of the problem because the political environment doesn’t foster growth. Grassley says he is waiting for some good faith effort by Puerto Ricans; “you can’t have 24% of the workforce on the public payroll and expect economic development.” Sen. Orrin Hatch, Finance Committee Chairman, says a Federal Fiscal Control Board is among the senate’s options.  Democrat Sen. Chuck Schumer told reporters he may support a Federal Control Board if  bankruptcy pro-tection for Puerto Rico government agencies is included. Energy and Natural Resources Committee Chairman Sen. Lisa Murkowski has said the senate would like to help Puerto Rico, but audited financials, that are almost 2 years late, are necessary to define the extent of the island’s financial crisis.

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Puerto Rico Fiscal Oversight Board… To build trust and credibility with investors, Puerto Rico Senate approved a bill to create an economic recuperation and fiscal oversight board with limited powers. Unlike a Fiscal Control Board, the board will certify or endorse, rather than control the island’s fiscal practices. The fiscal oversight board does not have decision making powers that will remain with the legislative assembly. The Oversight Board will review and validate data and monitor tax processes as well as monitor and evaluate actions of the Governor and Legislature. Governor Padilla’s proposal which sought to create a five-member independent board in charge of approving the government’s five-year fiscal and economic growth plan and future budgets was significantly watered down as lawmakers neither granted supremacy to fiscal responsibility laws nor empowered the board to approve budgets for Puerto Rico’s government agencies. GDB president Melba Acosta warned the legislature a watered down version of a Puerto Rico imposed Fiscal Oversight Board could send the wrong message to the U.S. Senate and investors.

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Texas Municipal Utility Districts Sell at Record Pace… With its population growing more than any other state, Texas MUD bonds  are a draw to muni buyers looking for higher returns as yields on muni bonds hold near a five year low. MUD bonds are paid through a special tax levied on the property. The key for investors is the developer who pays the cost of infrastructure up front and doesn’t get reimbursed until the district has tax paying homeowners to pay the debt. Over 80% of Municipal Utility Districts are in the Houston area where property values within the districts have increased from $300 billion in 2007 to over $500 billion. Conroe, Texas, voters approved $468 million of bond sales which will take place over several years. Developers will transform the pinelands around a former Boy Scout camp into a sprawling community. Texas Municipal Utility Districts are on pace to sell more than $2.5 billion bonds this year, the most since 2007. The GMS Houston office is the financial advisor to over 100 districts in the Houston area and a leading underwriter of Texas Municipal Utility District bond issues.

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Atlantic City Update… Asking lawmakers to come up with a plan that “addresses the continuing structural deficit in a manner that does not merely shift the city’s obligations to the state” Governor Christie conditionally vetoed key parts of an Atlantic City rescue package approved by the NJ legislature in June to close a $101 million deficit this year.  Christie signed a bill in the relief package that authorizes supplemental school aid to the Atlantic City School District. The Governor made changes to bills allowing the New Jersey local finance board to collect casino revenue to be released to Atlantic City dependent on the city’s fiscal progress.

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Pennsylvania Budget Deal on Track… PA lawmakers anticipate agreement on a $30 billion spending plan by next week. The budget is likely to boost funding for schools. It is expected to raise the sales tax to 7.25%, to allow property tax reductions along with changes to public pensions. If enacted PA would have the second highest sales tax in the nation.

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Supreme Court Pension Ruling Credit Positive… Unanimous ap-proval of pension reform imple-mented in 2011 by the City of Atlanta is credit positive. The reforms are projected to save Atlanta $277 million through 2022. In November 2013 city employees challenged higher required pension contributions. The unanimous ruling by the state’s highest court seals significant cost savings generated by the reforms. Nationwide unfunded state and local pensions  have grown threefold over the last decade to $1.4 trillion in 2014 spurring pension reforms.

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California Beats Estimates… For the first four months, California brought in $30 billion or 7% more revenues than last year. Once the topic of rating downgrades and bankruptcy predictions, California municipal bonds made a U-turn after the state hiked income taxes and the state-wide sales tax.

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Retail Sales Soft… Consumers remain cautious about opening their wallets. Sales at U.S. retailers rose less than forecast in October as consumers pocketed the money saved after fueling up their cars. Purchases increased 0.1% after being little changed in September. Wholesale prices unexpectedly dropped 0.4% in October. Intending to raise rates this year the Fed reiterated its dependence on economic data. Futures contracts show traders see a 64 percent chance that offi-cials will raise rates by year-end and assume that benchmark rates will average 0.375% after the first increase: minimal relative to the current target range of zero to 0.25%. Fed chairwoman Janet Yellen has said that the central bank will eventually raise interest rates at a slow and gradual pace.

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

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