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2019 ANNUAL CONFERENCE CHICAGO Policy Matters! Moderator Mike Belsky, University of Chicago Speakers Emily Brock, GFOA Jim Spiotto, Chapman Strategic Advisors

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Page 1: 2019ANNUALCONFERENCE - MemberClicks · 2019. 10. 10. · ChapmanStrategic Advisors LLC Table.of.Contents I. Important’Decision’Emanating’from’the’Puerto’Rico’PROMESA’Case

2019  ANNUAL  CONFERENCE

CHICAGO

Policy  Matters!

ModeratorMike  Belsky, University  of  Chicago

SpeakersEmily  Brock,  GFOA

Jim  Spiotto,  Chapman  Strategic  Advisors

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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?  

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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

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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?

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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!

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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

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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

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Thank  you!

October  2,  2019

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Chapman Strategic Advisors LLC

James  E.  SpiottoChapman  Strategic  Advisors  L.L.C.

[email protected]

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.

4839-­3091-­8311

Recent  Court  Rulings  Affecting  Municipalities  and  Municipal  Advisors

National  Association  ofMunicipal  Advisors

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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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Chapman Strategic Advisors LLC

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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Chapman Strategic Advisors LLC

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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Chapman Strategic Advisors LLC

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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Chapman Strategic Advisors LLC

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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