MuniLand

America needs a smart grid

Cate Long

Jun 21, 2012 15:54 UTC

The latest item atop Congress’s list of stuff to haggle over is the transportation bill, legislation the Washington Post calls the “best bet for passage of a major jobs bill this year.” The threat of the expiration of authority to spend money from the Highway Trust Fund at the end of the month is motivating House and Senate leaders to reach a compromise in the coming days. Although there are certainly investments to be made in our transportation infrastructure that would contribute to America’s economic competitiveness, it’s a shame that our energy infrastructure has received such scant attention from lawmakers.

The national electrical grid is as important for economic growth, if not more so, than the national highway system or the privately owned router system that supports the Internet. As part of the American Recovery and Reinvestment Act, the Department of Energy funded several demonstration programs for increasing electrical system integration and reducing peak loads on the electrical grid. These efforts are commonly known as the “smart grid,” and this is where Congress needs to turn its attention.

Fort Collins, Colorado was chosen for a public-private smart grid project supported with DOE funding. Called FortZED, the project integrates five public and private institutions into a web that shares excess electrical generation during peak load periods. Some facilities, like the University of Colorado campus, have enormous backup diesel generators that can be powered up to add electricity to the system during times of peak demand. A local brewery and city facility have large solar-cell arrays that can also feed electricity back into the system.

Electrical capacity and demand is mapped across the entire web, and smart devices collect information at nodes all along the system. The map also shows machines that can be shut down during peak demand to reduce the draw on the electrical grid. In contrast, current electrical systems use a hub-and-spoke configuration in which power is produced in a large central facility and then distributed to substations and users. A smart grid flows in all directions and utilizes excess capacity across the system, eliminating the need to build additional power plants to handle peak loads.

I’m sure that many were turned off by the DOE’s Solyndra debacle, but it’s time to invest our best thinking and resources in upgrading our nation’s energy infrastructure. Watch the 14-minute video above to see the power of collaboration and creativity that comes from designing and building smart grids. If we are to restore America’s economic vitality, we need to focus on the enormous resources that are currently underutilized.

Further:

MuniLand Snaps: June 20

Cate Long

Jun 20, 2012 17:00 UTC

WPRI reports on Providence retirees voting on pension reform. The fiscally challenged city, like many across America, is trying to reduce expenses, including pensions and retiree benefits. Providence has been making good progress.

Good Links

Public CIO: Federal crowdsourcing may solve problems fast

MSRB: Report on municipal variable-rate securities

NYT: New Jersey’s halfway-house prison complexes

Bond Buyer: Scranton’s charged atmosphere stymies attempts to stay solvent

Conservative ideologues aren’t bankrupting Rhode Island

Cate Long

Jun 20, 2012 16:39 UTC

In his New York Times column yesterday, Joe Nocera laid the blame for the fiscal catastrophe in Woonsocket, Rhode Island on Jon Brien, a state legislator who blocked a bill that would have plugged a massive hole in the town’s budget by raising property taxes on its residents by 13.8 percent. Nocera argued that Brien took these actions to shrink the local government because he’s a conservative ideologue, further highlighted by the fact that Brien is also on the national board of ALEC, an advocacy group that pushes for smaller government.

Maybe it’s true that Brien was primarily motivated by ideology, but if Nocera had taken even a cursory glance at the financial statement for Woonsocket, he would see Brien’s position has some merit. Spending on retiree benefits and municipal debt are drowning Woonsocket. The city is in a death spiral.

Let’s start with what Nocera got right: Municipal pensions, the traditional whipping boys for conservative critics of out-of-control government spending, are not Woonsocket’s big problem. The town’s pensions are actually 60 percent-to-90 percent funded, pretty good by Rhode Island standards (page 77). Maintenance of the pension funds required a contribution of only 2.2 percent of the 2011 budget.

The real deficit sinkhole for the town lies in its Other Post Employment Benefits (OPEBs) and expenses for its debt service. OPEBs, or health and dental benefits provided to city retirees, cost the city $4.5 million, or 3.2 percent of the budget. That amounts to $10,135 for each of Woonsocket’s 450 retirees. Debt service cost the city $16.9 million in 2011, or 12.2 percent of its $139 million annual budget. Those costs will jump to $21 million for 2012 and remain at that level through 2016 (page 47).

Add it all up, and total pension expenses, OPEBs and debt service consumed 17.6 percent of the town’s budget last year and will consume 20.4 percent of its 2012 budget. That means less than 80 percent of the budget goes to tangible public services for Woonsocket residents. On top of all that, the town’s fiscal situation was dealt another blow late last year when it was discovered that an unqualified school budget administrator lost track of $10 million in school funds.

I can see how Brien makes an easy target: In addition to his affiliation with a polarizing group like ALEC, he also told Nocera that he didn’t know how bad Woonsocket’s pension problems are. But Nocera glosses over the biggest issue in this story: In 2010 the Rhode Island General Assembly passed legislation that protects municipal bondholders by exempting them from creditor writedowns in bankruptcy proceedings. Rhode Island is the only state in the U.S. to prohibit haircuts for bondholders. The General Assembly’s actions have not been challenged yet in a federal bankruptcy court, which traditionally treats creditors on an equal basis.

Because the state’s General Assembly has exempted bondholders from renegotiating their terms, about 15 percent of Woonsocket’s budget cannot be adjusted. The city runs a pretty lean government already. From Julie Steiny at Education News (emphasis mine):

Oklahoma’s DHS agitator is exonerated

Cate Long

Jun 19, 2012 16:39 UTC

Two weeks ago I wrote about what seemed to be a smear campaign against Steven Dow, a forceful commissioner in the Oklahoma Department of Human Services who agitated for investigations into a series of deaths of children who were wards of the state and under DHS supervision. Dow was issued a public reprimand by the state’s Ethics Commission for alleged conflicts of interests related to his position as the unpaid director of a social service agency while he was simultaneously serving as a commissioner at DHS. His agency’s contracts with the DHS were tiny, and when they were brought up at the department, he recused himself from those discussions. Last Friday, in the state’s first-ever reversal, the Ethics Commission withdrew its public reprimand of Dow, citing newly discovered evidence that the alleged ethics violation was “inadvertent.”

As I wrote previously, the initial Ethics Commission action looked bogus because it was hard to see Dow’s motive:

The basis of the reprimand from the Oklahoma Ethics Commission was that there was a conflict of interest with Dow serving on DHS because he is also the unpaid director of Community Action Program (see page 8), a Tulsa non-profit serving the low-income community.

Over nine years it appears that CAP has received about $1.5 million in DHS contracts, or 0.5 percent of its revenue (see CAP’s contracts with DHS here). That said, I’m not convinced that Dow ever had an incentive to seek personal enrichment from his DHS service. After all, his wife, Tracy Schusterman, is one of the richest people in Oklahoma. She recently sold her family’s business, Samson Energy, to KKR for $7.2 billion. Nevertheless, following the public reprimand, Dow decided to resign.

Dow avoided any possible conflict of interest prior to beginning his tenure as DHS commissioner and even notified the governor’s office directly about his position at the social service agency. From the Oklahoman:

Dow wrote that he had informed then-Gov. Brad Henry’s office of the potential conflict when Henry first appointed him, and said Henry’s “legal counsel and chief of staff thoroughly investigated and researched the matter, concluding that there was not a violation of any provision of the Constitution or statute.”

Creating change in a moribund social institution is hard, and Dow fought the good fight. I first noticed his efforts last September with this excerpt from the Oklahoman:

Dow told The Oklahoman, “My calls for greater accountability and interest by the commission in even asking questions are met with a deafening silence … I basically have gotten no response from most of the commissioners.”

Dow asked for special meetings after the 2010 death of Aja Johnson, 7, and the June death of Serenity Deal, 5.

He brought up five other children’s deaths in one of his requests for a meeting about Serenity.

DHS officials say child-welfare workers made mistakes in the girl’s case. Four workers were put on administrative leave. One committed suicide. Another resigned. The other two are in the process of being fired.

The parking lots around Yankee Stadium still stink

Cate Long

Jun 19, 2012 16:15 UTC

Last June I wrote about a bizarre, unrated municipal bond deal that was issued to finance some new parking garages at Yankee Stadium. Because very few people were using the parking facilities, it looked like the $237 million of tax-exempt bonds would soon default. Now the law firm of the former mayor of New York, Rudy Giuliani, has been hired to strike a deal between Bronx Parking Development Co, the parking garages’ operating entity consisting of a husband-and-wife team based in upstate New York, and the bondholders. From the Daily News:

Former Mayor Rudy Giuliani’s law firm has been hired by a group of private bondholders to restructure $237 million in tax-exempt financing for the nearly bankrupt owner of the Yankee Stadium parking system.

The surprise choice of Giuliani’s firm, Bracewell & Giuliani, is part of an agreement reached last week between Bronx Parking Development Co, owner of the 9,000-space garage and lot system, and its creditors.

Giuliani, after all, is widely known as one of the Bronx Bombers’ most loyal boosters, while one of his former deputy mayors, Randy Levine, is the team’s president.

It’s interesting to note that shortly before leaving office, Giuliani announced a deal in which the City of New York would contribute $800 million in public financing for the new Yankee Stadium and provide an additional $390 million in extra transportation funds. Additionally, Giuliani’s original plan would have allowed the Yankees to keep all parking revenues, which angered state officials, who viewed those revenues as the state’s compensation for building the new garages for the team.

In the end, the parking concession was inexplicably given to the upstate husband-and-wife team behind the Bronx Parking Development Co. The duo had defaulted on two previous municipal bond deals; brought no equity to the deal; had never built or managed parking facilities; and seemed to be placeholders for others’ interests in some strange scheme.

Everything about the project smelled odd. The new parking garages and lots would vastly increase the number of parking spaces at Yankee Stadium from 6,548 to 9,127. Parking supply was being increased even though the new Yankee Stadium was designed to hold more than 2,000 fewer spectators than the old one (pages 9-10).

Parking utilization for the old stadium was allegedly between 90 percent and 98 percent, or between 6,360 and 6,846 occupied parking spaces, according to two separate environmental impact statements cited in the bond offering Official Statement (Appendix A page 11). At the same time available on-street parking was only 47 percent to 50 percent utilized on game days (page 11). The financial projections for the bond offering were made by a parking consultant who prepared a report for the bond underwriter, Roosevelt and Cross, without the records of the parking operator (Appendix A page 14).

The alleged 90-to-98-percent parking utilization rate was achieved when parking fees were in the approximate range of $9 to $9.41 per space, according to the parking consultant. Because the project has been missing revenue targets, the parking operator has raised the parking fees to $35-$45 per game. Unsurprisingly, as fees increased fewer fans chose to drive and park at the new stadium, pushing down utilization rates to just 38 percent. Additionally, the MTA Metro-North and the City of New York funded a new train station that is handling approximately 3,900 game attendees. It’s not surprisingly that these bonds are nearly bust.

MuniLand Snaps: June 19

Cate Long

Jun 19, 2012 15:32 UTC

Without comment: The Great State Fight

Good Links

Reuters: Swing states in muniland

Pensions and Investments: Pew Center: State pension funding gap widens

Pew Charitable Trust: States are $1.38 trillion short in funding retirement systems

Bloomberg: Pension reforms have their day in court

MuniLand Snaps: June 18

Cate Long

Jun 18, 2012 17:55 UTC

BlackRock says that the housing market, the bedrock of property taxes that support local governments, remains weak:

The housing market overall continues to remain challenged by various factors. A large overhang of “shadow” inventory remains and the mix of home sales to date has been heavily skewed toward distressed purchases.

Good Links

Bloomberg: Payrolls climb in 27 U.S. states, led by California and Ohio

Reuters: Illinois governor signs bills to save Medicaid “from collapse”

McClatchy: SEC taps Thomas J. Butler, Wall Street veteran, to oversee ratings agencies

MuniLand Snaps: June 15

Cate Long

Jun 15, 2012 15:54 UTC

A state pension actuary gets the Xtranormal treatment. Hat tip: Bob Nelson of Thomson Reuters MMD.

Good Links

Council of State Governments: The evolution of interstate compacts

NYT: The little-known but massive infrastructure investment in U.S. airports

WSJ: Moody’s lowers $11 billion in California redevelopment bonds to junk

Michigan Governor Rick Snyder: Why we need a new bridge between Detroit and Canada now

JPMorgan fails to disclose

Cate Long

Jun 15, 2012 15:44 UTC

Charlie Gasparino of Fox Business News seems to have scooped a muniland story yesterday when he reported that JPMorgan had failed to include material facts in a municipal bond offering on which it was the lead underwriter.

Lead underwriters have a special role in muniland. The Tower Amendment, passed in 1975, prohibited the federal government from requiring issuers of municipal debt to make specific disclosures to investors prior to offering securities for sale. Underwriters, however, do not enjoy the same protection, so the law has evolved to make them liable for the contents of the offering document for municipal debt. This requirement is administrated by the Municipal Rulemaking Board through Rule G-17, or the fair-dealing rule.

MSRB’s Rule G-17 is the Ten Commandments of muniland (emphasis mine):

Rule G-17 precludes a dealer, in the conduct of its municipal securities activities, from engaging in any deceptive, dishonest, or unfair practice with any person, including an issuer of municipal securities. The rule contains an anti-fraud prohibition. Thus, an underwriter must not misrepresent or omit the facts, risks, potential benefits, or other material information about municipal securities activities undertaken with a municipal issuer.

Gasparino’s reporting, which seems to be based on sources inside JPMorgan, nails the G-17 violation. He cites the omission of risks related to the Massachusetts state pension in a $469 million general obligation bond offering in May 2011. As the lead underwriter on the deal, JPMorgan carried out an internal study on pension risks but did not disclose those risks within the Massachusetts bond offering document:

Yet, J.P. Morgan didn’t include its pension fund analysis in bond deal disclosure materials that are made to investors, known as the deal’s “official statement,” according to current and former executives at the firm. Case in point: a $469 million bond issue by Massachusetts in May of last year, two months after the pension report was published.

J.P. Morgan was the lead underwriter of the deal, but the disclosure documents didn’t include the report’s dire findings, including the possibility that under one scenario the state must cut spending by 20.1% to fully fund its pensions over the next two decades, raise taxes dramatically or a combination of both.

[JPMorgan spokeswoman] Lemkau wouldn’t deny that the firm failed to include the report’s findings in its official statements, but said that the firm’s disclosures were proper.

From G-17 again:

MuniLand Snaps: June 14

Cate Long

Jun 14, 2012 18:24 UTC

The Tax Foundation gives us a map of state wine taxes. In the number one spot is Alaska, which levies a tax of $2.50 per gallon; Louisiana levies the smallest excise tax at 11 cents per gallon.

Good Links

Thomson Reuters News & Insight: Is the momentum against public unions gaining speed?

The Council of State Governments: Updated database on child abuse and neglect statistics

American Society of Civil Engineers: How does each state’s infrastructure measure up?

Bloomberg: Bloomberg captures muni market participants’ reaction to infrastructure study