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Road Trip!  Autonomous Vehicles Are in Your Future

      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: autonomousUpgrades 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 Downgrades

     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 the recession.


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.

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Waste Heat Energy Market: New Business Strategy Towards Carbon-Neutral Industries

      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 idea.

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 year."




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 financial sector.

















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