Pensions, San Francisco Airport and a P3 Win for Taxpayers

Categories: Commentary, Uncategorized |

September 15, 2014

This week we take a quick look at state and local pension funding, preview the largest deal of the week and highlight a win for taxpayers.

Overall Pension Picture is Mixed; Illinois and Chicago Getting Worse

As reported in the Bond Buyer, Loop Capital released its annual review of state and local pensions last week.  We decided to take a look at our pension database of state and local pension data covering 225 state plans and over 650 local plans, which accounts for 270 cities.  A review of the most recent data shows a mixed picture.  While States’ contributions, as measured by percentage of ARC paid, improved, State funded levels (or ratios) are only slightly better (70.8% vs. 70.6%) from 2012-2013 but still down from 2010 and 2011.  City contributions also improved, but aggregate city funding levels (ratio) continue to deteriorate at a more pronounced rate.

US State and City Pension Funding

(Weighted by plan size)


Source:  CAFR, DIVER Data Solutions

Illinois continues to have one of the worst funding positions of the 50 States.  The most recent funded ratio for the five Illinois state-level funds we track is 39.3% and Chicago’s funding level also continues to deteriorate.

Illinois and Chicago Pension Funding Ratios

(Weighted by plan size)

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Source:  CAFR, DIVER Data Solutions

Pension funding remains a key fiscal challenge for municipalities and will remain a focus of our data gathering and analysis.  Detailed pension data is available through our Data Solutions and Analytics offerings.

San Francisco Airport Winning the Battle of the Bay

The largest deal on the calendar this week is a $481mm bond sale by San Francisco Airport (SFO).  SFO is a large, O&D (78%) airport.  Traffic at SFO is dominated by UAL (46% of enplanements).  SFO traffic is 21% international and 79% domestic. SFO is the primary international airport serving its market but has competition from Oakland (OAK) and San Jose (SJC) airports for domestic O&D traffic.  An interesting dynamic in the domestic O&D market has been SFO’s ability to capture market share from OAK and SFO.

San Francisco Bay Area Airport Market Share

(Domestic O&D)

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Source:  SFO, DIVER Data Solutions

This is similar to the competitive dynamic in Boston (BOS), where Logan Airport has steadily captured market share from Manchester and Providence.   The industry softness in enplanements over the last decade has opened up capacity at large regional airports like SFO and BOS and enabled them to overcome disadvantages of cost and location vs. local competitors.

Indiana Toll Road Saga Shows that Sometimes Taxpayers Can Win

Last week the Wall Street Journal reported that ITR Concession, the operator of the Indiana Toll Road, is developing a plan to file for bankruptcy.  The 157-mile Indiana Toll Road was leased in a public-private partnership (P3) transaction in 2006.

For Indiana, the timing of the P3 was particularly good.  A combination of euphoric credit markets, and overly optimistic economic and traffic projections led the private bidders to overpay.  In addition to being lucky, Indiana was smart.  The proceeds of the transaction were (and still are) targeted at transportation infrastructure needs around the state.   The following table from a Reason study (5/13) outlines the investments.

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Source: Reason

Indiana’s prudent use of the proceeds stands in contrast to Chicago’s spending of the money it received for its privatization of the Skyway.  Chicago used this money to fill budget gaps and pay operational expenses.

The many critics of P3’s are likely to cite the Indiana Toll Road as evidence that P3’s are inherently bad, however, in this case the P3 was a win for taxpayers.

A busy week for the Lumesis team ahead. Mark and Mike Vossler will be in Phoenix at the PCI Investment Seminar at the beginning of the week, and Tim and LK will be in Philadelphia for the second half of the week. Additionally, Gregg will be in NYC on Wednesday.

Have a great week,


Mike Craft
Managing Director, Credit, Lumesis, Inc.


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