Hoosier Banker 47 palities choose to go ahead with planned projects. According to the Securities Industry and Financial Markets Association, September issuance data shows that new money issuance dropped dramatically in September. As rates continue to rise, issuers will have to balance their capital needs with how much interest they can afford to pay. Third, inflation and higher interest rates can affect pension liabilities and associated expenses. Pension liabilities are computed using assumptions for wage growth and expected inflation. If those assumptions increase or are too low, pension liabilities will increase. Some pension plans have cost of living adjustments based on inflation. Those plans will have an increase in current payouts in addition to an increase in the future liability. Further, pension assets will likely suffer from poor investment returns this year. The trend of movement toward riskier asset classes led to favorable outcomes in 2021, when many plans had record investment gains. The opposite may be true, however, in this volatile environment where equities and bonds have both been declining in value. Moody’s and S&P both project that all the investment gains pension plans enjoyed last year will be, or already have been, reversed. Assets decreasing while liabilities are increasing means that unfunded liabilities will rise, and so will required contributions from employers. This may cause budget pressure for some municipalities. On a more positive note, higher inflation and/or interest rates could increase the discount rate used to determine the present value of pension liabilities. A higher discount rate means a lower estimate of pension liabilities, all else equal. Also, inflation could lead to increases in revenue, particularly for those municipalities that rely heavily on income tax revenue or sales tax revenue derived from the sale of non-discretionary items. Discretionary spending is threatened by a potential recession as well as higher interest rates. Property tax revenue should increase as well since home prices have been increasing significantly. Higher home prices will lead to higher assessed valuations if home values do not depreciate back down to last year’s level or lower. Whether revenues rise by more than expenses will vary from issuer to issuer. Many issuers have well-positioned reserves right now to help cope with increasing costs and a potential recession in the short term. Unfunded pension liabilities and growing leverage, however, will continue to be a concern for some local governments. Many healthcare issuers, especially senior living facilities and special development entities, have experienced credit deterioration during the pandemic. They remain particularly vulnerable to further budgetary pressure and credit impairment due to current economic conditions. HB CINNAIRE.COM It takes more than good intentions to transform communities. It takes capital, development capacity and trusted partnerships. In 25 years, we’ve delivered more than $7.3 billion in community impact. Overcoming challenges. Solving problems. Backed by a commitment to creating healthy communities that has never wavered. The Return on Investment: Safe, Affordable Homes. Healthy Communities. Better Lives. INVESTING IN INDIANA COMMUNITIES FOR MORE THAN 25 YEARS. Transforming Communities. Transforming Lives.
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