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Financial Blog

Police Chief Wants New Cars in Budgetn Recommends Lease-Purchase

Traditionally, the spending plan has been discussed during the two regular June board of aldermen meetings and approved at the second meeting, or at a special meeting if last-minute changes are needed.

This year the city faces the absence of key budget planner City Clerk Kim Barfield who had begun accepting departmental spending requests prior to her May 15 automobile accident.

Mike Pigg, acting president of the board of aldermen, said there had been no discussion on budget preparation and no numbers had been submitted to aldermen.

"It makes sense to just go ahead and adopt the latest amended version of last year's budget," Pigg said.

Mayor Jeff Palmore declined to comment for this article.

For Police Chief Matt Mansell the upcoming budget is crucial because of the condition and mileage of his aging fleet of patrol cars.

The department purchased six new Ford Crown Victorias six years ago on a lease-purchase agreement that involved paying for one vehicle each year.

Four of the vehicles are now registering close to 200,000 miles.

"They're wearing out and need to be replaced," Mansell said. "If we can't get there, we can't protect the city."

Mansell submitted his department's budget to Barfield April 25, which includes a new lease-purchase of six Ford SUVs at an annual cost of $46,200.

"This would pay off one car each year," Mansell said. "But we'd have a new fleet."

Pigg said when the amended budget is adopted he wants to see the police cars included in the temporary spending plan.

"We can't move forward without police officers and police cars," he said. "We need to figure out how to do this."

Mansell said he selected the Ford SUV after comparing the performance of two other vehicles in the fleet, a Ford Taurus and a Chrysler Charger.

"The Taurus is pretty small inside and the Charger is not that easy to drive," he said. "The SUV is all wheel drive which will help on snow and is six-cylinder which will help on fuel costs."

The department recently acquired seven dashboard cameras that are presently in storage. They will not be installed on the aging vehicles, Mansell said.

The cameras record activities in front of the patrol car.

"The city of Eureka decided to replace their 2-year-old vehicle cameras with digital cameras and offered them to us for $100 each," Mansell said. "But it's not practical to install them on the old vehicles and have to take them off again when we get new vehicles."

The city budget consists of estimated revenue and proposed expenditures for operation of the city, including salaries, contract services, acquisition of equipment and materials and capital projects.

In addition to general taxes, the city collects a capital improvement sales tax, approved by voters, which must be spent on capital projects.

The water and sewer departments are operated independently of other departments. Each has its own fund, with revenue generated through water and sewer fees paid by residents. Each department's funds can only be spent on that department.

Additionally, three community improvement districts (CIDs) collect additional sales taxes to fund improvements within those districts.

"We can operate under the current budget until Kim (Barfield) returns," Pigg said. "We amend budgets when we need to."



Hot Stock to Track After Earnings: Great Plains Energy Incorporated (NYSE:GXP)

Great Plains Energy Incorporated (NYSE:GXP) reported earnings for the three months ended Mar2016 on May 05, 2016. The company earned $0.17 per share on revenue of $572.1M. Analysts had been modeling earning per share of $0.14 with $572.43M in revenue.

Great Plains Energy Incorporated (NYSE:GXP) announced first quarter 2016 earnings of $26.0 million or $0.17 per share of average common stock outstanding, compared with first quarter 2015 earnings of $18.5 million or $0.12 per share. The Company is also affirming its 2016 earnings guidance range of $1.65 to $1.80 per share.

Great Plains Energy:

On a per-share basis, drivers for the increase in first quarter 2016 compared to the same period in 2015 included the following:

  • Approximately $0.12 of new Missouri and Kansas retail rates that became effective September 29, 2015 and October 1, 2015, respectively; and
  • An approximately $0.09 increase in other margin primarily due to new cost recovery mechanisms and an increase in the recovery of throughput disincentive associated with our energy efficiency programs.

These drivers were partially offset by the following:

  • An approximately $0.07 decline due to milder weather driven by a 16 percent decrease in heating degree days compared to the first quarter 2015;
  • $0.02 increase in other operating and maintenance expense;
  • $0.02 increase in depreciation and amortization due to capital investments being placed into service;
  • A $0.03 decrease in Allowance for Funds Used During Construction (AFUDC) resulting from lower average construction work in progress due to environmental upgrades at La Cygne No. 2 and other capital investments placed into service in March 2015; and
  • $0.02 of other items including higher general taxes and interest expense.

Overall retail MWh sales were down 5.3 percent in the first quarter 2016, compared to the 2015 period with the decrease driven by weather. The unfavorable weather impact in the first quarter 2016, when compared to normal, was approximately $0.05 per share.

See Also: THE BIG DROP: HOW TO GROW YOUR WEALTH DURING THE COMING COLLAPSE

Great Plains Energy Incorporated earnings per share showed a decreasing trend of -12.8% for the current fiscal year. The company’s expected EPS growth rate for next fiscal year is 183%.Analysts project EPS growth over the next 5 years at 7.1%. It has EPS annual decline over the past 5 fiscal years of -2.3% when sales grew 2.1. It reported 4.2% sales growth, and 40% EPS growth in the last quarter.

The stock is trading at $30.91, up 33.35% from 52-week low of $24.06. The stock trades down -4.78% from its peak of $32.74 and 0.71% above the consensus price target of $31.13. Its volume clocked up at 2.57 million shares which is higher than the average volume of 1.56 million shares. Its market capitalization currently stands at $4.72B.



Fitch Rates Riverside County TRANs 'F1+'; Affirms LT Obligations; Outlook Stable

SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has assigned an F1+ rating to the following Riverside County, California tax and revenue anticipation notes (TRANs):

--$340 million 2016-2017.

The TRANs will sell via negotiation the week of June 6. Proceeds will support the countys cash flow and pre-pay the countys annual CalPERS pension contribution.

In addition, Fitch has affirmed the countys AA- Long-Term Issuer Default Rating (IDR) as well as various related ratings as detailed at the end of this release.

The Rating Outlook is Stable.

SECURITY

The notes are general obligations of the county, payable from taxes, income, revenues, cash receipts and other moneys of the county attributable to fiscal 2017 (projected $3.2 billion estimated to cover note principal and interest by 9x). The county has covenanted to set aside funds for repayment with an outside paying agent as follows: 60% on Jan. 31, 2017 and 40% on May 31, 2017.

KEY RATING DRIVERS

The F1+ TRANs rating reflects strong debt service coverage with consideration of extensive borrowable resources and the set-asides that occur well in advance of note maturity.

The AA- IDR/ Stable Outlook reflects the countys healthy financial performance and demonstrated ability to make spending cuts given its limited ability to independently raise revenues. It further reflects the countys reduced exposure to its hospital enterprise, which has experienced rapid operational improvement over the past two years. The county will need to continue to demonstrate spending restraint as it manages projected modest deficits over the next several years.

Economic Resource Base

Riverside Countys economy is large, diversified and well-situated for long-term growth. It has an affordable housing stock, capacity for additional development, proximity to employment centers including San Bernardino, Orange County, and Los Angeles, and a location along a major distribution route. The county is exposed to considerable housing market and tax base volatility as it was one of the worst-affected regions in the country during the economic downturn. However, both the housing market and assessed values have improved significantly over the past several years and a large amount of state revenue in the budget moderates the effect of this cyclicality on overall revenues.

Revenue Framework: a factor assessment

Revenue growth has been in line with or above that of the US economy and Fitch expects that trend to continue. However, the countys ability to raise revenues is limited by state law.

Expenditure Framework: aa factor assessment

The countys carrying costs are affordable and it has demonstrated expenditure flexibility through its ability to cut staffing if needed through layoffs and furloughs. Approximately 64% of discretionary spending is related to public safety. Fitch expects the pace of spending growth in the absence of policy action to be roughly in line with or somewhat above revenue growth.

Long-Term Liability Burden: aa factor assessment

The countys overall debt and pension burden, the bulk of which comes from overlapping debt, is moderate relative to personal income and Fitch expects it to remain in this range.

Operating Performance: aa factor assessment

The county has maintained a healthy financial profile by exercising its ability to cut spending during the most recent downturn and reducing its exposure to its hospital operations. Spending restraint will continue to be required given the modest deficits indicated in the countys five-year forecast related to negotiated wage hikes, rising pension costs, increased insurance costs and operating costs related to a new correctional facility. In addition, the county will need to manage considerable ongoing costs stemming from an inmate class action lawsuit for additional health and mental health professional staffing. Fitch believes the countys capacity to manage these challenges, as well as cyclical declines, is very strong.

RATING SENSITIVITIES

Maintenance of Financial Performance: Continued ability to manage spending in light of limited revenue flexibility is key to maintaining the rating at the current level.

CREDIT PROFILE

The county is the fourth largest in the state covering 7,177 square miles with a population of approximately 2.35 million. It is a high-growth region with less maturity than its coastal neighbors; as such, the county is likely to experience higher than average economic volatility over the foreseeable future.

Revenue Framework

State and federal health and social services pass-through funds comprise a substantial portion of the countys budget, as is typical for California counties. The countys non-discretionary general fund revenues are primarily provided by state funds and federal funds, which account for an estimated 44% and 20% of fiscal 2016 budgeted revenues. General fund discretionary revenues (ie, excluding state and federal funds) are primarily generated by property taxes, which account for 43% of fiscal 2016 budgeted discretionary revenues, followed by the motor vehicle in lieu payment at 30%.

Historical general fund revenues have been generally above US economic performance. Property tax revenues have increased each of the last four years, with assessed value increasing 5.8% in fiscal 2016. The fiscal 2017 budget assumes an additional 4.5% increase based upon projected assessed value growth of 5%.

The county has limited capacity to independently raise revenues under state law, particularly Proposition 13 which generally allows for a maximum increase of 2% annual in property tax assessments other than resales taxes and Proposition 218 which requires voter approval for new or increased general taxes.

Expenditure Framework

Discretionary spending is focused on public safety, which accounts for 64% of the discretionary fiscal 2016 budget, health and sanitation at 13%, and public assistance at 5%.

The pace of spending growth is likely to be marginally higher than revenues in the absence of policy action, as evidenced by the countys projected deficits over the next few years given rising pension costs, negotiated wage hikes through at least fiscal 2017, operating costs of the correctional facility, and ongoing costs related to an inmate lawsuit settlement.

The countys fixed-costs burden is relatively low with carrying costs for debt, pensions, and retiree healthcare accounting for 10% of fiscal 2015 governmental spending. The county has a productive relationship with bargaining units with two-year contracts for its five units expiring by June 30, 2017. The contracts are not subject to binding arbitration and strikes are not permitted. The county has demonstrated its capacity to implement layoffs and furlough in times of revenue decline.

The county estimates the ongoing cost of a recently settled inmate class action lawsuit at about $40 million per year. This compares to a fiscal 2016 total discretionary budget of $785 million and overall budget of $4.77 billion. It has identified offsets, including adjusting and delaying staffing for the new East County Detention Center and establishing a requirement for county departments to absorb any staffing cost increases. In addition, the county plants to implement recommendations from a Strategic Plan for Criminal Justice produced by KPMG for the county and a preliminary jail utilization report provided by California Forward, a bipartisan governance reform organization. The county expects implementation of both to result in considerable costs savings, as well as revenue recovery.

Long-Term Liability Burden

The countys overall debt and pension liabilities are moderate at 16% of personal income.

Debt is primarily in the form of overlapping debt ($9 billion), with net direct debt of $1.3 billion.

The county offers five pension plans through CalPERS. The countys overall pension funding ratio based on a Fitch adjustment to a 7% return assumption is 78%, for an adjusted net pension liability of $1.9 billion. The countys OPEB liability is negligible at just $7 million.

Operating Performance

The county has demonstrated a high degree of financial resilience through spending restraint and financial management policies. The board policy minimum for reserves is 25% of discretionary revenues; the reserve is currently $224 million, or nearly 31%. The unrestricted general fund balance at year-end fiscal 2015 was $270 million, or 9.6% of total general fund spending. Fitch expects that the county would maintain reserves at solid levels throughout a moderate economic downturn.

In an example of proactive management, the county negotiated pension reforms in advance of the state-wide reforms, resulting in a lower tier pension and increased employee contributions. The county also initiated a hiring freeze and early retirement program, as well as across the board budget cuts, during the economic downturn.

The county has continued to exercise spending restraint during the economic recovery. It prepares and adopts a five-year discretionary spending plan with each budget cycle. The most recent five-year plan projects modest deficits through fiscal 2018 and includes remediation strategies.

In recent years the county took swift action to address large deficits in its Riverside University Medical Center (RUMC). It initiated a rapid turnaround plan with the assistance of Huron Consulting Services, resulting in rapid improvement and reducing the countys financial exposure.

RELATED RATINGS

In conjunction with the affirmation of the countys IDR, Fitch has also affirmed the following ratings, which are linked to the countys general credit quality:

--Riverside County POBs, taxable series 2005A at A+;

--Riverside County COPs, series 2005A, 2007A, 2007B, 2009 at A+;

--Riverside County Asset Leasing Corporation (CORAL) COPs, series 2006A and lease revenue bonds (LRBs), series 1997A, 1997B, 1997C, 2013A at A+;

--Riverside County Public Financing Authority LRBs series 2012 and 2015 at A+;

--Southwest Communities Financing Authority LRBs series 2008A at A+;

--Riverside County 2015-2016 TRANs at F1+;

--Riverside County Teeter Obligation Notes, series 2015D at F1+.

The POB, COP and LRB ratings are one notch below the countys IDR. Outstanding lease revenue bonds (LRBs) and certificates of obligation (COPs) are payable from the countys covenant to budget and appropriate payments for the use of various leased assets, subject to abatement. The pension obligation bonds (POBs) have been legally validated as an absolute and unconditional obligation of the county.

Additional information is available at www.fitchratings.com.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.

Applicable Criteria

Rating US Public Finance Short-Term Debt (pub. 17 Nov 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873508

US Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005517

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005517

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2amp;detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCYS PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCHS CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Supreme Court: Sprint Must Face $300M Lawsuit Over Uncollected Sales Tax

Four years after New York sued Sprint for allegedly failing to collect more than $100 million in sales tax in the state, the US Supreme Court has shot down the wireless carriers effort to avoid liability.

This morning, the Supremes denied Sprints petition without comment, meaning an Oct. 2015 ruling by New Yorks highest court stands. That decision only dealt with the states ability to even bring the case against Sprint. The issue of whether or not the company failed to collect taxes is still to be determined.

The company argued that the New York Attorney General's Office based its case on state laws that were trumped by federal communication laws and that it was ignoring the financial implications for its taxpayers in pursuit of state tax revenue.

According to the Attorney General's case [PDF], which was originally filed in 2012, Sprint deliberately failed to collect more than $100 million in sales tax from customers in New York in order to keep costs low in an effort to maintain market share and remain competitive.

New York AG Eric Schneiderman said at the time that the company continued to under-collect on taxes even after the company was told it was breaking the law. His office estimated that the wireless company's bad behavior resulted in $30,000/day in taxes that are not being collected.

The AG's complaint alleges that Sprint "repeatedly and knowingly submitted false records and statements to New York State tax authorities. Sprint concealed this practice from taxing authorities, its competitors, and its customers."

In October 2015, a New York Court of Appeals rejected Sprint's claim that a 2002 state law imposing sales taxes on interstate mobile phone services violated the US Constitution.

Sprint has said the 2002 state law being cited by the AG's office was preempted by the federal Mobile Telecommunications Sourcing Act that regulates state taxation of mobile telecommunications services.

The Court of Appeals decision allowed the state to continue pursuing the lawsuit, which currently seeks triple the amount of taxes that allegedly weren't collected.

US top court rejects Sprint appeal in $300 million NY tax case [Reuters]



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