As part of our municipal credit review process, we are noticing trends in management practices that can have a profound effect on the credit quality of a municipality. Specifically, acknowledgment and action taken toward addressing long-term, off-balance sheet liabilities is of critical importance. The Los Angeles Department of Water and Power (LADWP) is taking positive, proactive steps to insulate itself from long-term fiscal imbalances. LADWP reached an agreement with labor unions to curtail salary increases, reduce healthcare benefits and to add new pension tiers. Each of these changes will support the objectives of decreasing overall pension obligations, saving ratepayers money and reducing the burden of the regions debt levels. Puerto Rico has also taken steps to shore up its various bond issuing authorities by cutting government payrolls, raising taxes and increasing contributions to their very poorly funded pension system ($30 billion in unfunded liabilities). While certainly positive, these steps in our opinion are too late and do not go far enough to solve their problems, as even with these changes Puerto Rico is still projected to maintain a budget deficit. Moreover, the sovereign territory has a long history of annual operating deficits and using borrowing as a means to fund operations and debt service obligations. Puerto Rico was highlighted in Barron’s this week as an example of a municipal government that is too late in addressing its financial problems. In our municipal credit analysis, we prefer leadership that is ahead of the curve rather than behind it.