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Tax Law

State Net Capitol Journal – July 6, 2015; Puerto Rican Debt Threat to U.S. Cities, States

Budget & Taxes

Puerto Rican Debt Threat to U.S. Cities, States

In an interview with The New York Times last month, Puerto Rico Gov. Alejandro García Padilla said the U.S. commonwealth wasn’t able to pay its roughly $72 billion in debt.

“The debt is not payable,” he said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

Padilla said the island would probably seek major concessions from its creditors, including deferral of some debt payments by up to five years, setting up a major test for the municipal bond market, which U.S. cities and states rely on to fund such basic necessities as road and school construction.

The market has already been roiled by municipal bankruptcies in Detroit; Stockton and Vallejo, California; and elsewhere. The value of Puerto Rico’s bonds at maturity is roughly eight times higher than the value of Detroit’s bonds, and debt restructuring on that scale could make municipal bond investors more difficult and costly for state and local governments to attract. Much of Puerto Rico’s debt is also widely held by individual U.S. investors in mutual funds and other investment accounts. And as a commonwealth, Puerto Rico is not able to file for bankruptcy, so there’s no Chapter 9 bankruptcy protection for those investors, meaning that a default would likely create a financial mess that could take years to sort out. (NEW YORK TIMES, WASHINGTON POST)

Bad Data Big Problem For Government

Last year, a state audit of accounting records at the California state Controller’s Office uncovered 200,000 hours -- $6 million worth -- of questionable sick leave, vacation, holiday and furlough credits due to data entry errors.

“We found circumstances where instead of eight hours, it was 80 and in one case, 800,” said California State Auditor Elaine Howle.

In 2012 Pennsylvania’s secretary of environmental protection told Congress that hydraulic fracturing hadn’t impacted water quality at any of the state’s tens of thousands of wells. Two years later the same department reported 248 incidents of well-water damage due to gas development, and an audit revealed that the state’s tracking system for water quality complaints was unable to provide “reliable information to effectively manage the program.”

Ohio State Auditor Dave Yost said poor quality government data, like that discovered by the audits in California and Pennsylvania, “is probably the most important emerging trend for government executives, across the board, at all levels.”

A Governing magazine telephone survey of public officials who analyze data seems to support that view. Nearly 70 percent of the respondents to that survey of 75 officials in 46 states said they encountered data problems “frequently” or “often.” And not one of them said they encountered such problems “rarely.” (GOVERNING)

Budgets In Brief - July 6 2015

ME Overides LePage Veto: The MAINE Legislature overrode Gov. Paul LePage’s (R) veto of the state’s next two-year budget. The $6.7 billion spending plan includes modest income and property tax cuts for many residents (PORTLAND PRESS HERALD, LEXISNEXIS STATE NET). * CT Signs Budget Bill Package: CONNECTICUT Gov. Dannel P. Malloy (D) signed a package of bills enacting a two-year, $40 billion state budget and rescinding $178 million of the roughly $1.5 billion in tax increases approved by the General Assembly on June 3 (HARTFORD COURANT, LEXISNEXIS STATE NET). * OHIO: Gov. John Kasich (R) signed a $130.3 billion, two-year state budget last week but only after using his line-item veto to eliminate 44 provisions, including one that would have required the state Lottery Commission to add electronic games at bars and restaurants (CLEVELAND PLAIN DEALER). * PA Vetoes Big Budget: PENNSYLVANIA Gov. Tom Wolf (D) vetoed the $30.1 billion budget passed by that state’s Republican-controlled Legislature. Wolf said the spending plan didn’t adequately fund education or provide property-tax relief and would worsen the state’s finances (PHILADELPHIA INQUIRER, LEXISNEXIS STATE NET). * CA Brown Signs Budget: CALIFORNIA Gov. Jerry Brown (D) signed a $115.4 billion budget that provides more money for schools and establishes an earned-income tax credit for working-poor families, among other things (FRESNO BEE). * IL Rauner Vetoes Unbalanced Ops Budget: A day after approving funding for elementary and secondary education, ILLINOIS Gov. Bruce Rauner (R) vetoed the remainder of the state’s operations budget, saying it was as much as $4 billion out of balance (STATE JOURNAL-REGISTER [SPRINGFIELD], LEXISNEXIS STATE NET). * NH Hassan Vetoes GOP Approved Budget: NEW HAMPSHIRE Gov. Maggie Hassan (D) vetoed the $11.35 billion budget approved by the state’s GOP-led General Court, saying it was unbalanced and gave tax handouts to big corporations (UNION LEADER [MANCHESTER]).

- Compiled by KOREY CLARK

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