Regional News

Virginia Treasurer Cites Misguided Efforts at Muni Regs

WASHINGTON —Treasurer Manju Ganeriwala has helped helm Virginia’s finances through two governors and a global recession, and though the commonwealth has emerged in better shape than many states, she remains concerned about pension reform and what she feels are misguided efforts at municipal market regulation by federal authorities.

Appointed to the post by former Gov. Tim Kaine, a Democrat, amidst worldwide financial apprehension in 2009 and subsequently reappointed by Republican Gov. Robert McDonnell, the Indian-born Ganeriwala made the transition from key advisor to manager of Virginia’s more than $9 billion investment portfolio and $15 billion of debt.

A Virginia resident since 1983, Ganeriwala found herself right where she wanted to be all through her six years with the Virginia Department of Medical Assistance Services and 13 years in the office of planning and government.

“I did have an interest in one day being part of the governor’s cabinet and leading a state agency,” Ganeriwala said.

She got her wish at a turbulent time, with the great recession driving jobless rates up and consumer confidence down all across the country.

Despite the rough waters, Virginia floated well on the back of a strong economy and conservative debt policy.

The commonwealth’s unemployment rate remained consistently lower, by about two points, than the national average throughout the recession.

John Sugden, an analyst who rates Virginia for Standard & Poor’s, said the national shock to the economy was a major challenge for all the states, but that Virginia handled it exceptionally well.

“The economy has been very helpful to the state,” Sugden said. “Virginia was one of the first to bounce back.”

Both Sugden and Ganeriwala credit Virginia’s conservatism with helping it to weather the economic storm.

Ganeriwala said the commonwealth maintains a debt service cap of 5% of tax revenue, meaning that Virginia currently has a total debt capacity of around $467 million.

During the recession, she said, a committee on debt capacity formulated a new 10-year average model allowing Virginia to issue more debt than it could have if the cap were calculated exclusive to each year.

“Our need for debt financing was higher,” Ganeirwala said, because the commonwealth wasn’t taking in the tax revenue it had been getting. “The revenues plummeted,” she said.

Many states do not operate with a debt cap at all. The neighboring District of Columbia maintains a debt cap of 12%.

“Virginia has been always very conservative,” said Ganeriwala. “Bond financing is an important tool for us, but we have only used bond financing and long-term financing for capital projects and infrastructure projects, unlike some states that have used long-term bonds for, you know, unemployment insurance, payments to the federal government, or pension obligation bonds.”

Virginia is also different from “states like California that constantly use [bonds] for cash-flow purposes,” she said.

The state’s bond financing practices have drawn favor from investors and credit agencies.

Virginia’s GO bonds have always generated intense interest from investors, and post-Dodd-Frank Act changes in how credit agencies evaluate GO bonds haven’t put a dent in those appetites, Ganeriwala said.

Virginia has been given top ratings from the major credit agencies ever since the commonwealth first sought a rating from Moody’s Investors Service in 1938.

Virginia is one of only eight states to carry triple-A ratings from all three major rating agencies.

The others are Delaware, Maryland, North Carolina, Georgia, Missouri, Iowa and Utah.

“Virginia’s debt burden remains manageable relative to its resources and historical strong debt management practices,” Sugden’s late 2011 analysis of Virginia concludes.

The commonwealth also has had success in refunding prior issuances — a practice that would have been unheard of at the start of her career, according to Ganeriwala.

“We’ve seen some very impressive savings” in recent refunding sales, she said. “I remember my first year as treasurer, our threshold for going to market on refundings was like 'we must at least have a minimum of 3% [present value savings].”

“In these last refundings that we’ve done, we’ve had 25.9% on a refunding for the Commonwealth Transportation Board; we had 21% on a Virginia Public School Authority refunding. All the refunding savings have been double-digits,” she said. “The muni bond market has just been so great.”

But Ganeriwala has grave concerns despite Virginia’s relatively strong position. The recession is technically over, but she said it doesn’t feel like it.

Not only that, but the state’s top financial officer knows that the government has to wrestle with pension reform measures and the looming prospect of major federal overhauls to the municipal market.

“Retirement plans are a big issue right now for Virginia,” Ganeriwala said.

Virginia contributes to four defined benefit pension plans administered by the Virginia Retirement System.

“Going forward, it’s going to be more and more difficult to sustain these plans in their current form,” she said.

Policy makers are already looking at changes such as cost of living adjustment caps and increases in the retirement age.

Ganeriwala said she was “delighted” about recent legislation approved by the Virginia General Assembly that mandated the state fund the plans at actuarily approved rates, but said she still anticipates that keeping those plans funded will be a challenge. 

The treasurer also is wary of the goings-on 100 miles north of her Richmond office.

Federal legislation regulating the municpal bond market, even if it is well-intentioned, could cause consequences not understood by national lawmakers, she said.

“There are all these kinds of assaults on the muni market, or potential threats that are looming out there,” she said.

“Different agency proposals like the Volcker Rule, money market fund reform. The SEC wants to make all these changes to money market funds,” she said. “Money market funds are large owners of, buyers of, municipal securities. If that portion of investors disappears from the market, we’d have to pay higher costs to issue our debt.”

“The president’s proposal to cap the interest exemption to 28%, that’s going to have a huge impact on muni issuers,” she said.

Ganeriwala, who serves as secretary-treasurer of the National Association of State Treasurers, says that various groups will work to educate lawmakers on the ramifications of adopting such policies.

Pledges from the White House and Congress to help states make crucial investments in infrastructure projects don’t mesh with simultaneous efforts to save money by removing tax-exempt interest exemptions, and those officials need to understand that, she said.

“We know we have our work cut out this year,” she said. “We will be working aggressively with members of Congress.”

Ganeriwala will be watching and waiting as budgets are hashed out both in Washington and in Richmond. The most trying times might be behind her, but she readily admits Virginia “isn’t out of the woods yet.”

The state’s needs for roads, public buildings, and other infrastructure are not going away, but neither are calls for restraint and reform.

The responsibility for walking that fine line through those woods is largely hers.



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