Looking over the horizon there is the great unknown.
People can use logic, run models, speak to subject matter experts amongst
countless other ways to prepare for what lies around the next bend in the
road. Unfortunately there is just so much one can do on a quantitative
basis when there are unknown factors, which can disrupt your predictions,
leaving you completely vulnerable to the unknown.
Tomorrow's great disruption is being built today: autonomous
vehicles. New technology has been developed and continues to be refined
for everyday use, from silicon valley to the state of Michigan. The
competition for who will be the first to market with fully autonomous
vehicles is fierce. Technology revolutionist Elon Musk is leading the way
saying he believes Tesla will be capable of having fully autonomous
vehicles on the road — but don't expect to see this happen before federal
regulations are passed. Yes, big brother is in
on this too. The United States Department of Transportation announced ten
designated federal testing sites for autonomous vehicles.
State & Local Government Outlook: Cloudy
The Outlook for State and Local
Government Credits is, well, increasingly cloudy, according to a panel of
experts who spoke at Smith's State and Local Government Finance Conference in
Washington, DC. The meeting took place at the Grand Hyatt on March 2-3, 2017.
Gabriel (Gabe) Petek CFA, is a managing director in the U.S. States and Higher
Education Division of the State and Local Government Group at S&P Global
Public Finance Ratings. He holds a Master in Public Policy from Harvard
University's Kennedy School of Government and earned his B.A., magna cum
laude, in political science from Loyola University.
Mr. Petek provided the "State of the States Address." He prefaced his remarks
by underscoring that S&P's U.S. States ratings distribution is overwhelmingly
high quality:30% AAA; 26% AA+; 26% AA; 12% AA-.
The weak sisters among the States are Kentucky (A+); New Jersey (A-) and
Illinois (BBB). S&P's outlook for the U.S. States
is "Stable" (74%), but only one State has a positive outlook (Minnesota) and
24% have negative outlooks. Alaska, Louisiana, and North Dakota have suffered
declines in their economies due to the large drop in energy commodity prices.
State Revenue Growth Mr.
Petek's research into the U.S. States has produced some interesting findings.
To begin, he considered the aggregate state real
revenue growth during recent recessions. In the early 1980s (July 1981-Nov.
1982), states' revenue growth proceeded unabated despite double digit
unemployment and prime rates at 15% plus. Similarly, during the early 1990s
(July 1990-March 1991), States saw revenue growth continue to rise throughout
PROMESA Approves Governor's Revised Fiscal Plan
PROMESA, the Puerto Rico
Oversight Board, voted unanimously on Monday morning to certify Puerto Rico
Governor Ricky Rossello's fiscal plan, provided that two amendments are made.
The first amendment would institute the PROMESA Board's earlier proposal for
furloughing most government employees four days a month, with two days for
teachers and none for law enforcement officers, at the beginning of Puerto
Rico Fiscal Year 2018 July 1st. Also, as part of the first amendment, the
Governor would eliminate the annual "Christmas" bonus for government workers.
The Government can pay the traditional Christmas bonus if the Commonwealth can
increase liquidity by $200 million and implement its plan to "right-size" its
operations in a FY 2018 budget proposal by April 30th. If it can find the
savings, the austerity measures would be delayed until September 1st. The
Board reserves the right to make further determinations as to whether the
savings measures are needed or to what extent needed.
The second amendment would require an agreement between the Government and the
Board to reduce pension costs 10% by 2020. The deal would need to be reached
within 30 days and finalized by the fiscal year ending June 30th. The PROMESA
Board seeks to convert Puerto Rico's pension system into a defined
contribution plan. It estimated that Puerto Rico currently has $50 billion in
pension obligations, but only 8% is funded.
Waste Heat Energy Market: New Business Strategy Towards Carbon-Neutral
The Massachusetts Institute of Technology (MIT)
Center for Collective Intelligence announced last year its Climate CoLab
was sponsoring a Solve CO challenge. MIT's Climate CoLab has convened a
growing, global community of over 75,000 experts and non-experts to work
together to develop and select innovative and effective proposals on how
to tackle different aspects of the climate change problem.
Scientists were invited to submit solutions that would solve
the world's problems from carbon-based fuels.
Mohammad Ebrahim Feyz of Purdue University formed Team Hydromania along
with Terence Smith of Smith's Research & Gradings. 127 teams were formed
and entered into the MIT Challenge. Mr. Feyz
and Mr. Smith met each other last year during the U.S. Department of
Energy's RECS program, which is a study course about carbon capture and
sequestration. The Department of Energy's RECS program attracts scientists
to apply from all over the world, but only 20 are selected to participate.
Mr. Feyz is from Iran and attends Purdue University.
MIT recently announced Team Hydromania are among the finalists in the
competition. On March 7th, Team Hydromania will make a presentation at the
United Nations in New York and participate in a Q&A about the proposed
Smith's Event Risk Gradings: U.S. Dams
The 2017 Oroville Dam crisis continues
to be a major and is a persistent threat to lives and property in Northern
California. At 770 feet in height, Oroville Dam is the tallest dam in the
United States. Located about 70 miles north of Sacramento, the reservoir forms
Lake Oroville, which is 400 miles long and 40 miles wide. It controls the flow
of the Feather River and the hydro-electric plant provides approximately 30%
of the State of California's power. Smith's
Research & Gradings has a proprietary database of more than 160,000 dams
across the United States. Smith's dam database is used to examine the
proximity of dams to every municipal bond that is graded.
Terence Smith, CEO of SRC, explained, "Dams are massive achievements. They are
visible from space. And, I am sorry but we don't need Elon Musks batteries
because we have dams, which are the world's largest batteries, providing a
reliable and sustainable source of electricity."
Terry Turpin, Director, Office of Energy Projects, Federal Energy Regulatory
Commission (FERC), met with Smith's Research & Gradings last week. "Dams
produce 100 GigaWatts of power in the United States," he said. "That's
important since 50% of the hydro-power is coming up for relicensing next
Puerto Rico and Virgin Islands In the Context of the Ongoing Caribbean
Debt Crisis Dr. Scott MacDonald
weighs in on Puerto Rico and the Caribbean:
The Caribbean has a debt crisis. Although many of the island states in the
region have worked hard to adjust their economies and are achieving some
positive results in terms of economic growth and better fiscal outlooks, a
handful of others are struggling with onerous debt burdens.
The advent of a higher interest rate environment from the U.S. Federal Reserve
is not helping. Indeed, Puerto Rico defaulted on its $70 billion debt last
year and its finances are now being overhauled by a Washington-appointed body,
PROMESA. In early 2017 Barbados, Belize and the
U.S. Virgin Islands (USVI) are in the throes of difficult debt management
problems. Belize (Caa2 stable/CC negative) is undergoing its third major debt
restructuring (covering its $530 million "super bond") and Barbados (Caa1
stable/B- negative) appears to be sliding into what could well become a major
debt crisis. Barbados began the year with a new downgrade from the Caribbean
Information and Credit Rating Services Limited (CariCRIS). That downgrade
brought the number of downgrades to more than a dozen since 2009.
Barbados increasingly appears unable to deal with its debt management and
fiscal deficit problems. The island economy has been troubled since 2009, when
the Great Recession hurt the tourist sector and there were pressures from the