2019annualconference - memberclicks · 2019. 10. 10. · chapmanstrategic advisors llc...
TRANSCRIPT
2019 ANNUAL CONFERENCE
CHICAGO
Policy Matters!
ModeratorMike Belsky, University of Chicago
SpeakersEmily Brock, GFOA
Jim Spiotto, Chapman Strategic Advisors
Policy Matters!Emily Brock
Director, Federal Liaison CenterOctober 3, 2019
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Federal Advocacy
• Congressional Advocacy § Tax exempt municipal bonds§ Deductibility of state & local taxes§ Marketplace Fairness Act§ Pensions & benefits
• Executive Advocacy § SEC§ MSRB
• Amicus Briefs to the Supreme Court
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What’s New on Capitol Hill?
Ø Continuing Resolution Remains the Focus
Ø House Municipal Finance CaucusØ Co-‐‑Chairs: Representatives Ruppersberger (D-‐‑MD) and Stivers (R-‐‑OH)
Ø Key issues include: protecting the tax-‐‑exempt status of municipal debt, understanding how financial regulations treat such debt, and ensuring there is a robust market for municipal securities
Ø Focusing on expanding membership
Ø Key Allies in the HouseØ Sewell (AL), Reed (NY), Moore (WI), Neal (MA), Kildee (MI), Graves (MO), Zeldin
(NY), Barr (KY)
Ø Key Allies in the SenateØ Stabenow (MI), Cantwell (WA), Young (IN), Crapo (ID), Grassley (IA)
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Infrastructure: Will They or Won’t They?
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• Advanced Refunding Legislationv Is there a chance?
• Bank Qualified/Small Borrower Exceptionv Why now more than ever possible post-‐‑ARRA?
• Build America Bondsv Say what?
• Transportation as a Vehicle?
Infrastructure Funding
v TIFIA§ Loans are on the rise§ Focus unanticipated but much appreciated
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Infrastructure Financing
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GFOA Legislative Priorities
• Protection of the Municipal Bondv Munis are bipartisan and
apolitical§ Munis are an easy story to tell (#buildbybonds)
§ Munis aren’t *just* roads
v Munis constitute a strong, vibrant capital market for infrastructure
TCJA Impacts – Advance Refunding
v Savings of 3-‐‑8% of par foregone
v Bringing back AR is our number one goal: § Will it stand alone? Not likely!
v A standalone bill addressing AR is imminent § Cost-‐‑ how do we ensure that it pays for itself, or rather, how do we “unpack” the JCT score?
Bank Qualified (Small Borrower Exception)
v Small Issuer Exception allows smaller jurisdictions working with community banks to issue TE BQ debt§ Pegged to the Borrower!
v Right now the cap is $10m per issuer, we are asking to raise the cap to $30m, pegged to inflation and based at the level of the borrower§ Cost-‐‑ NOMINAL!
Other Legislative Priorities
v Build America Bonds (or Direct-‐‑Pay Subsidy Bonds)§ Open the prospect for new buyers§ Sequestration effects sometimes stop the conversation before it starts
v SALT – efforts are well underway to relieve the $10k cap on the state and local tax deduction§ Some efforts pay for themselves§ Other efforts do not take these into account, which may ultimately have less of a chance
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Municipal Market Disclosure
The industry has long advocated for quality, timely and meaningful disclosure
GFOA Best Practices• Debt 101 (Volume 1) - Issuing a Bond • Debt 101 (Volume 2) - Responsibilities After Bond Issuance
• GFOA Best Practice, Debt Management Policy • GFOA Best Practice, Understanding Your Continuing Disclosure
Responsibilities• GFOA Best Practice, Post Issuance Policies and Procedures• GFOA Best Practice, Primary Market Disclosure• GFOA Best Practice, Using Technology for Disclosure• GFOA Best Practice, Bank Loans• GFOA Best Practice, Maintaining an Investor Relations Program• Best Practice, Using the Comprehensive Annual Financial Report
to Meet SEC Requirements for Periodic Disclosure• GFOA Advisory, Use of Debt-Related Derivatives Products• Best Practice, Investment of Bond Proceeds
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• LIBOR is going away January 1, 2022v What is the municipal/nonprofit exposure?v Are municipal entities bringing up this exposure to their municipal advisors/deal teams/counterparties?
v How is the ARRC responding?v GASB Exposure Draft released last week
LIBOR Cessation is Widely Discussed
Thank you!
October 2, 2019
Chapman Strategic Advisors LLC
James E. SpiottoChapman Strategic Advisors L.L.C.
October 3, 2019
© 2019 by James E. Spiotto. All rights reserved. James E. Spiotto is a retired partner of Chapman and Cutler LLP as well as Managing Director ofChapman Strategic Advisors LLC, President of JASSEE Advisors, LLC and a member of the Board of Directors of Retirement Security InitiativeL.L.C. This document is for informational purposes, general in nature and based on authorities that are subject to change. It is not intended as arecommendation or advice, legal or otherwise, with regard to any action or inaction to be taken. The views expressed herein are solely those of theauthor and do not reflect the position, opinion or views of Chapman and Cutler LLP or Chapman Strategic Advisors LLC.
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Recent Court Rulings Affecting Municipalities and Municipal Advisors
National Association ofMunicipal Advisors
Chapman Strategic Advisors LLC
Table of ContentsI. Important Decision Emanating from the Puerto Rico PROMESA Case
on Special Revenues: The Assured Case 5A. The cloud raised by the Assured Puerto Rico decision regarding
special revenues 5B. Question raised by Assured 10
II. Special Revenues: The Key to Understanding the Flaw in Assured 12A. Section 902(2) of the Bankruptcy Code defines special revenues 12B. What is a special revenue? 13
III. The Benefits of Special Revenues Bonds 14What are the benefits of statutory liens and special revenues? 14
IV. Legislative History Regarding Special Revenues – What Assured Ignored 16A. The legislative history of the 1988 Amendments supports the
timely and unimpaired payments of special revenues 16B. The Senate Report for the 1988 Amendments regarding the
prior San Jose case and the continuation of thepledged revenues in Chapter 9 17
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Table of ContentsC. Specifically, the actual language of the Senate Report for the
1988 Amendments supports the understanding of the municipalmarket that special revenues are to be timely paid in Chapter 9 19
V. The Puerto Rico District Court and Court of Appeals Rulings onSpecial Revenues in Assured and Prior Chapter 9 Case Law 24A. The recent Puerto Rico court decision and First Circuit Opinion
on special revenues 24B. The Jefferson County decision reaffirms the 1988 Amendment’s
legislative history and the municipal market's understanding thatspecial revenues in a Chapter 9 proceeding are to be timely paidto the bondholders 31
C. The reliance of the Puerto Rico District and Appeals Courts onCollier is flawed 36
D. San Jose School District 38E. Sierra King Health Care District 40F. Heffernan Memorial Hospital District 42G. No adverse rulings in Jefferson County, Vallejo, Stockton and
Detroit's plan of debt adjustment 44
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Table of ContentsVI. Puerto Rico FOMB and UCC Motion to Invalidate $6 Billion of
General Obligation Bonds Contradicts Historical 1800sU.S. Supreme Court Precedent and Represents a Dangerous Tactic 49A. Motion to invalidate 49B. Issue raised by FOMB and UCC 51C. Puerto Rico made a constitutional representation and calculation of
compliance with the debt limit 53D. Historical precedent of the 1800s mandates that the claims of
invalidity of the G.O. bonds due to a violation of the debt limitmust be rejected 57
VII. The United States Supreme Court Is Reviewing the Method ofAppointment of Members of the Financial Oversight and ManagementBoard for Puerto Rico –The Aurelius Case 64A. The Puerto Rico Oversight Board requires the advice and
consent of the Senate 64
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Table of ContentsVIII. A Number of Other Title III Court Rulings
Have Been Modified or Reversed by the First Circuit 66A. The rights of the Unsecured Creditors Committee (In re
The Financial Oversight and Management Board for Puerto Rico v.Official Committee of Unsecured Creditors, Movant, 872 F.3d 57(1st Cir. 2017)) 66
B. How is a statutory lien created (Peaje Invs. LLC v. FinancialOversight & Mgmt. Bd. For P.R., 899 F.3 1 (1st Cir. 2018),cert. denied 139 S. Ct. 1169 (2019))? 68
C. The relationship between the Title III proceeding and pursuit ofa receiver (Financial Oversight & Mgmt. Bd. for P.R. v.Ad Hoc Grp. Of PREPA Bondholders, 899 F.3d 13 (1st Cir. 2018)) 72
D. The ERS Bonds are secured (In re The Financial Oversight andManagement Board for Puerto Rico, 914 F.3d 694 (1st Cir. 2019)petition for cert. filed April 30, 2019) 75
IX. Platte County, Missouri and an Unwillingness to Pay Moral Obligation Bonds 79X. Another Potential Blow to Moral Obligation Bonds in Oklahoma 85XI. Another Challenge to G.O. Bonds: This Time in Illinois 90
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Table of ContentsXII. Recent Pension Litigation Cases – Can Unaffordable Pension Benefits
Be Enforced, Rolled Back, Reduced or Changed? 96A. Recent pension reform litigation 96B. The United States Supreme Court recognizes balancing of interests
as applied to the Contract Clause and legislative enactments 98C. The State of Illinois Supreme Court position that the Illinois
Pension Protection Clause is not subject to police powers 105XIII. Lessons Learned from Recent Chapter 9 Bankruptcy 113
A. Checklist of lessons learned from Detroit and other recentChapter 9 municipal bankruptcies 113
XIV. Is There a Lack of Diversification of Tax Sources and Limits on TaxesThat Could Realistically Be Triggered 119A. Diversification of tax sources to prevent over-concentration of
source of funding 119B. What are some of the possible new tax sources states and
local government may utilize in the future? 125
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