Munis Set for ‘Golden Decade’ of Credit With Infrastructure Aid.

U.S. municipalities are set for another massive infusion of cash from the $550 billion infrastructure package, leaving participants in the muni-bond market to assess the impact on the nation’s states and local governments.

In a nutshell, the analysis boils down to a couple big takeaways: It’s great for credit quality in the $4 trillion market. Bank of America Corp., for example, sees a “golden decade” of credit ahead. But on the other hand, all that cash may even suppress bond sales.

The legislation will unleash spending in an array of areas: It allocates around $110 billion for roads and bridges, $66 billion for rail, and $39 billion for public transit. Another $65 billion is earmarked for connecting Americans to high-speed Internet, while $65 billion will go to the power grid and $55 billion for drinking-water systems.

The influx comes as municipalities have already collected a historic infusion of $350 billion of federal cash from the American Rescue Plan. Here’s how investors, bankers and analysts expect the new funding will affect the dynamics and borrowers in the muni market:

Credit Boost

“The passage of the Infrastructure Investment and Jobs Act is broadly credit positive for the muni market as the infrastructure investment will boost economic growth and revenues for market issuers,” wrote Yingchen Li and Ian Rogow, co-heads of municipal research at Bank of America, the market’s largest underwriter.

Granted, the aid is a fraction of the $2.6 trillion U.S. infrastructure-funding gap estimated by the American Society of Civil Engineers. But the money “will likely still allow muni market issuers to address growing deferred maintenance costs,” an issue that credit-rating companies have increasingly focused on over the past decade, according to Li and Rogow.

Ann Ferentino, a portfolio manager at Federated Hermes, also pointed to the funding as a “credit positive” given that municipalities typically assume the lion’s share of public-infrastructure investment.

“Historically, a portion of those efforts would have gone unaddressed, delayed or been funded through additional debt issuance that strained cash flows and eroded credit quality,” she said. The act will “take a load off states and municipalities by addressing decades of underinvestment in physical projects, a positive for investors in the broad muni securities market.”

Supply Disappointment

Some market observers initially expected the infrastructure plan and separate legislation would spur a flood of bond sales. Lobbying groups had advocated for the restoration of a debt-refinancing tool known as advance refunding as well as the revival of an Obama-era bond program. But those items didn’t make the final bill, dousing expectations for a deluge of issuance.

The infrastructure plan “isn’t likely to lead to a major increase in muni issuance,” according to Cooper Howard, a fixed-income strategist at Schwab Center for Financial Research.

“The package contains a few muni-friendly elements that could lead to a modest increase in muni issuance, such as the expansion of private-activity bonds, but issuance is unlikely to surge,” he wrote in an email.

State and local governments have sold about $412 billion of long-term bonds this year, around 0.6% less than the same period in 2020, data compiled by Bloomberg show.

Issuance Decline Mulled

There’s even the prospect of a decline in borrowing ahead because of the aid.

Charles Peck, head of public finance at Wells Fargo & Co., estimates new muni sales will be “flat to slightly up” in 2022 compared with this year. But he also envision another scenario.

“We could see a decline in issuance because there is so much cash available and some governments have paused as they try to figure out how to best use the money,” he said.

However, once issuers figure out those logistics, the infrastructure bill could spur more sales as larger projects get off the ground. He expects more borrowing for “ancillary infrastructure” projects like broadband and electric vehicles.

Mikhail Foux, head of municipal strategy at Barclays Plc, also anticipated a “capping effect” on new bond sales.

“Some of the funds municipalities will be using and would’ve been funded through the capital markets and now they won’t have to bond for it,” he said.

Some muni provisions could yet re-emerge in the Build Back Better Act, which is more focused on Democrats’ social priorities, said Matt Fabian, a partner at Municipal Market Analytics.

“Since that bill has been sent back for more discussion that means that the muni provisions are not dead, things can always come back as the bill is rethought,” Fabian said.

Bloomberg Markets

By Danielle Moran

November 17, 2021, 12:15 PM PST

— With assistance by Amanda Albright

Expansion of Qualified Private Activity Bond Categories Under the Infrastructure Investment and Jobs Act : Ballard Spahr

On November 15, President Biden signed the Infrastructure Investment and Jobs Act (PL 117-58) into law. This Act introduces more than $550 billion in new infrastructure spending in addition to reauthorizations of existing programs for a total of $1.2 trillion in federal infrastructure investment in local communities over the next eight years. The spending covers broadband infrastructure; air quality improvements; road, bridge, and tunnel repairs and reconstruction; rail and transit improvements; and clean water infrastructure.

The Act amends the tax-exempt bond provisions of the Internal Revenue Code (Code) to enhance the financing options available to state and local government to address the highlighted infrastructure needs. Specifically, the package adds two new categories of exempt facility private activity bonds (PABs) and additional volume cap for transportation PABs.

Here is what you need to know about the new PAB provisions:

Broadband Projects. The Act introduces qualified broadband projects as a new category of exempt facility PABs under Section 142(a) of the Code. Qualified broadband projects include facilities for the provision of broadband internet access to census tracts in which a majority of households lack broadband access prior to the date of issuance of qualifying bonds. Notably, this new category of PABs enjoys a 75% exemption from the volume cap requirements for privately owned projects and a 100% exemption from volume cap for government-owned projects.

Carbon Capture Facilities. The Act also adds qualified carbon dioxide capture facilities as a new category of exempt facility PABs under Section 142(a) of the Code. Qualified carbon capture facilities include key clean energy technologies such as eligible components of industrial carbon dioxide emitting facilities used to capture and process carbon dioxide, and direct air capture facilities. An eligible component is further defined by the Act as any equipment that is used to capture, treat, or store carbon dioxide produced by industrial carbon dioxide facilities or is related to the conversion of coal and gas byproduct into synthesis gas. Section 45Q(e) of the Code, relating to the business tax credit for carbon capture, defines a direct air capture facility as any facility which uses carbon capture equipment to collect carbon dioxide directly from air. Together, these technologies seek to capture and sequester emissions produced by power plants and industrial facilities that contribute to climate change. This new category of exempt facility PABs also enjoys a 75% exemption from the volume cap requirements for qualifying projects. As a partial offset, however, any otherwise available carbon capture credit is reduced by up to one-half if bonds are issued under this provision to finance the qualifying assets.

Qualified Transportation PABs. Additionally, the Act adds $15 billion to the national volume cap limitation available for qualified highway or surface freight transfer facilities. The prior volume cap limitation of $15 billion had largely been exhausted. The limitation for qualified highway or surface freight facilities is available by application to the U.S. Department of Transportation.

by Marybeth Orsini, Charles S. Henck, Jean S. Everett, Sheila Kles, and Andrew T. Wang

November 15, 2021

Copyright © 2021 by Ballard Spahr LLP.

Infrastructure Investment and Jobs Act: Cybersecurity Impacts on the Energy Sector.

The November 15 signing of the Biden administration’s bipartisan $1 trillion Infrastructure Investment and Jobs Act offers a prime opportunity to review the legislation, which brings a significant reinvestment in America’s energy infrastructure and an opportunity for many in the energy sector. Unsurprisingly, following the Solarwinds Orion compromise and the ransomware attack on the Colonial Pipeline, cybersecurity features centrally in the act’s provisions.

Service providers hoping to benefit from the act’s substantial funding must be keenly aware of the cybersecurity requirements it implements, as they offer both potential opportunities for the prepared and potential pitfalls for the unwary. Although it would be impossible to analyze the full impact of the cybersecurity provisions here, we hope to highlight key aspects that warrant your further attention.

Cybersecurity Plans

One of the key cybersecurity provisions of the Infrastructure Investment and Jobs Act is its imposition of cybersecurity requirements as a potential precondition to receive federal funds. These requirements include submission of a cybersecurity plan demonstrating that the applicant has a mature cybersecurity program and a plan for maintaining cybersecurity throughout the life of the project. The plan will require detailed descriptions of how cybersecurity will be maintained, how ongoing risk evaluations will be conducted, how vulnerabilities or compromises will be reported and how Department of Energy cybersecurity programs will be leveraged.

These requirements create an urgent need for utilities, contractors and suppliers to ensure that they have robust cybersecurity mechanisms in place. The best way to do this is through regular risk assessments identifying gaps in technical, administrative and physical security. These assessments should be overseen by outside counsel so that potential security gaps and liabilities can be identified and rectified in a privileged manner before it becomes necessary to demonstrate that cybersecurity maturity to potential clients or funders.

Application of Cybersecurity Standards

The act further cements the centrality of two key cybersecurity models, the DOE’s Cybersecurity Capability Maturity Model and the National Institute of Standards and Technology’s Framework for Improving Critical Infrastructure Cybersecurity. Both models provide a procedural framework for evaluating an organization’s cybersecurity, conducting risk assessments and targeting future improvements. The act, however, makes these previously voluntary standards the default and requires documentation of any deviations, establishing their central role in discussions of cybersecurity going forward.

Continued Reporting

Perhaps the most significant change that we anticipate is the focus on continued evaluation and patching of cybersecurity risks. The cybersecurity plans potentially required under the act require ongoing evaluation and threat reporting, and the act provides a route to compliance by establishing a “voluntary” reporting program, encompassing:

  1. Product testing,
  2. A vulnerability reporting process,
  3. Technical assistance to close vulnerabilities,
  4. Biennial reviews of tested products and analysis of how they respond to and mitigate threats, and
  5. Development of procurement guidance.

These ongoing requirements create an extended service obligation for vendors and contractors, which we anticipate may be filled by the original manufacturers and suppliers of equipment, by operations and maintenance contractors or by other third-party vendors. We also anticipate that, with increased and extended cybersecurity scrutiny, suppliers and contractors will face increased litigation risks as more vulnerabilities are identified and required to be corrected. Such reporting processes will also expose suppliers to potential compromise of intellectual property or the potential harm of inaccurate threat assessments.

Funding Opportunity

Although the Infrastructure Investment and Jobs Act imposes significant additional obligations on the energy industry, it also provides significant opportunities for growth through rate-based cybersecurity incentives, $250 million in grants and technical assistance for rural and municipal utilities and $250 million in grants for enhanced power grid security.

This funding creates massive opportunities for those with the cybersecurity infrastructure in place to satisfy the act’s requirements. We also note, however, concern that the added requirements connected to this funding may disadvantage smaller businesses, including women- and minority-owned business enterprises, that have not yet developed cybersecurity maturity, potentially forcing partnerships with more mature actors or reliance on external cybersecurity resources.

Key Takeaways

Cybersecurity requirements are not new to the energy sector, but the act significantly expands their application, creating both risks and opportunities for the energy industry. We encourage industry participants to begin thinking proactively about the act’s impacts, how best to position themselves to take part in government-funded projects subject to those requirements and what risks might lurk within these provisions.

Duane Morris LLP – Owen Newman and Chris J. Chasin

November 16 2021

Electricity Transmission Provisions in the Bipartisan Infrastructure Bill: Bracewell

On Monday, November 15, 2021, President Biden signed into law the $1.2 trillion Infrastructure Investment and Jobs Act (the “Act”), commonly referred to as the Bipartisan Infrastructure Bill. The package provides funding opportunities for a variety of traditional infrastructure projects, including approximately $65 billion for energy and electric grid development. The Act’s energy provisions are diverse, and include opportunities for those investing in grid resilience and reliability, research and development for newer and emerging technologies such as battery storage and hydrogen, cybersecurity infrastructure, electric vehicle infrastructure, nuclear power, and emissions reduction technologies, among others. This update focuses on one subset of the energy provisions contained in the Act: direct investment in the nation’s electric transmission and distribution facilities.

Excluding portions of the Act related to research and development, the five provisions offering opportunities for transmission developers and owners beginning in fiscal year 2022 are of particular interest.

Transmission Facilitation Program

The Act establishes a Transmission Facilitation Program – funded by a $2.5 billion revolving loan fund – that allows the Department of Energy (“DOE”) to offer loans to, and enter into capacity contracts with, transmission developers in order to provide financial stability to proposed transmission projects. As envisioned, DOE’s implementation of the Transmission Facilitation Program will include DOE’s contracting with transmission developers for long-term capacity service with contract terms of up to 40 years, and for capacity not to exceed 50 percent of a transmission project’s total proposed transmission capacity. In addition to entering into such long-term transmission service contracts, DOE now has statutory authority to be a lender to qualifying transmission projects and provide technical assistance in “designing, developing, construction, operating, maintaining, or owning an eligible project.”

The Transmission Facilitation Program is specifically aimed at larger transmission projects – for new projects, only those capable of transmitting at least 1,000 MW qualify. However, upgrade projects may also qualify to participate as long as the upgrade is capable of transmitting at least 500 MW.

The Act funds the program but expects DOE to recover its costs from eligible projects either as a lender to the eligible project or, in the case of a transmission capacity contract, DOE may recover its investment through revenue recovered by the project’s ultimate customers. The Act directs DOE to terminate its capacity contracts “as soon as practicable” – i.e., once DOE determines that the project is independently financially viable – by reselling the capacity to third party marketers or relinquishing the capacity back to the developer. The Act also stipulates that DOE’s implementation of the Transmission Facilitation Program will provide that any DOE funds that a developer expends on studies for projects that are never constructed need not be repaid.

DOE Competitive Grant Program

The Act provides $5 billion in funding to DOE to establish a competitive program to fund grid resilience projects. Half of the funds will be awarded by DOE directly to eligible entities (which includes transmission owners and operators) and the other half will be distributed to states and Indian Tribes to fund their own resilience grant programs. Additionally, the Act’s small utilities “set aside” provides that at least 30 percent of grant funds must be made available to entities that sell no more than 4 million megawatt hours of electricity per year. The DOE Competitive Grant program must be initiated by DOE by May 14, 2022.

An interested applicant, in addition to abiding by any rules to be established by DOE, will be required to provide a report detailing its “past, current, and future efforts…to reduce the likelihood and consequences of disruptive events.” At least part of the justification for this provision is that entities will be limited to receiving a grant that is no more than the total amount it has spent in the prior three years on “efforts to reduce the likelihood and consequences of disruptive events.”

Grant recipients are required to spend proceeds on the any of the following activities:

(A) weatherization technologies and equipment;

(B) fire-resistant technologies and fire prevention systems;

(C) monitoring and control technologies;

(D) the undergrounding of electrical equipment;

(E) utility pole management;

(F) the relocation of power lines or the reconductoring of power lines with low-sag, advanced conductors;

(G) vegetation and fuel-load management;

(H) the use or construction of distributed energy resources for enhancing system adaptive capacity during disruptive events, including— (i) microgrids; and (ii) battery storage subcomponents;

(I) adaptive protection technologies;

(J) advanced modeling technologies;

(K) hardening of power lines, facilities, substations, of other systems; and

(L) the replacement of old overhead conductors and underground cables.

Federal Transmission Siting Authority Reform

The Act amends Section 216 of the Federal Power Act in an attempt to reinvigorate DOE’s and the Federal Energy Regulatory Commission’s (“FERC”) backstop transmission siting authority. Initially established by the Energy Policy Act of 2005, Section 216 allows FERC to issue permits with eminent domain authority to transmission projects located in national interest electric transmission corridors (“National Interest Corridors”). National Interest Corridors are designated by DOE through the issuance of a study and report that it is required to complete every three years. DOE’s most recent report, however, issued in 2020, did not designate any National Interest Corridors. Dep’t of Energy, National Electric Transmission Congestion Study vi (2020).

FERC’s ability to issue permits under Section 216 was limited following a 2009 Fourth Circuit decision that interpreted the language of Section 216 as prohibiting FERC from issuing permits in the event a state agency expressly denied a transmission project’s siting application. Piedmont Env’t Council v. FERC, 558 F.3d 304, 309 (4th Cir. 2009). In other words, following Piedmont, FERC could use Section 216 when a state agency failed to act within a certain timeframe but could not issue a permit under Section 216 after a state agency actually denied a siting application.

The Act is intended to “undo” the adverse impact of Piedmont on DOE’s backstop authority and includes express language authorizing FERC to issue a permit where a state authority “has denied an application seeking approval” for the siting of electric transmission facilities located within a DOE-designated National Interest Corridor.

In designating National Interest Corridors, DOE must look to a variety of factors, including whether a lack of adequate electricity is imposing economic constraints on a particular region of the country, and non-economic factors such as whether a designation would serve the national interests and whether it would promote energy independence. The Act expands the scope of DOE’s review by providing additional factors DOE may consider in providing a National Interest Corridor designation. Specifically, DOE may now review whether a designation will “enhance the ability” of electric generation facilities “to connect to the electric grid,” whether the designation will decrease electricity costs for consumers, and also whether the designation will enhance the United States’ energy security.

Whether this expansion to the backstop federal transmission siting authority, and additional factors DOE may consider in designating National Interest Corridors, will result in change will depend on how DOE and FERC implement the new provision. DOE is not required to issue a new transmission siting study until 2023. Because there are currently no DOE-designated National Interest Corridors, FERC is unable to issue permits under Section 216 today. Nevertheless, the Act’s changes to Section 216 could significantly redefine the federal government’s role in the siting of electricity transmission projects – a role that has historically been almost exclusively within the purview of the states.

Smart Grid Investment

The Act provides additional funding – $3 billion – and expands the scope of qualifying projects under DOE’s Smart Grid Investment Matching Grant Program, 42 U.S.C. § 17386. Under this program, DOE may issue grants covering up to 50 percent of the costs associated with qualifying “Smart Grid investments.” Transmission owners and developers may now apply for and receive grants to cover expenditures related to the purchase and installation of “advanced transmission technologies such as dynamic line rating, flow control devices, advanced conductors, network topology optimization, or other hardware, software, and associated protocols applied to existing transmission facilities that increase the operational transfer capacity of a transmission network.”

Federal Financial Assistance to Non-Federal Entities for Grid Reliability and Resilience Projects

The Act provides $5 billion for DOE to offer grants to non-federal entities (state and local governments, state public utility commissions, and Indian Tribes) to collaborate with electric sector owners and operators on “innovative approaches…to harden and enhance resilience and reliability.” This program is specifically targeted to allow states to develop resilience programs in coordination with municipal entities and rural electric cooperative entities “on a cost-shared basis.” The program additionally appropriates $1 billion in financial assistance to rural and remote areas for the same purpose. The program must be established by DOE by May 14, 2022.

Bracewell LLP – Boris Shkuta, Michael Brooks, Stephen J. Hug, Rachael Novier Marsh and Catherine P. McCarthy

November 18 2021

Modernizing American Infrastructure Requires People and Procurement, Not Just Dollars.

This time, it really was Infrastructure Week. On November 15, President Joe Biden signed into law the first comprehensive infrastructure bill in a generation, including over $500 billion in new spending to upgrade broadband, roads, bridges, public transit, energy, clean drinking water, and other infrastructure systems.

While the bill is ambitious, it still misses important opportunities to modernize state and local governments. Without that focus, a large percentage of the funding in the enormous bill will inevitably be spent on the same types of projects we’ve been building for the last several decades—not the transformative projects we need.

Building those kinds of transformative infrastructure projects will require modernizing workforce development systems and procurement techniques. Unfortunately, the infrastructure bill doesn’t do enough to help state and local partners with these essential inputs. If the nation wants generational impacts, we can’t afford to overlook operational capacity.

Continue reading.

The Brookings Institution

by Ellory Monks

November 19, 2021

Infrastructure Investment & Jobs Act: What it Means for GFOA Members

On November 15, the Infrastructure Investment & Jobs Act (IIJA) was signed into law by the President. The highly anticipated bill authorizes $1.2 trillion for transportation and infrastructure spending with $550 billion of that figure going toward “new” investments and programs.


Federal Infrastructure Bill Set to Supercharge P3 Spending: Saul Ewing

Development through public-private partnerships or “P3s” has increased sharply in the past several years, and is poised for an even bigger jump thanks to Uncle Sam. The infrastructure bill, which passed the U.S. House of Representatives last week as H.R. 3684 and which President Biden signed into law on November 15, 2021, aims to directly increase P3 spending by tens of billions of dollars. The bill is also likely to dramatically increase the number of P3 projects by making hundreds of billions of dollars available for infrastructure improvements across the United States.

One significant benefit to P3 development should come from proposed changes to private activity bond legislation. Private activity bonds or “PABs” allow state governments to issue tax-free municipal bonds for the benefit of private entities that finance one of 27 categories of public works projects. As of 2021, states may issue PABs for P3 projects at a rate of up to $325 million per year or $110 per resident, whichever is greater. Federal law also caps highway and surface freight financing through PABs, which includes road, bridge, and tunnel projects, at $15 billion total across all states.

The infrastructure bill takes two big steps to increase PAB spending. First, it increases the cap for highway and surface freight projects from $15 billion to $30 billion. Second, and potentially more impactful, the bill would exempt from state caps 75 percent of PABs issued for qualifying broadband and carbon capture projects. In other words, the vast majority of P3s focused on broadband access and carbon capture could more easily be financed through tax-free municipal bonds.

But the PAB provisions are only half the story when it comes to H.R. 3684’s impact on P3s. With $110 billion earmarked for roads and bridges, $66 billion for railways, $65 billion for power infrastructure, and $39 billion for public transit, as well as tens of billions more for airports, sea ports, and water infrastructure, vast sums of money are likely headed to P3 projects.

The infrastructure bill will accelerate the recent U.S. trend of increased P3 spending. In 2020, the U.S. saw 84 active P3 projects – a more than 300 percent jump from 2018. P3 activity in 2022 and beyond is all but certain to dwarf those figures given the infrastructure bill.

Saul Ewing Arnstein & Lehr LLP

November 16, 2021

Developing WIFIA's Guarantee Capabilities for Taxable Municipal Bonds.

Legislative developments threw a few disappointments at water infrastructure finance recently, but there is a way to make at least a little lemonade from two Congressional lemons.

Legislative developments threw a few disappointments at water infrastructure finance recently. But there is a way to make at least a little lemonade from two Congressional lemons.

Lemon 1: Restoration of Direct-Pay Bonds Cut from BBB

A provision to restore and expand direct-pay bonds was approved by House Ways & Means for inclusion in the Build Back Better (BBB) legislation earlier this year. This was one of three provisions to increase the flexibility and reduce the cost of municipal finance. The other two, also originally approved, would reinstate tax-exempt advance refunding and expand the small tax-exempt issuer exception. However, in the Congressional horse trading required to resize the BBB to $1.75 trillion, direct-pay bonds and the other provisions were cut. Notwithstanding a compelling letter sent to Congress by thirty municipal groups (including AWWA, NACWA and WEF), the bond provisions are unlikely to be back in the final bill.

All the provisions would have benefited the US water sector, but the restoration of direct-pay bonds would have been especially useful for water infrastructure renewal. This is because they are taxable bonds that receive federal support in the form of a cash subsidy (not a tax-exemption) and can be bought globally by institutional investors. These investors are well-suited to finance long-lived assets, and they have a lot of appetite for US infrastructure in particular. Taxable bonds are also more flexible for innovative approaches that include impact and other pay-for-performance features which will interest the rapidly growing base of worldwide ESG and impact investors. Such risk-transferring features can be especially useful to water agencies in dealing with the infrastructure funding challenges of climate resilience and water equity.

Lemon 2: WIFIA Loan Program Authorization Flatlined in BIF

The recently passed $1.2 trillion Bipartisan Infrastructure Framework (BIF) has a lot of great new and expanded funding provisions for the water sector. Drinking and Clean Water State Revolving Funds in particular got a big and well-deserved boost. The EPA’s Water Infrastructure Finance and Innovation Act (WIFIA) loan program was also reauthorized at $50 million per year for 2022-2026. But this authorization is slightly less than prior years. Relative to the other water-related provisions in the BIF that saw significant increases, this is disappointing.

The flatline of WIFIA’s authorized funding is puzzling. The program has been remarkably successful since operational inception in 2018. Not expanding its resources would seem to indicate a perception that WIFIA has limited usefulness despite its initial success. This is somewhat understandable in light of WIFIA’s portfolio to date. Almost universally, WIFIA loans are to highly rated water agencies that could have otherwise issued tax-exempt bonds. WIFIA loans have some very valuable features, especially with respect to construction period interest rate management, but in many ways they’re not very different from tax-exempt water revenue bonds. Perhaps the program is seen as filling a niche purpose and not as a source of transformational or uniquely valuable financing for US water infrastructure?

This perception is completely incorrect. WIFIA’s legislative framework and its proven team are capable of much more. The portfolio to date should be seen as demonstrating WIFIA’s capabilities in efficiently sourcing and executing loans with high-quality borrowers that have excellent alternatives in the capital markets, no mean feat for a federal loan program. That capability is certainly not limited to interest rate management products — and it shouldn’t be. WIFIA is only getting started.

Making Lemonade: Developing WIFIA Guarantees for Taxable Municipal Bonds

Perhaps not much can be done legislatively in the near future to restore direct-pay bonds or expand WIFIA’s authorization. But there is an immediately available path to improve both situations and prepare for the next opportunity in Congress: Develop WIFIA guarantees for taxable municipal bonds.

WIFIA has the capability to attach a US full-faith-and-credit payment guarantee to loans and bonds, including taxable municipal bonds. Such a guarantee has quantifiable value. For example, a federal AAA/AA+ guarantee on a 30-year bond that otherwise would have been rated Baa3/BBB- will save the issuer about 0.50% in interest a year, or about 20% of debt service on a present value basis. In principle, the value of the federal guarantee for lower rated investment-grade bonds is equivalent to the cash subsidy of a direct-pay bond. The value of a guarantee is of course more variable and situational than a direct-pay bond’s cash subsidy payments because it will depend on transaction terms, market conditions, etc. But both mechanisms are forms of direct and monetizable federal support for taxable bonds.

The value of a federal guarantee is not limited to simply raising the credit quality of a standard bond issue. Innovative infrastructure projects and funding sources often have demonstrably sound credit characteristics but financing them in the bond market may be prohibitively costly simply because the story is (by definition) new and unusual. A WIFIA guarantee would make bonds with innovative features much more attractive to investors, which also will familiarize them with the new approaches and create interest in the unguaranteed versions. Jump-starting new markets is a classic role for federal loan programs, and WIFIA is especially well-positioned to do exactly that. Innovation is a central part of the program’s mission — it’s even in the name. Apart from its own expertise and credibility in large-scale infrastructure finance, WIFIA can directly access the climatic and other ESG resources of the EPA to analyze new approaches that private-sector investors can’t consider until they’re more developed. A WIFIA guarantee is effectively an imprimatur on several levels (not just financial) that could have a transformational impact on ESG and resilience water infrastructure investment.

Getting Ready for the Next Legislative Opportunity

Even apart from the benefits of near-term transactions themselves, developing WIFIA guarantees for taxable municipal bonds will advance a much larger objective for municipal and water infrastructure finance. Successful innovation always gets a lot of attention. Even a few transactions that combine innovative approaches with federal support for taxable municipal bonds will demonstrate the value and potential in both WIFIA and direct-pay bonds. It may be a few years before there’s another legislative opportunity to expand WIFIA’s resources and restore direct-pay bonds, but that time will come because the US municipal infrastructure challenge isn’t going away. When it does, a track record of successful transactions, motivated stakeholders among both issuers and investors, and proven capability for large-scale innovation will be very hard for Congress to horse trade away.


by Chad Praul, John Ryan

Nov. 17, 2021

About the Authors: Chad Praul, P.E. is the Domestic Portfolio Director at Environmental Incentives, the only professional services Benefit Corporation that supports mission-driven champions to meet their environmental imperative. He provides expert support for local governments to develop water-related performance metrics and alternative procurement programs such as Pay-for-Performance and Community Based Public Private Partnerships (CBP3).

John Ryan is principal of InRecap LLC, a firm that is focused on federal loan program alternatives for the recapitalization of basic public infrastructure. He has an extensive background in structured and project finance. He recently served as an expert consultant to the U.S. Environmental Protection Agency.

Fitch: Rising Insurance Costs Add to US Public Finance Cyber Pressures

Fitch Ratings-Austin/New York-18 November 2021: The growing pace and sophistication of cyberattacks on US public finance (PF) entities has led to rising costs of, and challenges in acquiring, robust cyber insurance coverage, Fitch Ratings says. Public entities are increasingly required to undergo stringent security audits and adherence to industry best practices in order to purchase cyber insurance. Cyber insurance may become increasingly unaffordable for PF entities with smaller budgets as premiums continue to climb and if insurer guidelines necessitate increased staffing and costs to update older systems and software.

Without the ability to adequately transfer risk, public entities could face greater financial and reputational risks from cyberattacks, which could have negative credit implications. According to a 2021 survey of local governments by the Public Technology Institute (PTI), 59% of municipal IT executives report that their cybersecurity budgets increased from the previous year, yet the majority also felt their cybersecurity budget is inadequate to support ongoing and evolving security initiatives.

The rise of high-profile ransomware incidents in the PF sector beginning in 2018 led PF entities to turn to cyber insurance as a means of risk transfer. With ransom demands generally in the five-digit range, affordable and easy-to-obtain cyber insurance helped reduce financial risk.

However, with soaring ransom demands and recovery costs, insurers have adjusted premiums and prerequisites. With some ransomware demands climbing to six and seven digits, PF entities are getting priced out of quality and comprehensive commercial cyber insurance policies. Cyber insurers paid out about 73% of premiums collected last year, a dramatic rise from about 34% in 2018. Premiums on cyber insurance continue to rise in the wake of the coronavirus pandemic.

Despite higher costs, more and more PF entities are acquiring cyber insurance. About 90% of respondents in PTI’s survey reported having cyber insurance, an increase from 78% the previous year, and 69% noted that their cyber insurance premiums increased since they were last renewed.

PF entities are also experiencing diminishing coverage limits, forcing some entities to purchase multiple policies to achieve the desired level of coverage. Reduced coverage may be more economical but it weakens the effectiveness of cyber insurance as a tool for risk transfer.

In addition to commercial insurance, state-level risk pools are important providers of cyber insurance for many smaller to mid-sized municipal issuers. The Association of Governmental Risk Pools (AGRiP) estimated at least 80% of all local public entities participate in one or more risk pools, which are typically established on a membership basis and oriented toward same-kind government groupings, such as school districts or counties. These pools, in which members agree to share the cost of risk, were established in the US in the 1970s and 1980s to reduce and stabilize general insurance costs when many commercial insurers did not serve the PF market. Public entity risk-sharing pools do not have to deliver profits and external regulation of pools varies from state to state and by type of risk.

Trends in insurance cost pressures may be lagged in risk pools compared with commercial insurance but will eventually drive increased member costs and/or expanded coverage at a higher price point. This direction is highlighted by the Texas Association of School Boards (TASB) Risk Management Fund. Privacy and information security coverage was initially offered to members in 2014 for protection against cybercrime but it was available only in conjunction with a member’s school liability coverage. This type of coverage subsequently expanded and larger members with more complex systems had the option to purchase higher coverage limits based on their organization’s needs starting in 2019-2020, with TASB staff evaluating each member to determine the additional cost for requested higher limits.


Omid Rahmani
Associate Director, US Public Finance
+1 512 215-3734
Fitch Ratings, Inc.
Terrace 1
2600 Via Fortuna, Suite 330
Austin, TX 78746

Rebecca Moses
Director, US Public Finance
+1 512 215-3739

Sarah Repucci
Senior Director, Fitch Wire
Credit Research & Risk Analytics
+1 212 908-0726

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings.

These Americans Are Just Going Around in Circles. It Helps the Climate.

An Indiana city has the most roundabouts in the country. They’ve saved lives and reduced injuries from crashes — and lowered carbon emissions.

CARMEL, Ind. — It’s getting harder and harder to run a stoplight here, because there are fewer and fewer of them around. Every year, at intersections throughout this thriving city, traffic lights and stop signs have disappeared, replaced with roundabouts.

Lots and lots of roundabouts.

There is a roundabout decorated with the local high school mascot, a greyhound and another with giant steel flowers. A three-mile stretch of Carmel’s Main Street has 11 roundabouts alone. The roundabout that locals perhaps prize the most features box hedges and a three-tier bronze fountain made in France. In 2016, it was named “International Roundabout of the Year” by no less than the U.K. Roundabout Appreciation Society, which, according to the Carmel mayor, Jim Brainard, is largely made up of “three guys in a pub.” (Their actual membership is six. But, still.)

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The New York Times

By Cara Buckley

Nov. 20, 2021

Fitch: Inflation, Federal Policy to Weigh on U.S. Colleges

Fitch Ratings-Chicago-18 November 2021: Most U.S. colleges and universities have enough flexibility to absorb inflationary increases for the foreseeable future, though a new Fitch Ratings report says their financial cushion may diminish beyond fiscal 2022.

The higher education sector reduced its labor force sharply at the onset of the pandemic with a decade of job gains evaporated in the space of one year. Median expense growth is expected to inch upward in fiscal 2022 as universities absorb inflationary increases in supplies and labor. ‘Most colleges will be able to absorb inflationary increases to some extent, though they will be working with less financial flexibility beyond fiscal 2022,’ said Fitch Senior Director Emily Wadhwani.

A few key proposals for higher education are included in the current $1.75 trillion budget reconciliation bill – among them a $550 increase in Pell Grant maximum awards. Pell Grants have historically not kept pace with inflation and tuition increases, though the proposed Pell award increase reflects the largest increase in a decade. ‘Implications for institutions with large Pell student bases are generally favorable, including increased access and perhaps increased headroom for tuition growth,’ said Wadhwani.

Sector pressures will continue to weigh most heavily on Fitch-rated colleges rated ‘BBB’ and below. ‘Institutions with limited financial reserves have borne the bulk of recent negative rating actions and remain the most vulnerable to credit deterioration, consolidation and closure,’ said Wadhwani. ‘Market performance buoying endowment valuations will only serve to widen that gap further in coming years.’

Undergraduate enrolment is down over 6% since fall 2019 through the pandemic. That said, four-year colleges have fared better and selective institutions have even seen increases. Enrolment will be affected by an increasingly competitive landscape, with longer-term implications from high school demographic trends, an uncertain immigration trajectory, and increasing levels of remote and hybrid education models.

‘What Investors Want to Know: What’s Next for US Higher Education’ is available at ‘’.

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

U.S. Hospitals Face Financial Reckoning as Federal Aid Dwindles.

More than a year after Saint John’s Episcopal Hospital in Queens admitted the borough’s first Covid-19 positive patient in March of 2020, life is returning to some semblance of normalcy. The three refrigerated tractor-trailers serving as morgues are gone and its halls — once at 150% of capacity — have quieted.

But with the retreat of the worst of the virus comes the reality that for many facilities, the finances never worked. The billions of dollars of aid the U.S. government distributed to hospitals during the pandemic — including advances in Medicare payments — kept struggling facilities afloat, but papered over longstanding problems.

The elective procedures that generate the most revenue haven’t returned to pre-Covid levels. Now, a staffing crisis has emerged as a new challenge just as the final government disbursements are paid out — putting potentially thousands of hospitals at risk. “It does keep me up at night,” said Jerry Walsh, chief executive officer of St. John’s, a safety-net hospital that primarily treats patients that don’t have private insurance.

Federal Support

These risks aren’t yet reflected in the financial markets — an indication of the extent of the federal support. Junk-rated municipal hospital bonds are underperforming the overall high-yield muni index only slightly this year, with a 6.91% return, compared with 7.11% for the overall index. Still, concerns are growing about the added stress of rising labor, supply and interest costs on a system already rife with problems.

“We will see a significant number of failures post-pandemic,” said Steven Shill, head of the health-care practice at advisory firm BDO USA. “All the risks are pointing to probably a tough 18 months.”

Even before the coronavirus, many American hospitals were struggling to adapt to changing models of care, including the shift of even some complex procedures to outpatient settings. Weaker operators are still grappling with the same issues as before the virus, including poorer, sicker and often shrinking populations.

“There is no doubt that the CARES money kept the wolf from the door,” said Ken Kaufman, chair and co-founder of health-care consultancy Kaufman Hall, which estimates that more than a third of the 6,000 or so hospitals in the U.S. are losing money. His group also forecast the pandemic has cost them close to $400 billion this year and last.

More than three dozen hospitals entered bankruptcy in 2020, compared with just two this year, according to data compiled by Bloomberg. That includes Chicago’s Mercy Hospital and Medical Center, which filed Chapter 11 in February and was sold for just $1.

Turnaround adviser Alvarez & Marsal calculated that operating expenses jumped 5% last year at the 25 largest hospital systems, and those have the benefit of scale. St. John’s, for example, has been paying thousands of extra dollars a week to staffing agencies for certain positions to compete with larger systems for health-care workers, Walsh said.

“For safety-net hospitals, it’s an issue,” Walsh said. With enough state money to just survive under normal circumstances, “when you run a Medicaid business and they haven’t raised Medicaid rates in New York in 13 years, it’s a problem.”

Hospitals received $178 billion through the Provider Relief Fund, with most funding distributed or about to be. But the remaining aid doesn’t change the long-term problem that many don’t bring in enough to pay their bills.

“The upcoming disbursements won’t account for expenses and lost revenue from the spring and summer surges across the country due to the delta variant,” American Hospital Association executive vice president Stacey Hughes said in a statement to Bloomberg.

After the pandemic abates, labor and supply costs will be permanently higher, chiseling margins for a well-run hospital to 1.5% to 2% from an already-modest 3%, according to Kevin Holloran, a senior director at Fitch Ratings.

And though defaults have been low, an uptick in interest rates could change that. Felicia Gerber Perlman, who co-heads the bankruptcy and restructuring group at law firm McDermott Will & Emery, expects the next wave of distress to hit in the second half of next year. Rural facilities, urban hospitals that rely on publicly-funded insurance and centers in communities that can’t support more than one hospital are expected to be hot spots.

“Now the federal aid is ending, but you still have underlying issues that will be facing the system,” Perlman said.

Bloomberg Markets

By Lauren Coleman-Lochner

November 18, 2021, 5:15 AM PST

— With assistance by Dawn McCarty

Senior Living Facility Defaults in Muni Market Break Record.

Senior living facility defaults in the municipal bond market are at a record high and the distress won’t likely end soon.

The persistence of the pandemic is driving up labor costs — and a federal mandate to vaccinate all health-care workers may amplify an already serious worker shortage. Meanwhile, occupancy at independent and assisted living facilities hasn’t bounced back from record lows even as vaccination rates increase and facilities end move-in moratoriums.

About $1.6 billion of muni bonds issued for senior living facilities have defaulted this year, representing 4.3% of the sector’s $37.6 billion of debt as of Jan. 1, according to Municipal Market Analytics. Thirty-one borrowers have missed a debt payment for the first time, tying the full year record set in 2020.

“Covid has made labor costs much higher, made staffing much more difficult and made occupancy more volatile,” said Matt Fabian, a partner with Municipal Market Analytics. “Longer term it’s a sector with good prospects, medium term, we’re probably going to see more defaults.”

The Covid-19 pandemic, which was especially lethal to the elderly, has roiled the finances of senior living facilities. Operators faced increased costs for staff and protective equipment as well as move-in restrictions from state health agencies. Now, a nationwide labor shortage has become the biggest issue facing senior facilities. Workers are leaving for many reasons: low pay, burnout, fear of contracting Covid-19 or caregiving responsibilities, according to an October Morning Consult poll.

Kept Afloat

Assisted living facility employment fell by 38,000 since the beginning of the pandemic, or 8.2%, and financially strapped providers are struggling to compete for qualified staff, according to a Nov. 10 report by the American Health Care Association and its National Center for Assisted Living.

The AHCA/NCA, which represents more than 14,000 nursing homes and assisted living facilities, said that a Biden administration mandate requiring health-care workers become fully vaccinated against Covid-19 by Jan. 4. could exacerbate a “dire workforce crisis.”

“Across the country, access to long term care is becoming strained as providers have no choice but to limit admissions or even close their doors,” Mark Parkinson, president and chief executive officer of AHCA/NCAL said in a Nov. 4 news release.

Occupancy at independent and assisted living facilities rose to 80.1% for the three months ended Sept. 30, from 78.7% in the previous quarter, according to survey by the National Investment Center for Seniors Housing & Care.

While many senior living facilities were kept afloat by federal Paycheck Protection Program loans last year, additional aid hasn’t been forthcoming, Fabian said.

“Many of these assisted living projects are shoestring operations, so additional mandates are difficult,” he said. “A lot of them need more money.”

Bloomberg Markets

By Martin Z Braun

November 17, 2021, 10:31 AM PST

Muni-Bond Appeal for Wealthy Seen Easing With a Higher SALT Cap.

The revival of proposals in Congress to increase the cap on state and local tax deductions threatens to erode some of the demand in the $4 trillion municipal bond market from rich Americans.

Democrats are deciding between at least two proposals to change the limit imposed in the 2017 tax law revision. That change capped state and local tax deductions at $10,000, an unpopular move with wealthier Americans in high-tax states such as California, New York, Connecticut and New Jersey who sought to ease the impact on their tax bill with investments in tax-exempt bonds.

“If this cap was lifted, then the incremental demand would likely decline a bit” in the highest-tax states, said Eric Friedland, director of municipal research for Lord Abbett & Co., which holds $36 billion in muni assets. Still, any higher taxes at the federal, state or local level would serve to counter the impact and “further enhance the relative value of municipal bonds,” he said.

The SALT cap helped propel record flows of cash into municipal-bond mutual funds, which have seen 37 straight weeks of gains, according to Refinitiv Lipper US Fund Flows data. Year-to-date, investors have added $78.2 billion to muni funds, according to the Investment Company Institute. The record inflows have helped keep yields from rising too far above historic lows set in 2020 as demand overwhelmed the supply of bonds coming to market.

Demand has topped muni supply, keeping yields tight

That growth rate into mutual funds would slow as wealthier Americans in higher-tax states would see their tax liability lessened if the cap is increased, said Cooper Howard, director of fixed income strategy for the Schwab Center for Financial Research. “I would expect that we would not see new record inflows in mutual funds and ETFs,” Howard said in an interview.

A potentially higher cap is one piece of a “shifting landscape” and could spur “modestly” higher muni yields, Howard said. The benchmark 10-year muni rate is hovering around 1.1%, which is relatively low by historical comparisons and investors have been on the look out for higher yields.

“Raising the limits on SALT can help undo some of the nosebleed prices bonds in both NY and CA have experienced since 2017,” said Eric Kazatsky, an analyst for Bloomberg Intelligence.

Bloomberg Wealth

By Shruti Singh

November 19, 2021, 9:32 AM PST

Municipal Bond Funds On Track For Record Inflows In 2021.


Continue reading.

Seeking Alpha

Nov. 21, 2021

What Advisors Should Know About Muni Bonds for 2022.

With tax season on the horizon, munis are on the mind. Municipal bonds, which are utilized to fund government activities and special projects, are generally free from federal taxes for their shareholders. They have become an important tax planning tool, which heightens their importance as tax season looms.

Recently, ETF Trends’ managing editor Lara Crigger sat down with Joseph Gotelli, vice president and senior portfolio manager for American Century Investments, to discuss the role that muni bonds can play in a diversified, income-generating portfolio. Gotelli joined American Century in 2008, after seven years at Franklin Templeton Investments, where he served as assistant portfolio manager on various long- and short-term municipal bond portfolios.

Lara Crigger, managing editor, ETF Trends: We’ve seen massive flows entering the muni bond space this year. What market conditions have made munis such an attractive option?

Joe Gotelli, vice president and senior portfolio manager, American Century Investments: Year to date, the asset class has had a very strong run. That was predominantly front-loaded at the beginning of the year, on the tail of the direct aid state and local governments received in mid-March under the American Recovery Plan Act (ARPA). That put a strong backstop into the fundamental view of the municipal credit market.

Additionally, the continuing recovery of the economy along with strong revenues at the state and local level really provided a tailwind for credit spreads early in the year. Combine that with expectations for large spending plans out of Washington and the potential for higher income taxes and corporate taxes, it helped to put tax mitigation on investors’ minds. The attractive taxable equivalent yields the municipal market offers, combined with low default rates and low correlations to other asset classes, make a good case for owning municipals.

Then, as we look forward to 2022, we’re probably looking at a more difficult rate environment. Rates have moved up recently, so total returns have come off the asset classes. A negative total return environment has created a little bit of a headwind for inflows into muni bonds. Investors have a more cautiously optimistic outlook for the fourth quarter and beyond. Still, there’s lots of reasons to love the tax-exempt asset class as a whole.

Crigger: But there’s still the expectation among investors of higher taxes down the line. Has that expectation evolved any, with all the back-and-forth in Congress?

Gotelli: Earlier in the year, investors were pricing in a higher probability of more extreme tax moves, in terms of what was proposed originally by the Biden administration. A lot of that has been taken back as the negotiations have continued. You’ve seen that in the ratio between municipals and treasuries. Mid-June is when we reached a recent peak in richness of the asset class, and since then, you’ve seen the relative value between munis and Treasuries ease off to become a more normalized range in the short term, but still generally rich over the long history of these ratios.

I do think investors recognize that it’s probably not going to be [a situation] where short term capital gains skyrocket, and that, really, it’s going to be on the margin for those earning $400,000 or more. The corporate tax rate is probably only going to go to something like 25–26%. The most extreme scenario was taken off the table.

Investors are focused on owning the right sectors within the municipal market now, underwriting the names that you want to own for the long term. Because much of that credit spread compression — where the asset class earned a lot of the return — is in the rearview mirror for us.

Crigger: What are the right sectors within the municipal market, then? Many strategies take a holistic approach to the market, rather than sector-specific.

Gotelli: The market is predominantly high quality, which speaks to the low historical default rate and the strong fundamentals. But this market is much more than just state and local general obligation bonds. You have a number of sectors on the revenue side that provide investors with incremental yield opportunities, if they can access those sectors in the marketplace. Broadly speaking, the market is about one third general obligation bonds and two thirds revenue bonds.

A huge portion of the market is made of revenue-centric projects: things like education, healthcare, transportation, revenue, utilities, essential services. Given how diverse the muni market is — we have over 50,000 issuers and hundreds of thousands of individual CUSIPs — we have to select using fundamental research that our research team provides us to find those incremental yield opportunities for investors. They might be in sectors like housing, healthcare, even some quasi-corporate style municipal credits. Those are the areas of the market where we’ll capitalize on the relative value between sectors and leverage our research staff to do that deep fundamental analysis and provide the investment opportunities that might not be available in a more passive context.

Crigger: What other advantages does active management provide in the municipal bond market, compared to a market cap-based approach?

Gotelli: As we move away from market cap-weighted benchmarks, that provides us with a lens to view the market in terms of more relative value, and what’s more opportunistic to the end investor. For the passive market participant, sectors such as healthcare, tobacco settlement, certain corporate names might not even be in the consideration set. So active management allows us to take them into the consideration set and view the entire market as an opportunity, rather than just the issuers that have issued the most amount of debt in the marketplace.

I think one thing that I always come back to is, when we talk with our credit team, we think about the fact that an AA-rated hospital is not the same as an AA-rated water bond, which is not the same thing as an AA-rated airport. They’re all high quality, but with different risks. As you move down the credit spectrum, those differences get broader and broader in terms of what the credit quality is versus the yield, or the risk premium that we’re achieving for being in those sectors. Leveraging all of those sectors, leveraging different coupon structures and calls — those are all the ways that we express our views on where there’s relative value opportunity in the marketplace.

Crigger: Can you speak to the diversification benefits of munis in a portfolio?

Gotelli: For the end advisor, the asset class provides some important benefits such as low correlations or even negative correlations to other asset classes. We have a correlation matrix that shows investment grade municipals and their correlation to the S&P 500 Index (over the trailing 10 years) is nearly zero. For high yield municipals it’s less than 0.25.

Crigger: That sort of non-correlation is hard to find nowadays.

Gotelli: Exactly. But when you look at what corporate high yield provides you, it’s obviously a different lever, right? That’s going to have much more correlation to the equity market.

So when an advisor thinks about the municipal market as a whole, some of those factors that can really benefit a client in their broader portfolio come from the levels of credit and credit exposure, rather than just high quality, passive duration exposure. We take the view that having that broad view of the marketplace and having a full representation of the market helps provide the end user of the product that level of diversification over time.

Crigger: You have a municipal bond mutual fund, and you have the American Century Diversified Municipal Bond ETF (TAXF). What is the advantage of using an ETF wrapper for this strategy?

Gotelli: When we designed TAXF, we were really trying to answer that question. We’d stand in front of clients and say, “We have a tax exempt core intermediate fund, we have a tax exempt high yield fund, and we view it as a core plus a satellite in terms of how you want to manage your duration and credit exposure.” And what we found was investors telling us, “Well, you all are the experts. For those of us that believe in active management, we’re willing to allow you to make that call for us.”

That’s what TAXF obviously is for. It tends to be a tool for advisors willing to allow us to make that allocation for them, allow us to take advantage of those opportunities — intra-month, intra-day, whenever we see opportunity. We don’t have to wait for a model to rebalance to tell us how to position the portfolio. We’re doing this, more or less, in real time.

I think that fits really well for advisors that are attracted to the ETF structure as a whole. Then, as a traditional mutual fund manager, the benefit of the ETF structure has become very apparent to me. Whether it’s the levels of liquidity that the exchange offers and that the market offers to the redemption and creation process allowing for some tax efficiency. You allow somebody who’s traditionally focused on taxes — like a tax-exempt mutual fund — to really have an extra tool in their toolkit through that creation and redemption process to help manage the tax exposure in the portfolio.

Crigger: What are folks still overlooking when it comes to muni bonds?

Gotelli: Right now, I think an eye on the duration impact in the portfolio is going to be key in the near term. But in terms of allocation to munis overall, I think that most investors are still underweight. Most could benefit from the tax exemptions, especially for the advisors with a higher net worth clientele in high tax states across the country.

I do think that it is an asset class to hold for the long term, which will help mitigate some of the volatility investors may experience. We have examples where we show just the holding period returns, where you rarely have had two years in a row where you have negative returns. So having a time horizon and being in the market for more than a short-term trade, that’s important too. Because this is an investment vehicle, I wouldn’t call it a trading vehicle. It allows us to use those levers that we just described to strive to achieve those returns over time. That’s how I would view the best way to use the asset class, and TAXF is a great way to access it.



NOVEMBER 17, 2021

How Muni Bond Interest Can Trigger Medicare Premium Hikes.


As investors flock to municipal bonds, also known as muni bonds, the tax-free interest may trigger a costly surprise for higher-income retirees.

There’s been record demand for U.S. municipal bond funds in 2021, with an estimated $85.36 billion in net inflows through September, according to Refinitiv Lipper data.

While demand slid from August through October, investors poured back into muni bonds in November, despite Democrats’ stalled attempts to increase taxes on the wealthy.

Continue reading.

by Kate Dore, CFP®

NOV 17 2021

S&P U.S. Public Finance Rating Activity, October 2021.

View the S&P Report.

18 Nov, 2021

S&P U.S. Not-For-Profit Health Care Outstanding Ratings And Outlooks As Of Sept. 30, 2021.

View the S&P Report.

18 Nov, 2021

Pension Cash Dwindles, Risking Liquidity Crunch.

Cash allocations have dropped to a seven-year low, with pensions seeking greater returns in private markets

Bigger private-market bets, inflation fears and a surge of retirees are putting public retirement funds at risk of a cash crunch that would force them to sell assets at losses to pay pension checks.

Cash allocations have dropped to a seven-year low at the funds that manage more than $4.5 trillion in retirement savings for America’s teachers, police and firefighters. Public pension funds, which have increasingly turned to illiquid private markets to drive up returns, are now aiming to keep about 0.8% of their holdings in cash, according to data from the Boston College Center for Retirement Research.

These funds are managing a juggling act faced by many institutional and household investors who want to put their money to work but also want easy access to it in a pinch.

Continue reading.

The Wall Street Journal

By Heather Gillers

Nov. 22, 2021 5:30 am ET

MTA Fares Stay Put And Louisiana Rejects JP Morgan (Radio)

Joe Mysak, Editor of Bloomberg Brief: Municipal Market, discusses the latest muni news including MTA fares and JP Morgan’s comments on guns affecting a potential deal with Louisiana. Hosted by Paul Sweeney and Matt Miller.

Listen to audio.

Bloomberg Radio

Nov 19, 2021

Investors Still Flocked to Muni Bonds in November.

Riding on the optimism of passing the infrastructure package through the House of Representatives, investors piled into municipal bonds during the month of November.

“There’s been record demand for U.S. municipal bond funds in 2021, with an estimated $85.36 billion in net inflows through September, according to Refinitiv Lipper data,” CNBC reports. “While demand slid from August through October, investors poured back into muni bonds in November, despite Democrats’ stalled attempts to increase taxes on the wealthy.”

The interest in municipal bonds ramped up over the past couple of weeks before culminating in the trillion-dollar infrastructure package being signed into law. However, the package may have snubbed the municipal debt market, but it hasn’t stopped investors in their tracks just yet.

“The municipal market has largely been left out of the infrastructure package signed by President Biden Monday, as well as Democrats’ follow-up social-spending and climate proposal, disappointing investors looking to buy new bonds and local governments trying to manage their debt loads,” a Wall Street Journal report notes. “The package could still help strengthen city and state balance sheets, another possible reason for investor optimism.”

Continue reading.



NOVEMBER 19, 2021

Federal Infrastructure Funds Lessen Public Utility Operating Risk: Fitch

Fitch Ratings-New York/Austin-10 November 2021: The $1.2 trillion Infrastructure Investment and Jobs Act (IIJA), which will soon be signed by President Joseph Biden, includes significant capital funding for utilities to address much needed remediation and resilience projects that will update and replace aging infrastructure and reduce operating risk, Fitch Ratings says. Access to grants and low-cost financing under the IIJA lowers a utility’s cost burden and reduces the need to rely on rate increases to cover costs, which alleviates affordability pressures on the rate base.

With more resilient systems, utilities will be better positioned to mitigate increasing weather and cybersecurity threats and avoid more significant costs in the future. While increased capital spending generally improves a utility’s lifecycle ratio and annual capex/depreciation, we do not expect ratings upgrades in the near-term based solely on any improvement in these metrics.

The total $55 billion available to water utilities is unprecedented and addresses material infrastructure needs that accumulate as systems age. The IIJA adds over $23 billion for both the Drinking Water State Revolving Fund (SRF) and the Clean Water SRF to fund water projects at lower interest rates, resulting in lower debt carrying costs. Funding will provide water and wastewater utilities essential capital funding for remediation of lead service lines ($15 billion) and PFAS and other contaminants, including $5 billion through SRFs and $5 billion through the grant program for small and disadvantaged communities.

Many of the provisions in the IIJA are intended to broaden utilities’ water portfolios, including $100 million in competitive grant funds for water storage projects. Water infrastructure in the western US will receive a separate pool totaling $8.3 billion. Over the medium to long term, these funds will help utilities in the west and southwest fund water storage and alternative water supply projects, such as water recycling, aquifer storage recovery and desalination, offsetting some of the supply pressures experienced due to prolonged drought conditions. The Drought Contingency Plan is also set to receive $300 million under the IIJA to address drought risks to the Colorado River water supply.

IIJA moneys supplement Local Fiscal Recovery Funds for state, local, territorial and tribal governments under the American Rescue Plan Act that may be spent on broader needs and initiatives. A significant portion of these funds are expected to be spent on water and sewer infrastructure.

Water affordability is supported by the Low Income Water Assistance pilot program. This has limited benefit for most of our rated credits, which do not see material nonpayment or have a significant number of customers that would qualify.

Public power utilities will have access to funds that will provide necessary investment in grid resiliency, transmission and cybersecurity, allowing systems to limit incremental borrowings and moderate financial leverage. The most significant amount, $10 billion, is dedicated to strengthening the electric grid’s resilience against extreme weather events, and another $3 billion is available to help increase grid flexibility to respond to events that cause demand volatility. Hydropower projects will receive a boost, with incentive payments in the amount of $628.6 million to help fund hydroelectric capital and efficiency improvements.

Funds are also available to assist public and private entities affected by cyberattacks, with an additional $250 million specifically for rural electric cooperatives or county-owned utilities to boost cybersecurity and respond to cyber threats.

Congress will continue discussions on the broader Build Back Better Act (BBBA) later this month. The BBBA currently includes additional public utility funding, particularly for disadvantaged and rural communities to replace lead service lines. Expansion of clean energy tax incentives are also part of the proposal.

S&P: For U.S. Public Power And Electric Cooperatives, There Are Hurdles On The Path To Decarbonization

Key Takeaways

Continue reading.

8 Nov, 2021

Fitch: Infrastructure Bill Could Spur Overdue Road, Bridge Repairs

Fitch Ratings-New York-09 November 2021: The Infrastructure Investment and Jobs Act (IIJA) provides US state and local governments with important funding to accelerate efforts to address repairs and replacement of aging and failing transportation infrastructure, Fitch Rating says. The roughly $1 trillion bill passed by the House of Representatives on Friday and headed to the President’s desk includes $110 billion for roads and bridges and $39 billion for transit systems. Federal spending can boost state and local transportation improvement efforts already underway, or potentially spur new initiatives.

State and local governments own and maintain nearly the entire inventory of such transportation assets. Assessment of the condition and necessary maintenance costs for these assets is opaque and inconsistent across governments, with very few providing a thorough and current accounting of full needs.

For the past several years, the National League of Cities’ Fiscal Conditions Report has indicated that infrastructure funding is among the main factors negatively affecting budgets. While the IIJA will help state and local governments address key infrastructure funding gaps, the substantial investments are one-time in nature, and responsibility for long-term, sustainable transportation funding remains with state and local governments.

Continue reading.

Fitch: Federal Infrastructure Funds Lessen Public Utility Operating Risk

Fitch Ratings-New York/Austin-10 November 2021: The $1.2 trillion Infrastructure Investment and Jobs Act (IIJA), which will soon be signed by President Joseph Biden, includes significant capital funding for utilities to address much needed remediation and resilience projects that will update and replace aging infrastructure and reduce operating risk, Fitch Ratings says. Access to grants and low-cost financing under the IIJA lowers a utility’s cost burden and reduces the need to rely on rate increases to cover costs, which alleviates affordability pressures on the rate base.

With more resilient systems, utilities will be better positioned to mitigate increasing weather and cybersecurity threats and avoid more significant costs in the future. While increased capital spending generally improves a utility’s lifecycle ratio and annual capex/depreciation, we do not expect ratings upgrades in the near-term based solely on any improvement in these metrics.

The total $55 billion available to water utilities is unprecedented and addresses material infrastructure needs that accumulate as systems age. The IIJA adds over $23 billion for both the Drinking Water State Revolving Fund (SRF) and the Clean Water SRF to fund water projects at lower interest rates, resulting in lower debt carrying costs. Funding will provide water and wastewater utilities essential capital funding for remediation of lead service lines ($15 billion) and PFAS and other contaminants, including $5 billion through SRFs and $5 billion through the grant program for small and disadvantaged communities.

Many of the provisions in the IIJA are intended to broaden utilities’ water portfolios, including $100 million in competitive grant funds for water storage projects. Water infrastructure in the western US will receive a separate pool totaling $8.3 billion. Over the medium to long term, these funds will help utilities in the west and southwest fund water storage and alternative water supply projects, such as water recycling, aquifer storage recovery and desalination, offsetting some of the supply pressures experienced due to prolonged drought conditions. The Drought Contingency Plan is also set to receive $300 million under the IIJA to address drought risks to the Colorado River water supply.

IIJA moneys supplement Local Fiscal Recovery Funds for state, local, territorial and tribal governments under the American Rescue Plan Act that may be spent on broader needs and initiatives. A significant portion of these funds are expected to be spent on water and sewer infrastructure.

Water affordability is supported by the Low Income Water Assistance pilot program. This has limited benefit for most of our rated credits, which do not see material nonpayment or have a significant number of customers that would qualify.

Public power utilities will have access to funds that will provide necessary investment in grid resiliency, transmission and cybersecurity, allowing systems to limit incremental borrowings and moderate financial leverage. The most significant amount, $10 billion, is dedicated to strengthening the electric grid’s resilience against extreme weather events, and another $3 billion is available to help increase grid flexibility to respond to events that cause demand volatility. Hydropower projects will receive a boost, with incentive payments in the amount of $628.6 million to help fund hydroelectric capital and efficiency improvements.

Funds are also available to assist public and private entities affected by cyberattacks, with an additional $250 million specifically for rural electric cooperatives or county-owned utilities to boost cybersecurity and respond to cyber threats.

Congress will continue discussions on the broader Build Back Better Act (BBBA) later this month. The BBBA currently includes additional public utility funding, particularly for disadvantaged and rural communities to replace lead service lines. Expansion of clean energy tax incentives are also part of the proposal.

Key Programs From Landmark $1.2 Trillion Infrastructure Act.

Last Friday the $1.2 trillion bipartisan Infrastructure Investment and Jobs Act (“Infrastructure Act”), which passed the Senate on August 10, 2021, was passed in the House. The $1.2 trillion Infrastructure Act includes $550 billion in new funding for private and public sector initiatives related to energy, transportation, water, manufacturing, technology, and environmental infrastructure.

The $550 billion in new spending includes: $110 billion for roads, bridges, and major projects; $66 billion for passenger and freight rail; $65 billion for broadband; $65 billion for power and grid; $55 billion for water infrastructure; $47.2 billion for resiliency projects; $39.2 billion for public transit; $25 billion for airports; $21 billion for addressing legacy pollution; $16.6 billion for ports and waterways; $11 billion for safety projects; $8.3 billion for western water infrastructure; $7.5 billion for clean school buses and ferries; $7.5 billion for electric vehicle charging; and $1 billion for reconnecting communities.

Now that the Infrastructure Act has been passed, Federal agencies will be tasked with shaping and administering a substantial number of programs related to the Act. For many of the programs, agencies will develop specific eligibility requirements, funding procedures, and compliance and reporting standards. In order to facilitate these processes, federal agencies may seek public comment and input on the administration of these programs. Continuing to monitor these developments is essential for businesses, nonprofits, local governments, and Tribal governments seeking to utilize these programs.

Below are some of the key programs in the Infrastructure Act:

Roads, Bridges, & Major Projects

Passenger and Freight Rail


Power and Grid

Water Infrastructure


Public Transit


Addressing Legacy Pollution

Ports and Waterways


Western Water Infrastructure

Clean School Buses & Ferries

Electric Vehicle Charging

Reconnecting Communities

Kilpatrick Townsend & Stockton LLP – Stephen M. Anstey and John C. F. Loving

November 8 2021

Housing Provision in Reconciliation Bill Eases Private Activity Bond Cap.

States would enjoy more private activity bond volume flexibility under an affordable housing provision in the Build Back Better bill.

The legislation would reduce the so-called financing test for tax-exempt private activity bonds to 25% from 50%. Lowering the threshold would free up states’ private activity volume for more affordable housing, or any other projects eligible for PABs financing.

The threshold provision means developers would only have to use 25% of tax-exempt PABs in their capital structure instead of 50% to qualify for the 4% low-income housing tax credits that are key to the economic feasibility of many affordable housing developments.

“It is a huge change for affordable housing,” said Jennifer Schwartz, director of tax and housing advocacy for the National Council of State Housing Agencies. “It’s really going to significantly extend the amount of affordable housing that we’ll be able to build.”

States like California and New York that regularly hit their PABs cap would especially benefit from the lower threshold as it will free up PABs volume.

“Those states that are cap-constrained are going to have a lot more bond cap for other priorities,” Schwartz said.

There are 20 states that are currently oversubscribed with their volume cap, according to professional services organization Novogradac, which has been analyzing the low-income housing provisions in the legislation. Another 23 states are undersubscribed and seven are at parity, the group said.

The latest version of the $1.75 trillion Build Back Better legislation features a swath of housing-related provisions that together would mean the creation of 936,900 additional affordable homes through 2031, according to Novogradac.

The lowered threshold provision is the largest driver of that new production, and would mean 712,400 more units, the group estimates.

The 4% housing tax credit is the “real economic kicker” for affordable housing, said Kyle Richard, an attorney with Foster Garvey’s Public Finance & municipal Government Practice who has been tracking bond-related provisions in the Build Back Better bill.

“By making it so you only have to finance the project with 25% PABs, essentially that makes it so that you have to hit less volume cap so should be more volume cap available for everybody,” Richard said. “Lowering the threshold also means you have tons more flexibility for how you build your capital structure.”

Like other affordable-housing proposals, the lower threshold was stripped out of an earlier version of the Build Back Better bill but added back in the third version that the House Rules Committee released on Nov. 3.

The House could consider Build Back Better as soon as next week. The Senate would then take up the bill and is expected to impose its own changes.

“The provisions in the bill on the housing credit are very popular,” Schwartz said. “I don’t see these as being anything that would be targeted to be stripped out.”

By Caitlin Devitt


Infrastructure Bill Becomes Law.

President Joe Biden Monday signed into law a $1.1 trillion infrastructure package that will infuse billions into state and local governments.

“We’re taking a monumental step forward to build back better as a nation,” said Biden at a White House ceremony attended by lawmakers, governors, mayors and others. “Things are going to turn around in a big way.”

The bipartisan Infrastructure Investment and Jobs Act, approved by the House in November and the Senate in August, features $550 billion for reauthorization of surface transportation infrastructure spending and another $550 billion for assets ranging from bridges, drinking water, public transit, broadband, rail, electric vehicle chargers, ports and airports.

Biden said the package marked the “most significant investment in roads and bridges in 70 years, most significant investment in rail in 50 years and in public transit ever.”

House Speaker Nancy Pelosi, speaking at the signing ceremony, called the bill the “biggest, boldest investment in our country’s history.”

Supporters say the program will generate thousands of new jobs, grow the economy and make the US more globally competitive.

For the municipal bond market, the infusion of federal money is expected to boost state and local credits. It may also accelerate local projects and lift new money supply as issuers take advantage of the federal cash by borrowing to jumpstart their own projects, said market participants said. Municipal Market Analytics projects the new law could boost 2022 new-money issuance to more than $300 billion, up from a pre-infrastructure bill estimate of $275 billion.

The package also doubles private activity bond volume for surface transportation projects to $30 billion from $15 billion, allows the use of PABs for broadband and carbon capture projects, and features other provisions that are expected to boost public private partnerships.

Biden has appointed former New Orleans Mayor Mitch Landrieu as senior advisor to oversee implementation of the infrastructure program. The president Monday also signed an executive order outlining six priorities for implementation – including building resilient infrastructure that can protect against climate change, effective coordination with state, local, tribal and territorial governments and equitable investment of the dollars – and establishes an Infrastructure Implementation Task Force.

“Today is a monumental day for infrastructure across the country. We look forward to working with the administration to track the funds and get the infrastructure investments where they need to go,” said Emily Brock, the Government Finance Officers Association’s federal liaison.

The Department of Transportation will allocate the money. In a Nov. 8 White House briefing, Transportation Secretary Pete Buttigieg said the agency would focus on supporting projects that show “economic strength, safety, climate, equity, and preparing for the future.”

The largest states will get the most money under the new law. California would see $44.56 billion under the new law. Texas would see $35.44 billion and New York is slated to receive just under $27 billion.

The legislation will be paid for with various revenue streams, including more than $200 billion in unspent coronavirus funds.

The bill had been held up for weeks in the House as moderate and progressive Democrats hammered out differences on a companion bill, the $1.75 trillion Build Back Better legislation. With the infrastructure bill now law, all eyes will turn to Build Back Better, which the House has said it may vote on as early as this week. Moderate Democrats want to wait for a full score from the Congressional Budget Office, which has said it would have by Friday.

By Caitlin Devitt


Construction Ahead: Roughly $1 Trillion Infrastructure Act Tackles Backlog And Future Risks

Key Takeaways

Continue reading.

10 Nov, 2021

S&P U.S. Transportation Infrastructure Sector Update And Medians: U.S. Airport Sector View Is Now Positive

Key Takeaways

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10 Nov, 2021

America Has an Infrastructure Bill. What Happens Next?

Friday afternoons are typically the place to hide bad news, but that wasn’t this.

Late Friday, November 5th, the House of Representatives passed the Senate version of the Infrastructure Investment and Jobs Act (IIJA). The bill now goes directly to President Biden’s desk, where it will certainly become law. America finally has a generation-defining infrastructure bill—and if the reconciliation budget comes through, too, America will begin a building spree larger than what happened during the New Deal.

When landmark legislation like IIJA gets passed, it’s easy to overemphasize victories on Capitol Hill. But that’s not the case for infrastructure. Passing IIJA is only the end of the beginning.

Continue reading.

The Brookings Institution

by Adie Tomer, Caroline George, Joseph W. Kane, and Andrew Bourne

Tuesday, November 9, 2021

Fitch: Personal Income Spike Leads to Fall in Liability Metric for U.S. States

Fitch Ratings-New York-08 November 2021: Liability metrics for U.S. states fell for a fifth straight year in fiscal 2020, with a surge in personal income the primary catalyst, according to Fitch Ratings in its latest annual report. Actual liabilities remain largely unchanged over the past five years, however, indicating slow progress in addressing outstanding states’ outstanding long-term obligations.

Federal measures to support individuals, businesses, and the economy at large helped spark the largest median state personal income jump in 14 years (6.3%). This resulted in Fitch-adjusted net pension liabilities (NPLs) as a percentage of personal income declining to 4.7% in fiscal 2020, from 5.2% as of fiscal 2019 across all states.

“Rapid personal income growth is likely to continue in 2021, given additional federal pandemic aid enacted early in 2021 and the broader economic recovery, with gains in 2022 likely to slow as federal aid expires,” said Senior Director Doug Offerman. “Combined with rebounding investment markets, state liability burdens are likely to see further near-term declines.”

Although their rankings shifted slightly compared to last year, the five states with the highest burdens remain unchanged, including Connecticut, Illinois, Hawaii, New Jersey and Alaska. Except for Alaska, the highest burden states have long-term liabilities above 20% of personal income. Fitch’s data also shows 43 states with carrying costs below 10% of governmental expenditures in fiscal 2020, which Fitch views as low. Two states (Connecticut, Illinois) have elevated carrying costs in excess of 20% of governmental expenditures.

“States by and large avoided reductions to pension contributions as they addressed budget gaps with surging revenues and federal relief limiting fiscal damage from pandemic shutdowns,” said Offerman. “Solid contribution practices look to continue at least in the near term, given the expansive fiscal flexibility provided by the economic rebound and the continued availability of federal pandemic relief funds available to offset other state needs.”

Over the five years since changes to pension accounting resulted in more consistent reporting, the ratio of state pension assets to liabilities has barely changed. Adjusted to reflect a standard 6% investment return, the ratio stood at 61.7% in fiscal 2020, up from 60.4% in fiscal 2016. The stability of this ratio over time suggests that the state pension changes intended to improve sustainability have not yet meaningfully lowered pension burdens.

“State Liability Burdens Shrink in Fiscal 2020” is available at

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Sustainable Fitch ESG Encyclopedia.

The ESG Encyclopedia provides insights on the credit relevance and materiality of all sector specific environmental credit issues, including air quality, energy and fuel management, water, and more.

This volume of Fitch’s ESG Encyclopedia provides insights on the credit relevance and materiality of all sector specific environmental credit issues, namely:

It explains how these issues can translate into relevant credit issues and materialise as credit risks. As such, it constitutes an absolute reference for investment professionals who need to integrate ESG in their credit investment or risk management processes.

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S&P U.S. Not-For-Profit Health Care Rating Actions, October 2021.

S&P Global Ratings affirmed 22 ratings without revising the outlooks and took 13 rating actions in the U.S. not-for-profit health care sector in October 2021. One of the affirmed ratings also was removed from CreditWatch with negative implications. There were 21 new sales in October including a rating initially assigned to Vanderbilt University Medical Center, Tenn. The 13 rating and outlook actions were comprised of the following:

The table below summarizes S&P Global Ratings’ monthly bond rating actions for U.S. not-for-profit health care providers in October. We based the credit rating affirmations and rating actions on several factors within enterprise and financial profiles, including business position, utilization, financial performance, debt levels, bond-issuance activity, physician relationships, and the external regulatory and reimbursement environment. This also incorporates our stable sector view and our assessment of COVID-19, staffing pressures, economic developments, and market volatility.

Continue reading.

12 Nov, 2021

NASBO Issue Brief: Outcome of Ballot Measures in the 2021 General Election

Read the NASBO Issue Brief.

Fitch Ratings in a Pandemic: Responsive and Measured

View the Fitch Special Report.

Thu 11 Nov, 2021

Muni Bond Prices Rally After Infrastructure Bill Leaves Out Market.

Yield on a 10-year tax-exempt triple-A muni bond has fallen 8% since Oct. 28

Municipal bond prices rallied over the past two weeks as investors abandoned hopes for a flurry of new bonds from Congress’s $1 trillion investment in U.S. infrastructure.

The yield on a 10-year tax-exempt triple-A muni bond has fallen 8% since Oct. 28, according to ICE Data Services. Bond yields fall as prices rise.

The municipal market has largely been left out of the infrastructure package signed by President Biden Monday, as well as Democrats’ follow-up social-spending and climate proposal, disappointing investors looking to buy new bonds and local governments trying to manage their debt loads. The package could still help strengthen city and state balance sheets, another possible reason for investor optimism.

Muni market wishlist items included in an earlier draft of included federally subsidized interest payments and a plan to restore the federal tax exemption for early refinancings.

“They left out the tried and true mechanism for building local infrastructure in America,” said Ben Watkins, director of Florida’s Division of Bond Finance.

In the long term, any investment in roads, sewers and trains is generally seen as good for the market since it helps boost municipal credit. The $1 trillion package could also eventually lead to more bond issuance because some projects will receive partial, rather than full, federal support, and states and cities will need to pay for the rest.

“In many cases the local contribution will come from municipal bonds,” said Patrick Brett, head of municipal debt capital markets at Citigroup and chair of the Municipal Securities Rulemaking Board, the muni bond industry’s self-regulatory organization.

But any immediate market impact will be muted. Congress’s decision to scrap the municipal bond proposals represents a move by federal officials toward paying directly for projects, rather than standing back and ensuring states and cities can borrow cheaply for infrastructure while leaving the details to the locals.

States, cities, counties and school districts borrow at reduced rates in the nearly $4 trillion muni market because investors don’t have to pay federal—and often state—taxes on the interest. Local officials retain wide discretion over the projects themselves.

A $3.5 trillion package considered in the House Ways and Means Committee in September included a measure based on the 2009-10 Build America Bonds program. State and local governments sold taxable Build America Bonds to a wide pool of buyers and the federal government paid a portion of the interest cost. That program spurred a record $273 billion in new borrowing in 2010, 54% higher than the yearly average over the past decade.

“It’s a great tool to have in the tool kit,” said Dallas Chief Financial Officer Elizabeth Reich, who urged a congressional committee to revive the program in March. The Omni Hotel in downtown Dallas was financed with the help of $388 million in Build America Bonds, Ms. Reich said.

Congress particularly disappointed participants in the supply-starved muni market with its decision not to restore municipal governments’ ability to refinance debt early at tax-exempt rates. That tool was eliminated in the 2017 tax overhaul to save the federal government money and mitigate the cost of tax cuts.

As a result, the many municipalities that rescheduled debt payments amid a pandemic-induced cash crunch over the past two years had to refinance at higher taxable rates.

Before the 2017 law change, cities and states could use tax-exempt borrowing when they wanted to refinance before a bond’s agreed-upon call date to cut interest costs or put off payments. They would issue a second set of tax-exempt bonds, invest the proceeds in safe, short-term securities, and then use those funds to make payments on the older bonds. It is a move that makes the most sense for borrowers when short-term rates are high relative to long-term rates.

But because both sets of bonds remained outstanding until the first set could be refinanced, and both provided investors with interest exempt from federal taxes, the federal government lost out on additional tax dollars. The Joint Committee on Taxation estimated that restoring advanced refunding would have cost the federal government $15 billion over the coming decade.

Municipal borrowers, for their part, could likely have reduced their interest costs, the reason the eliminated bill provision was a favorite of city finance chiefs and state treasurers. Ms. Reich estimated that Dallas saved $147 million with tax-exempt advanced refinancing between 2007 and 2017.

Money managers meanwhile said they would have welcomed an influx of new tax-exempt debt, even if it meant foregoing a bump in the value of their current holdings.

“You want to have a decent amount of supply to create a healthy market with opportunity,” said Dan Solender, director of tax-free fixed income at asset manager Lord Abbett.

The Wall Street Journal

By Heather Gillers

Updated Nov. 15, 2021 4:35 pm ET

Muni Investors Stay Flexible As Rates Rise.


Continue reading.

Seeking Alpha

Nov. 09, 2021

Supreme Court Wades Into Battle Between Billboard Advertisers and City Officials.

Industry seeks to lift limits on ‘off-premises’ signs

WASHINGTON—Supreme Court justices Wednesday stepped into an advertising industry battle that could reduce restrictions on billboards across the country.

At issue is a long-recognized difference between on-premises signs that flag a business or activity taking place at a specific location, and off-premises advertising to which most billboards are dedicated.

A billboard company in Austin, Texas, is challenging a local ordinance that makes such a distinction to restrict the proliferation of digital signs, arguing that the First Amendment precludes government from distinguishing between on- and off-premises locations.

The Austin municipal code prohibits converting conventional billboards to digital unless they are on the premises of the business or activity being advertised. Local billboard companies complain that the regulations amount to discrimination based on the content of the message, something government generally is forbidden to do. The city counters that the rules are based on where the signs are located and not what they say.

Justice Brett Kavanaugh said that adopting the advertisers’ view could disrupt sign regulations around the country.

“Unlike some of our decisions, this decision is going to affect every state and local official around America,” he said. “They spend a lot of money and a lot of time trying to figure out how to comply with the First Amendment implications of sign ordinances.”

According to a brief filed by the National League of Cities, the U.S. Conference of Mayors and other organizations representing local government, laws in at least 30 states and in thousands of jurisdictions distinguish between on- and off-premises signs “out of legitimate concerns regarding public safety and local aesthetics.”

A decision in the case, City of Austin v. Reagan National Advertising of Austin LLC, is expected before July.

Reagan National Advertising argues that the premises distinction is unconstitutional in light of the court’s 2015 decision striking down a Gilbert, Ariz., ordinance that restricted noncommercial temporary signs, with an exemption for political messages but not religious ones. A federal appeals court in New Orleans agreed, siding last year with advertisers.

In its brief, Reagan National Advertising said that digital billboards are superior to the conventional variety. “Digital billboards offer more opportunities to communicate with the public, because multiple messages can be displayed at a given time and updated instantly without the physical labor required to change a traditional billboard,” the company said.

The city said in its brief that “signs can cause esthetic harms by their size, number, and placement. They can also pose traffic dangers by distracting drivers and obscuring views. Billboards, because of their size, prominence, and attention-getting designs, amplify those concerns. And digital billboards take those concerns to new levels.”

At Wednesday arguments, justices expressed doubts that distinguishing between on- and off-premises businesses raised First Amendment concerns akin to discrimination regarding political, religious or artistic speech.

Chief Justice John Roberts said that treating the premises distinction as a content regulation could imperil the Highway Beautification Act of 1965, a cornerstone of the America the Beautiful program that limits outdoor advertising.

The highway law, a legacy of the late first lady Lady Bird Johnson, makes several distinctions among messages, permitting those from nonprofit groups advertising free coffee for weary motorists, and signs indicating lodging, gas stations, restaurants and other information useful to travelers.

The beautification act includes “five sign provisions, and under your theory, I suppose they would be unconstitutional,” the chief justice told Kannon Shanmugam, the lawyer representing Reagan National Advertising.

Mr. Shanmugam said that it was possible the government could justify Highway Beautification Act distinctions enough to survive First Amendment scrutiny.

Several justices asked how the rule could apply to different messages.

“Let’s say a sign just says ‘Black Lives Matter,’” said Justice Neil Gorsuch. That wouldn’t be off-premises because it doesn’t mention a location. “But what if Black Lives Matter has a local office and it isn’t there?” he continued. “How about if it says ‘Black Lives Matter, Do Something About It,’ anticipating an upcoming rally, but no information is provided?” he said. Alternatively, he posited, what if it did include the location?

“Somebody’s going to have to read this and decide which side of the line these four examples fall on,” Justice Gorsuch said.

Justice Elena Kagan said that it was “formally true” that city officials would need to examine a sign’s content to determine whether it referenced an on-premises activity. On the other hand, she said, “there are some laws that sort of scream out not to worry in terms of any First Amendment values.”

The Wall Street Journal

By Jess Bravin

Nov. 10, 2021 5:51 pm ET

Investment In Stadiums And Municipal Bonds (Radio)

Joe Mysak, Editor of Bloomberg Brief: Municipal Market, discusses, his recent column on the Buffalo Bills stadium, and other issues related to municipal bonds in Bloomberg Market’s “Munis In Focus”. Hosted by Matt Miller and Taylor Riggs.

Play Episode

Bloomberg Radio

November 12, 2021

Junk Munis Seeing Best Outperformance Since 2012 as Cash Returns.

Junk-rated municipal debt is extending its biggest outperformance in almost a decade thanks to one of the largest weekly inflows ever seen into the sector.

Investors added $1.2 billion to high-yield muni mutual funds in the week ended Wednesday, second only to a slightly bigger intake in April, according to Refinitiv Lipper US Fund Flows data.

The rush of money, coming after Treasury yields appeared to stabilize below their October peak, marks a shift from the lackluster demand and even periods of outflows that the riskiest part of the municipal market saw in prior months.

“The pivot from demand sluggishness at the end of October back to strong inflows/demand over the past week has been pretty abrupt,” said Gabriel Diederich, a portfolio manager at Robert W. Baird & Co.

Junk munis are poised to gain for a third straight week, something they haven’t done since July. The segment has earned 7.2% this year, compared with 1.1% for the overall market for state and local-government debt, Bloomberg index data show. That performance gap is the widest since 2012.

With most of the fixed-income universe posting losses in 2021, munis have been a haven. They’ve lured money as the economy has recovered from the pandemic, federal relief has flowed to municipalities and as lawmakers in Washington debated steeper taxes on higher earners. That backdrop has benefited the riskiest debt most.

‘Garnering Attention’

“The big outperformance that we’ve seen this year is garnering attention,” said Kathleen McNamara, senior municipal strategist at UBS Global Wealth Management. “Muni investors chase returns, they saw how well muni high-yield has done and they want to be involved.”

McNamara said that after yields on junk munis rose from the record lows seen this year, investors who had been waiting on the sidelines returned to the market. Then, after the securities staged a rebound this month, more buyers wanted to participate given that municipal credit remains strong.

There’s also the fact that munis have entered a “stronger technical backdrop” in November with the calendar of new-issue sales dwindling before year-end and the need to start positioning for 2022, said Terry Goode, a senior portfolio manager at Allspring Global Investments.

That may benefit some high-yield bond sales on the horizon in the weeks ahead.

A conduit borrower in Phoenix, Arizona, is expected to sell $256.7 million of unrated, tax-exempt bonds to finance the construction of a hotel and conference center in Puerto Rico. Separately, Grand Canyon University in Arizona is slated to offer $1.3 billion of taxable, junk-rated bonds next week.

Bloomberg Markets

By Danielle Moran

November 12, 2021, 10:11 AM PST

Are We Due for a ‘Golden Age’ of Public Finance as the Infrastructure Bill Crosses the Finish Line?

There may be a small uptick in muni bond issuance, but perhaps not what bond buyers wanted

The bipartisan infrastructure bill passed late Friday by the House of Representatives promises hundreds of billions for a once-in-a-generation rebuild of America’s aging and neglected built environment. But for the municipalities that stand to benefit from the funds, and the bond market where such projects are normally financed, it may not move the needle much, public-finance experts say.

President Joe Biden is likely to sign into law this week the Infrastructure Investment and Jobs Act, including $550 billion in new federal investment in the kinds of projects cities, counties and states fund and manage.

The biggest boost will go to spending on roads and bridges, power systems, rail, broadband, water systems and public transit, according to an analysis from Moody’s Analytics. An overview of some specific initiatives, from the National League of Cities, is here.

Following the $260 billion American Rescue Plan by about six months, it extends what Tom Kozlik, head of municipal research and analytics at Hilltop Securities, calls a “golden age” of U.S. Public Finance.

“I say we’re entering one of the more positive landscapes for municipal bond issuance that we’ve seen for a long time, and I’ve been pretty skeptical about this,” Kozlik told MarketWatch. “Don’t get me wrong, there is still uncertainty out there. But I think the Rescue Plan really put public finance entities in a much different place after this recent financial uncertainty compared to what we saw 10 years ago.”

Yet Kozlik thinks total muni bond issuance may edge up only fractionally next year — to perhaps $475 billion -$500 billion, from roughly $460 billion this year -–- hardly a hearty endorsement of the transformative power of bonds to rebuild America, let alone enough to feed a market starved for supply.

As he wrote in a research note after Friday’s House vote, the $550 billion to be spent pales in comparison to the American Society of Civil Engineers 2021 Infrastructure Report Card, which identified a $2.59 trillion infrastructure gap in the U.S over the next decade.

“There’s never been an infrastructure program in this country that doesn’t feature the states and locals,” said John Mousseau, president and CEO of Cumberland Advisors.

Mousseau thinks the legislation may, on the margin, boost supply, but notes that the federal COVID-19 responses that have been most effective have been those that “got money out the door” quickly, like the CARES Act, in contrast to those that moved slowly, like rental assistance programs.

“Being able to streamline the money that’s been approved is just as important as getting new money out,” Mousseau said in an interview.

Indeed, multiple city managers have told MarketWatch that their local infrastructure needs are so great that they moved as quickly as possible to designate some of the spring’s federal dollars to such projects rather than waiting for Congress to pass a stand-alone infrastructure bill.

It’s hard to see anything that might dent demand for muni bonds, which has been red-hot, Kozlik noted. “The Rescue Plan act really put a floor under municipal credit at least for a couple years,” he said.

And because the spending in the infrastructure bill is spread over a few years — which is what will likely keep bond issuance muted — it will be helpful for state and local budgets for some time.

Exchange-traded funds tracking muni bonds were slightly lower Monday, with the iShares National Muni Bond ETF MUB, 0.18% down 0.1% in the afternoon, and the Invesco Taxable Municipal Bond ETF BAB, 0.63% off 0.5%.


By Andrea Riquier

Nov. 8, 2021

Washington Social-Spending Bill Snubs Municipal Bonds. Will the Market Care?

‘Munis are going to muni,’ says one expert

Provisions that would have benefited the state and local governments that issue municipal bonds have been axed from the $1.75-trillion social spending bill now being debated by Congress, a step some public finance experts say won’t help communities struggling to recover from the COVID pandemic, but one that’s unlikely to move the needle on an already overheated muni bond market.

The Build Back Better program framework, released in late October by President Joe Biden, omitted the restoration of some forms of debt refinancings and a direct-pay bond program, among other industry priorities.

The framework also added a 15% corporate minimum tax that might hit purchasers of tax-exempt bonds, a step particularly unpopular with industry groups. “The costs will be significant and, again, will be borne by our communities, not by the holders of the bonds,” said a group of lobbyists in a letter sent to Congress on Monday.

But some public-finance observers are more sanguine. “Munis are going to muni no matter what’s going on,” said Eric Kazatsky, head of municipal strategy for Bloomberg Intelligence. “There’s still going to be a minimum amount of spending for good repair, to keep the lights on, for states and locals. The muni-friendly provisions in the bill would have been an accelerant thrown onto that.”

The refinancing provisions, known as “advance refundings” in bond-market jargon, were taken away from tax-exempt issues in the 2017 Tax Cuts and Jobs Act legislation. (Municipalities may choose to issue bonds that are exempt from taxes for the investors who buy them, or those that can be taxed.)

The restoration of tax-exempt advance refunding was the most critical provision in earlier versions of the bill, said Matt Fabian, a partner with Municipal Market Analytics. MMA estimates that issuers have paid an additional $8-10 billion in extra interest costs since January 2020 because those refundings have been restricted.

“This is Congress pushing the cost of its savings downhill to cities and states,” Fabian told MarketWatch.

In contrast, Kazatsky argued that the loss of a revitalized direct-pay bond program akin to the Build America Bonds introduced after the Great Recession is the bigger hit. Build America Bonds were taxable, and their presence helped attract many nontraditional investors, for whom the tax exemption wasn’t key, into the muni market.

Right now, the landscape for state and local governments is tough, Fabian said. Many are still trying to determine whether their current revenue mix reflects the economy they have now, or the one they had before the pandemic.

“Issuers are unsure of the future, their current financials are volatile which, in their world, feels untrustworthy, and they’re coming off 10 years of austerity,” Fabian said. In that sense, even just a little more acknowledgment from Congress of problems on the state and local level would be helpful, he added.

“Partisan politics has made everything more tenuous than it used to be. Politicians have had to become more defensive about investment, even though long-term borrowing needs are probably as high as they’ve ever been because of climate change and deferred maintenance.”

In a series of recent interviews with MarketWatch, several city managers said one of the great advantages of the massive amounts of federal stimulus directed their way was the ability to avoid issuing debt.

See: ‘Infrastructure week’ is here: Local governments aren’t waiting for Congress any more

That stimulus has helped offset some of the uncertainty from Washington, Kazatsky said in an interview. And it’s a big reason municipal issuance has been relatively tepid, even at a moment when interest rates aren’t likely to go any lower.

That’s happening even as demand is through the roof, with muni-bond inflows notching multiple weekly records this year and causing one mutual fund to close to new investors, while also pushing yields to among all-time lows.

“It‘s hard to get too worried about anything for this sector right now,” Fabian said.


Nov. 5, 2021

Munis and the Fed: Municipal Bonds are in Good Shape Coming into 2022: BlackRock's Peter Hayes

Watch video.

YouTube Finance

Nov 4, 2021

Market Expert: Social Spending Provisions Won’t Stop Municipal Bonds

Municipal bonds can provide investors with low credit risk, yield, and tax-free income, but will a social spending bill quash their appeal in the debt markets?

According to a MarketWatch report, “Provisions that would have benefited the state and local governments that issue municipal bonds have been axed from the $1.75-trillion social spending bill now being debated by Congress, a step some public finance experts say won’t help communities struggling to recover from the COVID pandemic, but one that’s unlikely to move the needle on an already overheated muni bond market.”

An influx of bond investors piled into municipal debt, especially during the height of the pandemic where a safe haven scramble saw heightened muni interest. As mentioned, munis also provide tax-free income, shielding investors from Uncle Sam, but could that benefit be banished?

President Joe Biden’s “Build Back Better” program removed types of debt re-financings and direct-pay bond programs. Furthermore, a 15% minimum corporate tax could also apply to tax-exempt bonds, which could sour their appeal — but will they?

“Munis are going to muni no matter what’s going on,” said Eric Kazatsky, head of municipal strategy for Bloomberg Intelligence. “There’s still going to be a minimum amount of spending for good repair, to keep the lights on, for states and locals. The muni-friendly provisions in the bill would have been an accelerant thrown onto that.”

Kazatsky’s view comes as municipal bond inflows have been in high demand this year with weekly records reached, according to the MarketWatch article.

“It ‘s hard to get too worried about anything for this sector right now,” said Matt Fabian, a partner with Municipal Market Analytics.



NOVEMBER 5, 2021

CDFA Publishes Annual Volume Cap Report: An Analysis of 2019-2020 Private Activity Bond & Volume Cap Trends

View the CDFA Report.

CDFA | Nov. 5

Despite Pandemic Concerns, Multifamily Private Activity Bond Issuance Reaches $17.2B in 2020.

View the Novogradac Report.

Novogradac | Nov. 5

How the $1 Trillion Infrastructure Bill Aims to Affect Americans’ Lives.

The legislation seeks to ensure fewer blackouts and cleaner water, but in some areas it might fall short of needed upgrades

Congress has voted to pass the largest federal investment in infrastructure in more than a decade, a bipartisan injection of money across vast sections of the U.S. economy.

The $1 trillion package would invest in refurbishing aging roads, bridges and ports; easing transportation bottlenecks; replacing harmful lead pipes; expanding internet access; upgrading the nation’s power grid; and boosting infrastructure resilience amid growing concerns over climate change. The spending is to be paid for with a variety of revenue streams, including more than $200 billion in repurposed funds originally intended for coronavirus relief but left unused; about $50 billion from delaying a Trump-era rule on Medicare rebates; and $50 billion from certain states returning unused unemployment insurance supplemental funds.

The legislation, spending billions in each of the next five years or more, falls short of the full ambitions of the Democratic Party, which is pursuing a separate, larger bill opposed by the Republicans. But the scope of the bill just passed makes the legislation significant in its own right. Here is a look at how the infrastructure package will affect American consumers and businesses, and where it might fall short of expectations.

Continue reading.

The Wall Street Journal

Nov. 6, 2021

This Is Where the States Want Billions in Infrastructure Funding Spent.

The plan finally approved on Friday will address transportation, water, broadband, energy and public safety needs that have been building for years, sometimes decades.

On the highway over the Teton Pass in Wyoming, avalanches have been threatening motorists since the 1960s. In Washington and Oregon, drivers live with the daily awareness that, in a major earthquake, the bridge between Vancouver and Portland will probably collapse. In California, residents are increasingly at the mercy of out-of-control wildfires and megadroughts — and their stratospheric costs.

America’s to-do list has been growing for years, since well before President Biden and a bipartisan committee in Congress agreed this year to a historic upgrade of the nation’s aging infrastructure. On Friday, the measure — held up for months amid negotiations over some $2 trillion in other spending — finally passed.

“This is a game changer,” said Mark Poloncarz, the county executive in New York’s Erie County. “Right off the bat, I have somewhere around $150 million in capital projects we could move, from bringing our wastewater treatment system into the 20th century to smaller bridges, some of which are 100 years old.”

Continue reading.

The New York Times

By Shawn Hubler, Emily Cochrane and Zach Montague

Nov. 6, 2021

Fitch Ratings Updates U.S. Public Finance College and University Rating Criteria

Fitch Ratings-Chicago-04 November 2021: Fitch Ratings has updated its “U.S. Public Finance College and University Rating Criteria” as part of the routine criteria review process. Revisions to the criteria are mostly editorial in nature and there is no impact on existing ratings.

Primary revisions to the criteria are: minor editorial changes; clarification of the long-term debt definition to better match audit presentation and disclosure standards; and an updated and streamlined discussion of the scenario analysis to add clarity and support cross-sector criteria consistency.

This new criteria report replaces the criteria report of the same name dated Oct. 7, 2020.


Emily Wadhwani
Fitch Ratings, Inc.
One North Wacker
Chicago, IL 60606

George Stimola

Raj Sanghvi
Senior Analyst

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

What’s New In Retirement Facility Defaults.

The biggest source of municipal bond defaults for at least the last 40years have been bonds issued for retirement and congregate care facilities. Some 737 bond issues totaling $11.7 billion dollars have been involved in defaults,. Unique among such defaults is that many facilities have defaulted , been sold and defaulted again. Most of these defaults are due to dishonest developers, corrupt bond underwriters or just plain incompetence in managing an extremely demanding business. Nevertheless, new bond offerings appear monthly since there are few better places to obtain funding for what is by definition a high risk business with limitless demand and much of the business is funded by a single payer, Medicare.

Getting an underwriter and bond issuing authority approval for a new facility is relatively easy as long as you know you will have to pay an interest rate 50% or more than investment grade paper. Too many issues have to achieve a trouble free startup to avoid default. Since this is unlikely, the projects usually end up in the hands of a successor manager, but with a much smaller debt service cost. Unfortunately, the successor owner is frequently operating a multiple of projects and will co-mingle funds from different bond issues if not outright steal them.

Covid-19 promises a surge of new defaults and two new and one old developments promise a rich harvest of more default abuses.. A new bond issuing authority has arisen in Texas which allows a private non-profit entity authority to issue tax free municipal bonds. The authority is described as follows in a recent offering statement – “Woodloch Health Facilities Development Corporation is a nonprofit corporation created and existing under the laws of the State and is authorized to issue the Bonds pursuant Chapter 221 of the Texas Health and Safety Code, as amended.” There is no identification as to who formed Woodloch nor is there any proof that such an entity received authorization under this law. Perhaps none is needed? We also note that no such named corporation was incorporated in the state of Texas. This should be mandatory as a means for stopping just anyone from abusing this privilege. We make an issue of who authorized Woodloch because it has so far authorized 4 bond issues since 2016. Two are in default, one is in distress and the third is unknown since no documentation has been filed with the MSRB. Details for the three known issues are described in this issue. We suspect Piper Jaffray may have had a hand in forming Woodloch; since they are the underwriter on the two defaulted issues.

My second “What’s New” topic is that there is a rising star in the retirement community bad actors category named Mark Bouldin. He is a Florida based retirement community developer who has ventured into Texas via the two Woodloch defaulted issues. We guess we will be hearing more about him given that his difficulties pre-date Covid-19.

My third “What’s New” observation is that some of the defaults occurring today seem to follow a confusing sequence of events with little clarification as to objective. This is leading to many bondholders selling out at 50 to 65 cents on the dollar. The question that arises should always be, who would buy such bonds when events are so unclear. The answer is usually, the party who has a major stake and knows what he intends to do once he has bought out all the weak players. Meanwhile, the lack of information only makes the buyout of bonds cheaper. This strategy is currently most apparent in the Proton Center bond issues, as discussed in our October issue, but has been standard fare for years in the retirement and nursing home arena.

It’s time the MSRB got some backbone.


by Richard Lehmann

Nov 6, 2021

Every Government Needs a Plan for the Worst-Case Cyber Scenario.

Relying on a one-off cybersecurity plan is no viable way for governments to defend their systems. Leadership changes, budgets and new technologies must be continually considered for long term success.

A colleague asked me last week if I could chat about refreshing her government organization’s cybersecurity strategic plan, and the very next day the California Department of Technology and its Office of Information Security published “CAL-SECURE,” described as the state’s “multi-year information security maturity roadmap.” Talk about coincidence: It’s an issue that couldn’t be more timely and worthy of discussion both inside the cybersecurity community and throughout government leadership.

The CAL-SECURE plan is one of the best I’ve seen, and when I asked California’s chief information security officer, Vitaliy Panych, about it, he told me that “planning a roadmap that is applicable to all public-sector entities requires a community-driven approach where input from across the public and private sector is considered.” The CAL-SECURE road map, he added, “consists of multiple people, process, and technology initiatives to continuously increase privacy and security for the benefit of all residents of California.”

I have written or co-written several cybersecurity strategic plans over the years, and I think California’s approach is right on target. As I thought about how I could help my CISO colleague with her strategic-plan refresh, I focused on some of the common mistakes and what I believe are the critical and essential elements of an exceptional plan.

A proper cybersecurity plan should be viewed through the lens of CAL-SECURE — as a road map that sets the stage for the future, and in government that means preparing for the people, processes and technology resources to carry out the mission. It also means calibrating with the CIO’s goals to ensure that the cybersecurity road map is in alignment with the jurisdiction’s digital transformation initiatives and the delivery of citizen-facing services.

I found a number of state government cybersecurity strategic plans online and also discovered the National Governors Association’s ”Meet the Threat” memo on state cybersecurity strategies that, while a few years old, uncovered some incredibly consistent data across 18 state strategic plans. The NGA’s Resource Center for State Cybersecurity is another goldmine for tools and recommendations to develop cybersecurity policies and practices.

One of the significant differences between private- and public-sector strategic planning is the dynamic nature of executive branch leadership over the course of election cycles. There is almost certain to be an election between the time a plan is published and the plan’s time horizon, and priorities are often dramatically adjusted between administrations. A solid strategic plan helps keep long-term cybersecurity initiatives in focus and on target.

“It is especially important for government organizations to plan ahead because of the way budgets work,” said Mike Lettman, who served as state CISO in both Arizona and Wisconsin. “Government entities are often asked to determine their risk and recommend a technology to fill it, but the funding doesn’t happen until a year later and implementation until a year after that. Because technology innovation happens so quickly compared to the pace of government, both the risk and the technology will have undoubtedly changed by the time you get the funding or are ready to implement the technology.”

One of my soapbox issues that I believe should be mandatory in any cybersecurity strategic plan is how the organization is planning for the growing and potentially calamitous cybersecurity workforce deficiencies. The just-released (ISC)2 Cybersecurity Workforce Study highlights that in the United States alone there are more than 350,000 vacancies in the cybersecurity workforce. Security executives everywhere should take the opportunity to read through this report, because while it highlights the challenges we face in hiring qualified people it also suggests a number of interesting and innovative approaches to address the development and retention of existing staff and provides key takeaways for managers seeking to hire people into cybersecurity roles.

While there are a number of fundamental components in a good strategic plan, I think there are three critical ones that hold the keys to success:

“Updated strategic plans were always vital to our enterprise success,” said Dan Lohrmann, former chief technology officer and chief security officer for the state of Michigan. “Articulating a clear vision as well as an actionable road map to delivering expected results meant that everyone stayed on the same page from the governor’s office all the way to the frontline workers. Strategic plans guide enterprise priorities, funding, project initiatives, resource gaps and much more.”

Dan has it right: Cybersecurity has become a fundamental organizational component of all government organizations, and solid strategic planning is the least we can do for the citizens who support us.


November 04, 2021 • Mark Weatherford

S&P: Cyber Risk In A New Era: U.S. Utilities Are Cyber Targets And Need To Plan Accordingly

Key Takeaways

Continue reading.

3 Nov, 2021

Voters Weigh $27 Billion of Bonds on Ballots Across U.S.

The amount of borrowing seeking voter approval is the lowest since 2017, according to IHS Markit data.

Voters across the U.S. are set to decide on an estimated $27 billion worth of bond measures during Tuesday’s elections to finance municipal improvements ranging from school repairs to road fixes.

The amount is about half of what voters faced during last year’s presidential election, even though some local governments scrapped borrowing plans at that time amid pandemic uncertainty. This year’s total is the lowest since 2017, and slightly below average over the last decade, according to preliminary data from IHS Markit.

“There are probably more ballot measures in years where the economy is not only growing, but when there is also a positive landscape for passage,” said Tom Kozlik, head of municipal research and analytics at Hilltop Securities Inc.

State and local government payrolls still haven’t recovered to pre-pandemic levels despite an influx of federal stimulus money. That cautious fiscal approach may be contributing to deflated borrowing on ballots this year, much like the aftermath of the Great Recession, when planners were reluctant to add debt to balance sheets amid layoffs intended to balance budgets, Kozlik said.

Measures that pass will pump bonds into the $4 trillion municipal market that’s recently been plagued by scarcity. Governments have sold about $386 billion of debt year-to-date in about 8,500 deals, a roughly 4.3% drop from the same period last year, according to data compiled by Bloomberg.

The biggest measure up for a vote this year is a $1.2 billion bond to fund construction and renovation of schools in Fort Worth Independent School District in Texas, the sixth-biggest in the state. The measure is part of a package of bond proposals totaling $1.49 billion. Other portions would be used for projects like stadium construction and auditorium upgrades.

Among the 10 largest bond measures, about half are for funding school improvements. Texas is proposing the most bonds, with about $18.6 billion of debt up for a vote, followed by Virginia and Colorado, according to IHS Markit’s preliminary tally.

Virginia’s largest issue up for referendum is a $567.5 million flood protection bond in Virginia Beach that would use proceeds to fund mitigation measures like barriers, drainage improvements and pump stations. If passed, residents would see real estate taxes increase between 4.3 cents and 6.4 cents per $100 of a home’s assessed value. For the median home owner, that would mean paying an additional $115 to $171 annually, according to the the city’s website.

In Texas, voters will decide on more than $8 billion of bonds for utility and hospital districts. Some of those measures, if approved, would grant districts the authority to issue bonds up to a given amount, but wouldn’t obligate them to do so.

Bloomberg CityLab

By Nic Querolo

November 1, 2021, 11:01 AM PDT

— With assistance by Danielle Moran

Voters Pass at Least $15 Billion of Munis, Majority of Proposals.

U.S. voters are slated to approve at least $14.9 billion of local-government debt sales on ballots this election, more than half the amount proposed nationwide, according to preliminary results after Tuesday’s polling.

All in all, voters were asked to decide on about $27 billion of municipal bonds, the lowest tally since 2017, according to data compiled by IHS Markit. The largest measures up for vote were set to fund work ranging from school construction to flood-prevention measures in Virginia Beach.

Continue reading.

Bloomberg Markets

By Nic Querolo and Joseph Mysak Jr

November 3, 2021, 6:30 AM PDT Updated on November 3, 2021, 12:20 PM PDT

U.S. Voters Passed at Least 65% of State and Local Bond Measures.

Voters in the U.S. on Tuesday approved at least 65% of the $28.7 billion in municipal bonds they were asked to decide, according to IHS Markit.

The $18.7 billion of approved borrowing will finance everything from road improvements to sewer lines, new schools, public transportation, stadiums and swimming pools. At least $4.8 billion in bonds were rejected by voters, while results on another $5 billion or so are still pending, according to IHS Markit.

The largest issue on the ballot anywhere Tuesday was a $1.2 billion school bond in Fort Worth, Texas. The measure, Proposition A, was winning by just 42 votes, according unofficial county election results. The measure was part of a package of bond proposals totaling $1.49 billion. The other portions, for projects like stadium construction and auditorium upgrades, were defeated, according to HIS Markit.

The $28.7 billion on ballots was well below the $45 billion voters faced during last year’s presidential election, even though some local governments scrapped borrowing plans at that time amid pandemic uncertainty. This year’s total is the lowest since 2017, and slightly below average over the last decade, according to IHS Markit.

Bloomberg Politics

By Sri Taylor and Joseph Mysak Jr

November 5, 2021, 12:36 PM PDT

— With assistance by Nic Querolo

Does Municipal ESG Make Sense?

Municipal bonds underscore the weaknesses of ESG investing.

The rise of Environmental, Social, and Governance (ESG) investing in corporate securities has reached the municipal-bond markets. But recent experience shows that incorporating ESG factors into municipal investing can be a convoluted, quixotic effort.

While ESG encompasses a wide range of factors, it is the “E” that gets the most attention in the municipal bond market, with climate change being the major concern. When thinking about the role of climate change in municipal finance, we can imagine two issues: (1) Does climate change increase the risk of a municipal-bond default for specific issuers?; and (2) can investors choose bonds that finance projects that provide the largest reductions in greenhouse-gas emissions? Let’s consider these two questions in turn.

Climate Change and Default Risk

Unlike corporate equities, municipal bonds offer little financial upside related to global warming. While an equity investor may achieve enormous returns by purchasing shares in a company that invents new green technologies, the best-case scenario for a municipal-bond buyer is the return of principal at par along with interest payments that rarely exceed 5 percent annually.

Continue reading.



November 2, 2021

Muni Bond Provisions Likely Dead in Democrats' Spending Package.

A last-ditch effort to salvage tax-exempt advance refunding and other proposals appears to have come up short.

It’s unlikely that a municipal bond refinancing tool and other state and local public finance provisions will make it into the Democratic spending package taking shape on Capitol Hill, according to the office of a lawmaker who is a key advocate for the proposals.

A spokesperson for U.S. Rep. Dutch Ruppersberger, a Maryland Democrat who co-chairs the municipal finance caucus, said by email Tuesday morning that the congressman “made a final appeal” to House Speaker Nancy Pelosi’s office to include the finance provisions—which included the revival of tax-exempt advance refunding—in the bill. But it appears to have been unsuccessful.

“We’ve put up a good fight and are disappointed they will not likely make the cut but understand that compromises must be made as we work toward a bill that can be passed and signed into law,” said Jaime Lennon, Ruppersberger’s director of communications.

The roughly $1.75 trillion spending bill and a $1.2 trillion infrastructure bill that is also pending in the House “are still ultimately good for states and counties,” Lennon added. “We remain optimistic that Congressman Ruppersberger’s advance refunding and related bills can be absorbed into future legislative packages as they are bipartisan, popular and enjoy support from committee leadership.”

When Route Fifty asked Ruppersberger at the Capitol on Monday night about the outlook for the provisions, he referred to how finalizing the spending bill had turned into a complex balancing act among Democrats—which has bogged down legislative progress.

Democrats are seeking to fit in a wide range of programs related to the environment, health care, housing, education and other areas, while containing costs to satisfy moderate senators.

“Appropriations is about priorities,” Ruppersberger said.

“We’re going to come up with other strategies,” he added, referring to the muni bond provisions. “We’re still going to stay on top of it, because it’s needed and everybody in leadership understands that. But right now, we got to get out of this situation we’re in.”

Tax-exempt advance refunding was a tool states and localities previously used to refinance and restructure debt to achieve cost savings. But the 2017 Republican tax overhaul killed the tax exemption for interest investors earned on the bonds, halting their issuance.

State and local government groups and their advocates in Congress have pushed to restore tax exempt advance refunding in the years since. The infrastructure legislation and the spending bill were seen as a good opportunity to do that, given municipal debt is commonly used to finance infrastructure projects.

A provision to bring back advance refunding was included in legislation the House Ways and Means Committee marked up in September. But it was left out of the framework that the Biden administration rolled out last week.

When it comes to federal budget legislation, the tax break for the bonds shows up as a cost in the form of sacrificed tax revenue, complicating the case for restoring advance refunding as Democrats tried to thin down their bill.

Congress’ Joint Committee on Taxation, around the time the 2017 tax bill passed, projected that the repeal of the advance refunding tax exemption would increase federal revenues by $17.4 billion between fiscal years 2018 and 2027.

Looking to the state and local level, the Government Finance Officers Association estimates that between 2007 and 2017 advance refunding transactions nationwide saved tax- and rate-payers over $18 billion.

Language designed to increase the access small municipal borrowers have to capital, through “bank qualified debt,” which is generally considered lower cost than turning to the traditional bond market is also unlikely to make it into the spending legislation. As is a program to revive “direct-pay” type bonds—similar to the Build America Bonds launched around the time of the Great Recession.



NOVEMBER 2, 2021

Public Finance and Racism.


Mainstream public finance research has largely ignored racial issues. This paper calls on public finance economists to explore racial issues more extensively. The obvious reasons are to understand the effects of inequitable and inefficient policies, help develop remedies, and ensure that public finance is addressing the issues most salient to society. The less obvious reason is that public finance has tools and frameworks that can provide useful insights into the economics of racism. As economists search for issues that are both amenable to analysis and important for society, the pervasive effects of racism stand out in both regards.

Download the full report.

The Brookings Institution

by William G. Gale

November 4, 2021

Muni Investors Put ‘Buying Shoes’ Back on After 3-Month Slide.

The municipal-bond market is seeing a bullish vibe re-emerge after the longest streak of monthly losses since 2016 put a dent in what has otherwise been a robust year for the securities.

The $4 trillion market for state and local debt is coming off its strongest week since July, according to Bloomberg indexes. What’s more, the flood of cash into muni mutual funds, a key driver of the debt’s outperformance in 2021, has picked up again.

Much of the credit for the rosier backdrop goes to Treasuries, where volatility has ebbed after Federal Reserve Chair Jerome Powell said last week that officials can be patient on raising interest rates.

Investors are starting to put their “buying shoes” back on after lacking conviction to dive in from August through October, said James Iselin at Neuberger Berman, which manages over $12 billion in munis.

“It definitely feels like a bit of a better tone, with Treasuries calming down at least a little bit in the short-term,” said Iselin, the firm’s head of municipal fixed income. “That’s probably given people a bit more confidence to start buying.”

Even with the slide of the past three months, munis are still beating other fixed-income asset classes in 2021. They’ve earned about 1% this year, while the broader U.S. bond market has lost about 1%, according to Bloomberg index data.

Cash has poured in partly as lawmakers in Washington have been debating lifting levies on higher earners. That’s one big risk hanging over the market — that Democrats’ efforts to introduce tax increases on wealthy Americans stall out, squelching demand for tax-exempt debt.

More Cash

For now, stability across debt markets has been enough to revive investor appetite. Last week’s muni rebound coincided with increased retail interest. Investors added about $603 million to muni funds during the week ended Wednesday, the most since the week through Sept. 22, according to Refinitiv Lipper US Fund Flows data.

They’re buying in as tax-free yields remain relatively high compared with recent months. The rate on the 10-year AAA municipal benchmark is around 1.12%, compared with the average of 0.94% for this year. It was as low as 0.66% in February.

Iselin said the resurgent demand has boosted bonds sold by large issuers, like the state of Illinois, which had seen credit spreads widen in the past few months. An index of 10-year Illinois general-obligation bonds yielded about 71 basis points more than top-rated debt on Nov. 5, down from around 91 in late October.

Tobacco bonds are also benefiting, an encouraging sign for high-yield munis as the securities are seen as a bellwether for the junk sector because they’re relatively easy to trade.

High-yield tobacco debt posted its best performance last week since November 2020, according to Bloomberg index data. The price on Buckeye Tobacco Settlement Financing Authority debt due in 2055, the index’s biggest holding, have inched back up in the last month.

For Barclays Plc strategists led by Mikhail Foux, it’s adding up to a solid closing stretch for this year.

“We will likely end 2021 on a strong note,” they said in a Nov. 5 note.

Bloomberg Markets

By Amanda Albright

November 8, 2021

Texas Gun Law Isn’t Hurting One of Its Largest Bond Issuers, CFO Says.

Dallas Fort Worth International Airport faced a potential bind ahead of its recent $1.2 billion bond sale: a new Texas law designed to stop banks from straying into political issues had forced three underwriters to bow out of part of the offering.

But the airport, one of the largest issuers of municipal bonds in Texas, ended up swapping in two other banks. There didn’t appear to be any impact on the pricing when it sold the securities late last month, said Christopher Poinsatte, the airport’s chief financial officer, in an interview.

The airport’s ability to sell bonds even after a last-minute change in underwriters underscores how demand for municipal bonds remains intense, even with recent signs that investor interest might be cooling a bit. With money managers still clamoring for the bonds, dozens of banks are eager to fill the void left by any banks affected by the state law.

The new Texas law bars state and local governments from doing business with banks that have limited their ties to the firearms industry. A separate measure restricts state contracts with firms that have shunned fossil-fuel producers, a major industry in Texas.

The laws come after activists have for years pressed banks to stop lending to gun makers as well as drillers and transporters of fossil fuels. In some cases, banks have listened to that pressure.

Now those banks are facing pushback from Texas. Citigroup Inc., JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc. have faced a hit to their public finance business in Texas since legislation went into effect on Sept. 1.

Citigroup, JPMorgan, and Bank of America were expected to underwrite the roughly $700 million taxable portion of the airport’s offering, but were replaced with Barclays Plc and Morgan Stanley, Poinsatte said. The taxable securities received orders equal to more than six times the amount for sale.

“We were very pleased,” Poinsatte said. “Barclays and Morgan Stanley stepped in, they really only had about three weeks to ramp it up. They did a great job with it.”

Overall, the deal received more than $7 billion of orders from 155 unique investors, he said. The bonds were sold to refinance debt and fund construction projects.

One place where state and local governments could see difficulty with the new laws is with finding firms to provide them with banking services, Poinsatte said, such as making deposits and getting credit cards.

“That’s probably the biggest issue,” Poinsatte said. “There are a lot of other underwriters that we can go to, banking relationships will be a harder problem to solve.”

The airport is about two years into a 10-year contract with JPMorgan that was finalized before the laws went into effect on Sept. 1. The legislation only impacts new contracts, so the airport’s agreement isn’t affected. Poinsatte called that “fortunate” but other government entities going through the requisition process for banking services could see challenges with some large players unable to participate.

“I think the area that could impact Texas municipalities more than any other is the banking relationship,” Poinsatte said.

Dallas Fort Worth Airport is one of the largest issuers of municipal bonds in Texas and it’s in the middle of a borrowing spree, with plans to sell $4.2 billion of new money bonds to finance capital projects through the 2027 fiscal year, according to a presentation to investors dated Oct 7. That doesn’t include refinancings.

As the three biggest U.S. banks have faced pressure in Texas, other firms including UBS AG, Wells Fargo & Co. and smaller players like Hilltop Securities have stepped into the breach.

Bloomberg Markets

By Danielle Moran

November 3, 2021, 9:00 AM PDT

— With assistance by Amanda Albright

Despite Volatility, Munis Are Still a Good Deal.

There are some market segments that are just boring. And one of them happens to be the municipal bond market. Historically, munis have been a ‘steady-as-she-goes’ investment. It is perhaps the ultimate buy and hold for high-net-worth individuals, institutional investors, and insurance funds. Typically, munis are as exciting as watching paint dry. But lately, that steadfastness has been put to the test.

Munis have suffered from some high bouts of volatility.

Several factors have helped munis become a pretty sector since the end of the summer. While that may dampen some of munis’ appeal, the reality is bonds are still a good deal and may even be a better buy for the future ahead. In the end, don’t let some increased volatility persuade you from moving out of the municipal bond sector.

Continue reading.

by Aaron Levitt

Nov 03, 2021

Newly Flush With Cash, Retirement Funds Struggle to Find Appealing Investments.

Long-underfunded pension systems share bittersweet challenge with other investors that see hazards in many asset classes

State and local pension funds are reaping a historic windfall thanks to billions of dollars in record market gains and surplus tax revenues. Now they need to decide what to do with the money.

It is a bittersweet dilemma that the chronically underfunded retirement systems share with many household and institutional investors around the country. Just when they finally have cash to play around with, every investment opportunity seems perilous.

Leave the money in stocks, and a pension fund becomes more vulnerable to the type of losses suffered in the 2008-09 financial crisis. Move the money into bonds for safekeeping, and the fund risks losing even minimal gains to inflation. Seek out alternative assets to help diversify and drive up returns, and the fund enters a crowded competition for private equity and real estate where it can take years for money to be put to work.

Continue reading.

The Wall Street Journal

By Heather Gillers

Nov. 7, 2021 9:00 am ET

Munis In Focus: Kazatsky (Radio)

Eric Kazatsky, Senior Municipal Strategist for Bloomberg Intelligence, discusses the latest from the muni market. Hosted by Matt Miller and Sonali Basak.

Play Episode

Bloomberg Radio

November 5, 2021 — 9:18 AM PDT

Barclays Says Green Bond Investors Pay More for Less Liquidity.

Demand is so strong for green bonds, or debt that funds environmentally friendly projects, that investors are accepting lower yields for securities that are harder to trade, according to Barclays Plc.

Barclays looked at trading volumes across U.S. dollar and euro-denominated investment-grade markets, and found that green bonds trade less often than corporate bonds in general. Meanwhile, new environmentally friendly bonds tend to yield about 0.04 percentage point less, even after record issuance of the securities, Barclays strategists led by Charlotte Edwards and Bradley Rogoff wrote in their report.

The results confirm what investors have long suspected: that more investors in green bonds are of the buy-and-hold variety, including pension funds, asset management arms of insurance companies and mutual funds, rather than active traders. But the findings also imply that if many investors decide to liquidate their holdings at some point, they may be disappointed by demand in the secondary market.

Newly issued green bonds denominated in U.S. dollars do trade more often than the broader market, Barclays found, but after three months that shifts, with the environmentally-linked debt trading with reduced frequency. For euro-denominated debt, green notes trade less than average from the start.

Paying Up

Borrowers are taking advantage of the robust demand to fund environmental projects. Corporations and governments globally have sold a record $411 billion of green bonds so far this year, compared with $234 billion raised in all of last year, data compiled by Bloomberg show. Global sales of environmental, social and governance bonds are also at a record and are expected to hit $1 trillion by end of this year.

Firms have long been able to get cheaper funding by selling green bonds, but even with record issuance that benefit has only shrunk marginally, by just 1 basis point from the peak of 5 basis points earlier this year. Barclays expects demand to support a greenium of 4 basis points to 5 basis points over the medium term, assuming elevated issuance.

The strategists screened the U.S. high-grade market for green bonds trading with yields well below similar non-green debt, on the thinking that the divergence “is likely not justified” longer term.

“For holders of green bonds who are less concerned about the green label, swapping into similar maturity non-green bonds makes sense, in our view,” wrote the strategists.

Bloomberg Green

By David Caleb Mutua

October 18, 2021, 8:56 AM PDT

New EMMA Feature Helps Investors Identify Green, Social, Climate and Sustainable Bond Investments.

Washington, D.C. – The Municipal Securities Rulemaking Board (MSRB) announced today that it has launched a new feature on its free Electronic Municipal Market Access (EMMA®) website that indicates when an upcoming municipal security new issue is either self-designated or certified as meeting certain Environmental, Social or Governance (ESG) criteria.

“It is not surprising that impact investors are turning to the municipal securities market for investments that meet certain ESG criteria. Our market finances many projects that advance environmental and social goals in our communities, such as public transportation, clean water and affordable housing,” said MSRB CEO Mark Kim. “While there is no universally accepted ESG standard or definition on labeling an ESG security in the municipal market, there are internationally recognized frameworks that many states and municipalities follow to label their bonds as ESG. Integrating these frameworks into the free new issue calendar on EMMA will improve market transparency about the emerging trend of ESG and empower investors to make informed investment decisions.”

The MSRB established the EMMA website more than a decade ago to provide investors and the public with centralized, online and free access to real-time municipal securities transaction prices and disclosure documents. The new issue calendar is one of several free tools available on EMMA that enhances market transparency. The new issue calendar lists the municipal securities scheduled to come to market across the country, as well as those that have recently sold.

Using data uploaded to EMMA from financial services technology and data provider IHS Markit, the new ESG Type field will show whether a new issuance has been designated as Green, Climate, Social, or Sustainable, among others, while the new ESG Certifier field will show whether the new issuance has been certified by one of several verifiers that assess the issuance for adherence to ESG criteria.

Date: October 25, 2021

Contact: Leah Szarek, Chief External Relations Officer
[email protected]

As US Cities Build Green Infrastructure, Here’s One Way They’re Paying For It.

In 2015, rainstorms in Washington DC would cause parts of the city’s sewer system to overflow dumping millions of gallons of raw sewage into the Anacostia and Potomac rivers. Pipes buried in the 19th century combined stormwater and sewage, discharging a noxious brew of trash, bacteria, and heavy metals that polluted the rivers. By 2005, the pollution had gotten so bad it violated Environmental Protection Agency clean water standards, killed wildlife, and posed a threat to people living in the area. The federal government ordered DC Water, the region’s sewer and water management authority, to clean up the rivers.

At first, DC Water tried to tackle the problem with traditional “gray” infrastructure: big underground tunnels to store excess stormwater. But the agency’s leaders were in search of a cheaper, more sustainable solution. So in 2015, DC Water proposed using parks, plants, and permeable pavements strategically distributed to absorb some stormwater runoff and prevent overflow.

This “green infrastructure” was appealing for engineers: it had the potential to be less costly than gray infrastructure, and had knock-on benefits for neighborhoods, like providing natural cooling in summers, and improving property values. But it was uncharted territory; DC Water had never built green infrastructure before, and few other US cities had.

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By Camille Squires

Published October 27, 2021

Flooding Could Leave Billions of US Municipal Debt Under Water.

Approximately a quarter of the entire U.S. infrastructure is at risk of severe flooding, hitting the $ 4 trillion municipal bond market price and crediting city and state issuers, according to a new study. It can jeopardize your strength.

New York-based climate research firm First Street Foundation has issued a report finding that US infrastructure, such as roads, hospitals, and power plants, shows a higher risk of flooding than previously estimated. This has serious implications for state and city financial resources, asset value, mortgage-backed securities and municipal bonds.

Louisiana, Florida, and West Virginia have the potential for the worst floods in the continental United States, First Street Foundation data show. In Louisiana, 45% of all critical infrastructure facilities, including hospitals, fire departments, airports and power plants, are at risk of failing due to this year’s floods.

In addition, 39% of roads and 44% of social infrastructure (schools, government buildings, places of worship) are at risk of closure. In some cities in Louisiana, such as Metairie and New Orleans, the risk for all these categories is almost 100%.

Municipal bonds have long been a shelter asset class and are popular with long-term investors such as pension funds and insurance companies. Municipal bond default rates have historically been low, but can rise as underfunded cities struggle to keep up with the costs of extreme weather damage.

Municipal bonds also tend to mature between 15 and 30 years. According to the Securities and Financial Markets Association, the average maturity issued last month was 18.6 years. Climate change is so fast that there is a lot of time left before a disaster strikes.

Investors also face the risk of geographical concentration. Owning a munis issued by the state in which you live gives investors certain tax incentives, so muni investors tend to be highly exposed to certain areas. Therefore, in the event of bad weather, the vast value of the municipal bond portfolio can quickly be lost.

“It’s clear that (climate) is a risk factor in the municipal bond market,” said Peter DeGlute, head of municipal bond research at JP Morgan. “Increasing the frequency and intensity of meteorological events is a costly and complex issue for the federal government, as well as for state and local governments.”

Floods can affect municipal debt in a variety of ways. It has a direct impact. Municipal bonds issued to fund the construction of hospitals are at risk of depreciation or default if their source of income is abruptly terminated when the hospital is destroyed by a storm.

Natural disasters can also alienate people and businesses, reduce the value of existing assets, and reduce the tax base of a state or city. This is another way for municipal bonds to be repaid.

Extensive floods are also very expensive. Between 1980 and 2020, natural disasters caused $ 1.8 trillion worth of damage.  About half of them were associated with hurricanes and tropical storms. Municipalities must borrow more to pay for reconstruction and to build new climate-adapted infrastructure. This increases the credit risk of existing bonds and the cost of borrowing new funds.

Led by Paul Goldsmith Pinkham of Yale University, the municipal bond market is already beginning to price the risk of rising sea levels.

The federal government has traditionally intervened to help rebuild cities after a catastrophe. However, as these events become more frequent, resources can be under pressure and local governments may be more responsible for funding recovery efforts.

Of the top 10 states with the highest risk of infrastructure floods, Connecticut and New York are also the most helpful. Connecticut has the highest per capita net tax support debt of all 50 states, the second highest net tax support debt as a percentage of personal income, and the second highest net tax support as a percentage of state gross domestic product. I have debt. According to credit rating agency Moody’s. New York is also in the top 10 in each of these categories.

California News Times

Clean Energy Giant NextEra Begins Push Into Water Utilities.

NextEra Energy Inc., which calls itself the world’s biggest provider of wind and solar power, plans to buy up municipal and privately owned water assets to build a “world-class water utility,” the company said in its third-quarter earnings call Wednesday.

“We’re really excited about building a significant presence in the water business,” said chief financial officer Rebecca Kujawa. She also announced the company recently spent $45 million to buy regulated water and wastewater utility assets in eight counties near Houston, Texas. NextEra’s water strategy will also focus on assets outside Texas and will probably target certain U.S. regions, she said.

NextEra chief executive Jim Robo said on the call that he’s “optimistic” about the reconciliation bill U.S. lawmakers are debating and that he’d be shocked if there wasn’t a long-term extension of the clean energy tax credits that boost the company’s business. “I feel good about both the policy tailwinds and how our business is executing along those goals,” he said.

Bloomberg Markets

By Josh Saul

October 20, 2021, 7:47 AM PDT

SIFMA Statement on Exclusion of Muni Bond Provisions from Reconciliation Bill.

Washington, D.C., October 29, 2021 – SIFMA today issued the following statement from president and CEO Kenneth E. Bentsen, Jr.:

“It is regrettable that the municipal bond provisions have been dropped from this version of the reconciliation bill and hopefully Congress will restore these important state and local government funding measures. State and local governments, unlike virtually everyone else in America, are unable to take full advantage of historically low interest rates through advanced refundings and generate cashflow to reinvest in their communities. Direct pay bonds and updating the small issuer rules will attract more private capital to state and local government projects, and combined with refundings will serve as critical infrastructure funding source. We are also concerned that the proposed change to the corporate minimum tax rate as currently drafted would have a negative impact on the demand for municipal bonds by some investors, increasing the cost to state and local government issuers.”

Muni Market Letdown as Bond Proposals Cut From Biden Plan.

A key debt-refinancing tool for state and local governments and the creation of a Build America Bonds-style debt program are among the municipal-bond provisions excised from the Build Back Better legislation proposed by the Biden administration on Thursday.

Advance refundings, a new version of taxable Build America Bonds, an expansion of bank-qualified bonds and an increase in private activity bond issuance aren’t in the latest bill.

“Never been more disappointed,” Emily Swenson Brock, director of the Government Finance Officers Association’s Federal Liaison Center, said in an email on Thursday. “Bonds are out entirely in the framework.”

The new BABs would have helped municipalities to finance much-needed new infrastructure, said Brock. “Jurisdictions across the country really thought this was our time.”

Brock added that “there’s still some process to go,” meaning one or more of the provisions could be added back into the legislation as it’s still subject to possible amendment.

Michael Decker, who lobbied for the provisions for the Bond Dealers of America trade group, called their being dropped “a disappointment” in an email, and added, “The bond provisions that have been under consideration are all modest in cost but with outsized benefits for state and local taxpayers around the country.”

Bond issuers, bankers and buyers in the $4 trillion market had welcomed the provisions when the new bill was unveiled in September, saying they could spur the issuance of tens of billions of dollars in new bonds. Their enthusiasm was short-lived.

“Like a scene from a movie that wasn’t crucial, muni provisions got left on the cutting room floor,” said Eric Kazatsky of Bloomberg Intelligence. “This speaks to the growing divide between the importance of these provisions to MuniLand and perhaps lack of importance to everyone else.”

Tom Kozlik, head of municipal strategy and credit at Hilltop Securities in Dallas, Texas, said in an email that he wasn’t too surprised that the muni provisions were dropped, “when so many priorities like community college and paid leave were being abandoned. I thought there was a very slight chance the direct pay infrastructure program could at least be included,” he said, referring to the new version of Build America Bonds.

Bloomberg Markets

By Joseph Mysak Jr

October 28, 2021, 11:56 AM PDT Updated on October 28, 2021, 1:11 PM PDT

— With assistance by Martin Z Braun

Push Is On to Salvage Muni Finance Provisions Left Out of Biden Plan.

A key refinancing tool that states and localities want to see brought back, along with other proposals, didn’t make the cut.

The roughly $1.75 trillion domestic spending plan President Biden unveiled on Thursday leaves out provisions that supporters say would provide state and local governments greater flexibility and substantial cost-savings when financing infrastructure projects.

In response, over two dozen groups that represent cities, counties, towns, government finance officials and public works agencies are mounting a last ditch effort to get those proposals included, sending a letter to congressional leaders after the plan’s release pleading their case. But the window to make changes to the package could be tight.

One of the absent municipal finance measures would restore what’s known as advance refunding for state and local government bonds. States and localities relied on tax-exempt advance refunding as a key tool to refinance and restructure debt before it was eliminated in the Republican-crafted tax law that passed in late 2017.

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OCTOBER 29, 2021

Will Muni Bonds Get a Big Boost from Capitol Hill?

Pending municipal finance provisions in the big spending bills before Congress could benefit issuers, investors and taxpayers. To get the best deal, state and local leaders must press their case immediately.

As Congress continues to kick around bills for infrastructure and federal spending priorities, state and local leaders need to keep their eyes on the shape the legislation’s somewhat arcane provisions for municipal finance will take.

In the grand scheme of things, they don’t cost federal taxpayers that much, so one would think that they stand a good chance of adoption, but nobody can take that for granted. It’s one of those esoteric topics that rarely makes the headlines outside of industry newsletters, but the benefit/cost ratio for local taxpayers is easily demonstrable. Whether the muni provisions make into law is now very much up in the air as the Senate whittles down its version’s “tax expenditures.”

Although many state and local officials are fixated foremost on the infrastructure bill, the House budget reconciliation bill has three provisions that are a big deal in the world of municipal bond finance; on the Senate side, these provisions are now in peril. One of them gives issuers of tax-exempt debt an option to sell their bonds on a taxable basis, pay a higher interest rate and receive a federal cash subsidy. Economists call it a “taxable bond option” (TBO), though it’s better known in the industry as Build America Bonds (BABs) from the Obama era when they were allowed temporarily during the Great Recession.

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October 26, 2021 • Girard Miller

NASBO Issue Brief: Analysis of State Fiscal Recovery Fund Allocations

Read the Issue Brief.

The Global Supply Chain Chaos and its Impacts on Local and State Economies.

With the rapid rollout of coronavirus vaccines, the global economy is emerging out of the pandemic. However, with the sudden closure of the large economies, the global supply chain is seriously grappling with issues like labor shortages for manufacturers and distributors and a rapid increase in global demand.

In recent months, these issues were paired with things like the emergence of the Delta variant, global power outages in certain parts of China, and a shortage of truckers in the U.S., further exacerbating the already huge challenges of the global supply chain. In addition, paired with historically low labor participation rates, the U.S. is also seeing labor shortages in areas related to the national supply chain (e.g., warehouse workers, port employees, truck drivers), further adding to congestion and backlog in the overall supply chain.

In this article, we will take a closer look at how global supply chain issues will impact local and state revenues and when the situation can get better.

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by Jayden Sangha

Oct 21, 2021

Public-Pension Funding Hits Highest Since 2007, Powered by Market Returns.

Plans gained a median 27% in financial markets so far in 2021

Public-pension funding surged in 2021 thanks to buoyant financial markets, taking funding levels to the highest in over a decade.

As of June 30, 2021, the aggregate funded ratio of the 100 largest U.S. public pension plans is estimated at 85%, according to the 2021 Public Pension Funding Study from Milliman, an actuarial company, marking what the group calls “a stunning improvement” from 70% in 2020.

It’s also the highest level of funding in the eight-year history of Milliman’s report. According to another data source, Public Plans Data at the Center for Retirement Research, which covers a larger universe of pension plans, the last time funding was so high was 2007.

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By Andrea Riquier

Oct. 27, 2021

Cyber Risk In A New Era: Are Third-Party Vendors Unwitting Cyber Trojan Horses For U.S. Public Finance?

Key Takeaways

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25 Oct, 2021

Fitch: Cryptocurrency Poses Risks, Opportunities for US Public Finance

Fitch Ratings-Chicago/Austin/New York-19 October 2021: A limited number of US public finance issuers are encouraging cryptocurrency (crypto) ventures and exploring the use of crypto as a form of exchange to grow economies and promote efficiencies, but this can expose issuers to a still-evolving economic and regulatory environment, Fitch Ratings says. Public entities have so far typically been recipients of crypto that is converted to cash.

Crypto offers ease and speed of transfer of value, relative to settlement through the conventional US financial system. Because crypto transactions are conducted via distributed ledger technology (DLT), payments can be automatically executed once conditions of the contract recorded on the electronic ledger are met.

However, cryptocurrency can introduce financial and operating risks, particularly as a result of price volatility. The lack of an overarching regulatory framework in the US and other countries contributes to market uncertainty, with changes in regulations potentially affecting value. Increased crypto investment holdings could negatively affect budgets and the ability to pay obligations if there are material price swings. Most municipalities’ investment guidelines are typically governed by state statutes, which may allow for crypto investments as regulation develops. In contrast, pension fund investment guidelines are typically at the discretion of the funds’ boards or their designees and allow a much broader range of options.

Crypto use will likely require new IT spending, including reinforcing cybersecurity. The rapid rise in the market values of cryptocurrencies, such as Bitcoin, has made them an attractive target for cyber criminals. The nascent global crypto regulatory environment and transaction anonymity contributes to the increased risk of cybercrime and ransomware attacks.

Issuers focused on environmental effects may view the energy-intensive computing power required for the proof-of-work consensus mechanism to validate transactions and mine coins such as bitcoin as detrimental to environmental, social and governance (ESG) goals. Furthermore, social and governance issues may arise from crypto payments or donations from anonymous sources that could create risks for public entities.

Public finance interest in cryptocurrency is not new. Ohio became the first state in 2018 to allow companies to pay taxes in crypto. A third-party processor converted the payment to US dollars, which would then be deposited into a state account. Within a year the program was suspended, with the Ohio State Attorney General citing legal prohibitions against the use of a payment processor to convert cryptocurrency into US dollars for the electronic payment of taxes. Ohio has left the door open to future use.

State and local governments have taken different approaches to crypto, with some cultivating the crypto market by establishing accommodative legal frameworks. Two Texas laws established a working group on blockchain technology and updated the state’s Uniform Commercial Code to recognize crypto. Wyoming passed laws that explicitly exempt virtual currencies from state money transmission laws and permits state-chartered depositories to provide banking services to virtual currency companies. Rhode Island and New York introduced crypto regulations.

Miami accepts donations from CityCoin, a non-profit opensource protocol. CityCoin allows users to mine “MiamiCoins”, which are not affiliated or endorsed by the city. Thirty percent of the contributions submitted by miners is converted to US dollars and transferred to the city. The protocol generated several million for the city since its inception. Miami is not permitted to hold or invest in crypto under current state law.

Not-for-profit healthcare and higher education entities have begun to receive donations in the form of crypto, potentially tapping a new philanthropic base. Many opt to liquidate immediately to avoid the risk of volatility, and crypto remains a small percentage of total giving. Technological infrastructure and a clear policy framework are necessary to accept and process these donations.

Related Research:


Gregory Dziubinski
Associate Director, US Public Finance
+1 312 606-2347
Fitch Ratings, Inc.
One North Wacker Drive
Chicago, IL 60606

Omid Rahmani
Associate Director, US Public Finance
+1 512 215-3734
Fitch Ratings, Inc.
Terrace 1
2600 Via Fortuna, Suite 330
Austin, TX 78746

Sarah Repucci
Senior Director, Fitch Wire
Credit Research & Risk Analytics
+1 212 908-0726

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings.

Fitch: New Covid Variants Ground Recent Traffic Improvements for Airports

Fitch Ratings-New York/Austin/London/Sao Paulo/Mumbai-19 October 2021: New Covid variants could impede recent improvements in vaccination rates and recent subsequent increases in passenger traffic at airports throughout the world, according to Fitch Ratings in its latest quarterly Global Airport Traffic Tracker.

Vaccination rates have improved significantly during the past three months, with all countries administering at least one dose to at least 50% of their populations and Spain leading at 81%. However, there are 11 variants classified as “under monitoring” by the World Health Organization. “Passenger traffic recovery may be vulnerable as these variants could trigger lockdowns, especially in countries with low inoculation rates — as has been the case in Australia,” said Director Jeffrey Lack.

Australia’s lockdown is already having a discernible effect with Fitch paring back its global airport traffic recovery estimates to roughly 68% by 2022, down from 78% in Fitch’s 2Q report, with a full recovery still on tap for 2024.

Drilling down into regions of the world, passenger traffic for U.S. airports continued to ramp up through July 2021, surpassing 80% of pre-pandemic levels in that month. “Passenger traffic at U.S. airports is likely to plateau this quarter before recovering gradually to 100% by 2024,” said Lack.

Tempering the effect of Australia’s recent lockdown are faster recovery prospects in China and Brazil, which could see full traffic recovery by 4Q’22 and 4Q’23, respectively. Fitch anticipates slower recoveries in France, Italy, Spain and the UK, where recovery is not likely until 2025-2026.

Fitch’s ‘Global Airport Traffic Tracker: 3Q21 Update’ is available at ‘’.


Jeffrey Lack (U.S.)
+1 312 368-3171
Fitch Ratings, Inc.
2600 Via Fortuna Suite 330
Austin, TX 78746

Alexey Kobylyanskiy (EMEA)
Associate Director
+44 20 3530-1786

Harini Ravishankar (APAC)
Senior Analyst
+91 99406 63469

Bruno Pahl (LatAm)
+55 11 4504-2204

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Fitch: Delta Variant Reverses Leisure Jobs Recovery for Major U.S. Metros

Fitch Ratings-New York-19 October 2021: The Delta variant has pumped the brakes on leisure & hospitality job growth sector growth for U.S. metros throughout the country, according to Fitch Ratings in its latest U.S. Metro Labor Markets Tracker.

August marked a stagnant period for employment recovery for the U.S. as a whole thanks largely to broad reversals in the leisure and hospitality (L&H) sector.

The Northeastern L&H sector’s recovery rate fell back to 88%, represented a 4% decrease from July. “Boston, Philadelphia, and New York City each saw job leisure and growth flatten and, in the case of Philadelphia, fall in August,” said Senior Director Olu Sonola.

The Midwest and the South also posted month-over-month declines. Meanwhile, Kansas City is the latest major metro to achieve a 100% L&H recovery since February 2020. The Southern metros’ L&H recovery rates declined sharply in August, falling to 81% from 87%. “Miami and New Orleans in particular saw their recent strong recoveries reverse in August,” said Sonola.

Noteworthy among Western metros is Las Vegas, which has the highest L&H employment concentration among major metros. Las Vegas’ L&H sector accounted for two thirds of job losses from February 2020 through August 2021 and has only recovered 57% of those jobs.

Fitch’s latest “U.S. Metro Labor Markets Tracker” is available at


Olu Sonola
Senior Director
+1 212 908-0583
Fitch Ratings
300 W 57th Street, New York, NY 10019

Nicholas Rizzo
+1 212 908-0596
Fitch Ratings
300 W 57th Street, New York, NY 10019

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Fitch: Congestion, Expanded Operations Challenge US Cargo Port Efficiency

Fitch Ratings-New York-20 October 2021: US cargo ports continue to see strong revenue performance as a result of sustained congestion and record volume, Fitch Ratings says. However, maintaining operational efficiency is an increasing challenge as bottlenecks have not yet resolved due to disrupted supply chains, mismatched rolling stock, capacity-strained logistics networks and ongoing labor shortages. Ports are now expected to see congestion pressures persist through the holiday season, with throughput patterns not expected to normalize until early 2022.

As noted in our July commentary, the San Pedro Bay Port Complex has been experiencing exceptionally high and growing volumes since mid-2020, driven by robust goods consumption. Port of Long Beach’s (POLB; AA/AA-/Stable) total calendar 2021 YTD 20-foot equivalent units (TEUs) through September have grown 24% over the same nine-month period a year prior, while Port of Los Angeles’ (POLA; AA/Stable) YTD TEUs through September were up 27% versus the same period in 2020. Fitch-tracked West Coast port TEUs were up 25% through August 2021 from the same period in 2020, and up 15% from the same period in 2019.

POLA recently announced it would move to 24/7 operations, as POLB did in September. Round-the-clock operations may help shift additional containers off ships, though ports are only the first stop along the way for imports, which make up the vast majority of cargo handled at West Coast ports. Sticking points remain in the form of warehouse capacity and trucking availability to move goods from the ports, particularly when expanded hours at ports do not match warehouses’ and distribution centers’ operating hours.

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S&P: U.S. Public Finance Housing Rating Actions: September 2021 And Third-Quarter 2021

S&P Global Ratings’ U.S. Public Finance Housing rating actions for the third quarter of 2021 had 10 downgrades and seven upgrades. There were also five favorable and seven unfavorable outlook revisions.

The number of downgrades slightly outpaced upgrades, highlighting the mixed bag of results seen over the various rated housing sectors during the ongoing COVID-19 pandemic.

There were 56 affirmations out of 87 total rating actions during the third quarter, or about 64% of rating actions. Currently, about 88% of our ratings carry stable outlooks, partially attributable to both ongoing federal support and existing balance-sheet strength, despite headwinds posed by the pandemic. However, we continue to observe volatility in the rental housing bond sector. Rental housing bond issuers, already strained prior to the pandemic, continued to experience occupancy shortfalls and subsequent deterioration in coverage, and accounted for 16 of the 19 negative rating and outlook actions. These 16 individual actions covered seven issuers.

Additionally, one issuer defaulted in the third quarter, and encompassed three rating actions based on the separate individual issuances. The ratings for Capital Trust Agency; Florida H-Bay Ministries Inc., Texas; and Affordable Housing were lowered to ‘D’ on July 7, 2021, and subsequently withdrawn 30 days later.

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27 Oct, 2021

S&P U.S. Public Finance Rating Activity, September 2021.

Rating Activity

S&P Global Ratings took the following rating actions in U.S. public finance in September 2021:

24 downgrades
60 upgrades
66 outlook revisions to stable
75 outlook revisions to positive
16 outlook revisions to negative

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Reimagining Local Public Finance: Equitable Reform of Taxes, Fines, and Fees

As a result of the American Recovery Plan Act (ARP), many cities and counties are seeking to make transformative investments while prioritizing equity in the process. Naturally, the spending decisions local governments are making have received a lot of attention.

However, local governments should also take advantage of this opportunity to review and reform revenue-raising (i.e. taxes, fines, and fees) practices with an eye toward equity. The ARP provides local governments significant flexible funds to replace revenue that they lost due to the pandemic, but policymakers should not be satisfied with just replacing revenues. Black taxpayers and other taxpayers of color bear a heavier tax burden for public services due to the local assessment and collection practices of tax and non-tax revenues. Counties and cities should strive to achieve the ARP’s explicit equity goals not only through spending programs, but also by evaluating, and when necessary, reforming the methods through which they raise revenue in the first place.


Depending on the local unit of government, revenues can consist of local taxes, such as sales taxes and property taxes, as well as other forms of non-tax revenue, such as fines and fees. Fees are often used as a surcharge to fund local government services, whereas a fine is more punitive—a form of punishment for violating a municipal code or law, such as a parking ticket.

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The Brookings Institution

by Tonantzin Carmona

October 19, 2021

Municipal Bonds: Supply & Demand, Taxes & Infrastructure


Continue reading.

Seeking Alpha

Oct. 22, 2021

Surge in Munis Up for Sale as Yields Catch Up With Treasuries.

Municipal-bonds traders are catching up with the repricing that’s raced through the world’s sovereign debt markets, causing a surge in the number of state and local government securities offered for sale.

Yields on tax-exempt bonds jumped by as much as 5 basis points Thursday, after traders elsewhere started pricing in that the Federal Reserve will increase interest rates twice by the end of next year.

That drove investors to put out about $860 million of bonds for bids, the most since May 13, according to data compiled by Bloomberg.

The weak tone was set early in the day, which saw a spike in the selling of large blocks of securities. Ben Pease, head of municipal trading at Breckinridge Capital Advisors Inc., said the market took note when a dealer traded about $6 million of AAA rated Maryland general-obligation bonds at a spread of 11 basis points off the benchmark, up from 4 basis points last week.

“I think it felt a touch fragile this week, and today’s bids wanted and early trades were the catalyst,” Pease said. “We just needed momentum to pick up on the downside for buyers to step back.”

In addition, the time it takes dealers to move their inventory has slowed in the last week, indicating there aren’t enough buyers, he said.

With Thursday’s rise, 5-year benchmark municipal bond yields have increased about 20 basis points since late September to about 0.6%. Similar Treasuries have risen about 38 basis points since then, with the yield now around 1.23%.

Bloomberg Markets

By Martin Z Braun

October 21, 2021, 1:38 PM PDT

JPMorgan Bond Deal Is Paused by Louisiana Over Gun Policy.

More Republican state officials are picking a fight with Wall Street.

On Thursday, a Louisiana panel delayed the approval of a $700 million state bond sale set to be underwritten by JPMorgan Chase & Co. as the attorney general pushes for information on the bank’s policies on gun control.

State Treasurer John Schroder, a Republican, said during the state bond commission meeting that the group wouldn’t consider an agenda item allowing for the refinancing of gasoline- and fuels-tax bonds that JPMorgan was slated to underwrite. Schroder, the commission’s chair, said the state needed to look at its underwriting criteria, joining the efforts by some in the GOP to punish Wall Street banks for wading into social issues.

“We are going to pull that,” said Schroder, who said they would “give it a month” to review its underwriting criteria. He said he had informed the bank of the decision late Wednesday.

The scrutiny comes as the largest U.S. bank is facing a hit to its public finance business in neighboring Texas over its gun policies. In September, a law went into effect in Texas that bars state and local governments from hiring banks that moved to curtail ties to the firearms industry in the wake of mass shootings. That led JPMorgan and Citigroup Inc. to pull back from seeking work in the state, which was the largest issuer of municipal-debt after California last year.

A spokesperson for JPMorgan declined to comment.

The Louisiana commission’s move comes one week after Attorney General Jeff Landry asked JPMorgan Chief Executive Officer Jamie Dimon to clarify the bank’s policy regarding any restrictions on business with the gun industry. Landry cited media reports on the fallout from the Texas law that affected JPMorgan’s municipal business. The bank has said the legal risk of the legislation has prevented it from bidding on most business with Texas public entities as a result.

The Louisiana move stems from a decision by the state in 2019 to question banks over whether they have gun-related policies. In 2018, Louisiana blocked Bank of America Corp. and Citigroup from underwriting a bond issue because of such policies, and the following year required would-be underwriters for specifics.

As part of the 2019 application process for those seeking to act as senior underwriters on Louisiana state bond deals, banks had to certify that they didn’t restrict or infringe on the citizens’ “constitutionally protected rights” to keep and bear arms, or discriminate against citizens based on the exercise of their constitutional rights. At the time, JPMorgan told the bond commission that it had no such policies and it was selected in February 2020 as one of eight banks to join the state’s underwriting pool. It has since served as senior manager on two deals totaling $1.1 billion, according to the letter.

Earlier this year, Dimon told a Congressional committee that his bank won’t finance gun companies that make military-style weapons for consumers.

“I believe that the Bond Commission should not conduct any business with an entity that discriminates against law-abiding citizens and businesses in the state of Louisiana,” Landry, a Republican, wrote in the Oct. 14 letter to Dimon, asking him to provide a supplemental certification regarding JPMorgan’s policies.

“The State reserves the right to reject the response if this certification is subsequently determined to be false,” he wrote in the letter, quoting the Dec. 2019 solicitation for offers for underwriting services.

Schroder’s decision on Thursday could be a harbinger of more trouble ahead for JPMorgan’s public finance business as Republicans look to punish Wall Street for wading into social issues.

Still, the state of Louisiana only issued about $881 million of bonds last year, which pales in comparison to the Texas debt market, where issuers including local governments and state agencies sold about $58 billion of debt in 2020, according to data compiled by Bloomberg. The Texas law covers a wide swath of municipal borrowers.

Lawmakers in Louisiana passed a piece of legislation similar to Texas earlier this year that would have barred the state and local governments from engaging in public contracts with firms that have “discriminatory practices” with firearm associations, retailers and manufacturers. But Governor John Bel Edwards, a Democrat, vetoed the bill, saying it would cost taxpayers money.

Bloomberg Markets

By Danielle Moran and Amanda Albright

October 21, 2021, 1:58 PM PDT Updated on October 21, 2021, 2:59 PM PDT

The Fight Between Texas and Wall Street Is About to Get Bigger.

Outside San Antonio this month, a veteran of Texas politics got so upset about Wall Street’s retreat from fossil fuels that he compared the oil industry’s fight for funding to the civil rights struggle.

In Dallas, a hedge fund manager trading junk bonds on his iPhone lamented his upcoming move to the posh Highland Park neighborhood, fearing locals might brand him an outsider even though he relocated from New York years ago.

And at an Austin diner, a finance executive whose grandfather was governor hoped for compromise between Wall Street and the Lone Star State, but warned it may get worse before it gets better.

Welcome to the tense battle brewing between Big Finance and Texas. Just a few months ago, drawn by the promise of low taxes and light regulation, some of the largest banks and asset managers in the U.S. were ramping up their flight from the coasts.

Then Governor Greg Abbott signed a law banning state investments in firms that cut ties to oil and gas and another blocking local governments from working with banks that limit their lending to gun companies. That halted business for some top municipal-bond underwriters. JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. have all stopped muni underwriting in the state, at least for now.

But what’s happening in Texas isn’t just about muni bonds or a Republican governor leaning to the hard right in a bid to win reelection next November. It’s a broader conflict between a state that would be among the world’s top economies if it were its own country and an industry whose leaders have begun to raise their voices on social issues from racial equity to climate change while pledging to consider stakeholders besides investors.

Interviews with more than a dozen bankers, traders and investors suggest that when Texas decides banks have gone too far, it presages a bigger struggle over corporate power and the reach of Wall Street’s influence.

Bigger Than Munis

“This is much bigger than the municipal bond business,” said Phil Gramm, a former Republican U.S. senator from Texas. “This is the beginning of telling Wall Street that if you’re going to discriminate due to your fealty to special interest groups, you’re going to have to pay for it.”

Gramm helped write the law that allowed for the creation of Citigroup and other Wall Street giants, and later was vice chairman of UBS AG’s investment bank. He prefers to use what he calls the language of the civil rights movement, comparing an oil driller’s ability to borrow funds to the right to sit at segregated lunch counters: “Discrimination is discrimination.”

Until recently, the finance industry’s ties to Texas had never looked stronger. Goldman Sachs has been on the hunt for a new Dallas-area campus that could be its biggest in the U.S. outside Manhattan. Charles Schwab Corp. built new headquarters in the wealthy suburb of Westlake. And Vanguard Group announced a new Dallas-Fort Worth office not too far from fresh space for hedge fund Canyon Partners.

Inside an Austin restaurant called Cisco’s, where a wall of luminaries includes a photo of former governor Bill Clements, his grandson George Seay ate huevos rancheros with biscuits and gravy.

Seay, the founder of investment firm Annandale Capital, said it was “a big, big move” when JPMorgan boss Jamie Dimon and other top executives said in 2019 they’re redefining the purpose of corporations to benefit workers and communities, not just shareholders.

The way he sees it, things are coming to a head in Texas because corporations have “become woke” just as Abbott, who’s running for a third term, is signaling to supporters that he’s the biggest conservative in town.

Texas all but banned abortion this year and stopped transgender high school athletes from playing on teams that don’t align with their birth certificate. When North Carolina passed a parallel bathroom bill five years ago, corporate boycotts helped pressure the state to abandon it.

“That’s not going to work down here,” Seay said last week. Instead of one side getting its way on social issues, he said, executives and politicians will have to each make compromises, he said. “You can be friends with someone who doesn’t agree with you.”

‘We Need the Brains’

When Bobby Tudor moved to Texas decades ago, Goldman colleagues told him he was making a mistake. But then they gave him a hard time around bonus season because he got to keep so much more of it than colleagues in New York, where taxes are higher. “My answer was: ‘Move to Texas, dude.’” Some of them did.

Tudor, who co-founded the energy-focused investment bank Tudor, Pickering, Holt & Co., said Texas didn’t start this fight. Corporate leaders are “feeling compelled to speak out and take positions on all sorts of matters that aren’t necessarily central to their business.”

In an office that looks down on the Houston Ship Channel, he said people in Texas feel their “version of a great world isn’t the same as Larry Fink’s.” He added that the Greater Houston Partnership, a group of business leaders he has helped run, supports the right of businesses to require vaccinations, something Abbott has tried to ban.

Asked about the tension, Abbott said “people and businesses vote with their feet, and month after month they are choosing to move to Texas,” according to a statement sent through a spokesperson. He cited the pull of “no corporate or personal income taxes, a predictable regulatory climate, and a young, growing, and skilled workforce.”

The fight is already spreading past Texas. Last week, a panel in Louisiana delayed approving a $700 million state bond sale set to be underwritten by JPMorgan while the attorney general presses for information on the bank’s gun policies. Dimon told Congress this year that his bank doesn’t finance gun companies that sell military-style weapons to consumers.

Over the years, it’s frustrated Lucy Billingsley to watch Texas pass socially conservative laws she can’t support. Even so, the Dallas real estate investor and developer adores the state’s pro-business environment, those low taxes and light regulation. She wants finance firms to embrace that same calculus.

“Come engage and lead,” she said. “We need the brains — and we need to make this a better place.”

Cullum Clark, a finance veteran who teaches economics at Southern Methodist University and runs the Bush Institute-SMU Economic Growth Initiative, predicts a long push and pull over corporate influence.

“We will see more and more statements and measures like the Texas one, some left and some right,” he said. And then, he predicts, executives may fight back. “Wall Street is strong, these are not weak entities that have no resources. I think they’re watching closely.”

Bloomberg Equality

By Max Abelson

October 29, 2021, 5:00 AM PDT Updated on October 29, 2021, 9:05 AM PDT

— With assistance by Amanda Albright, and Danielle Moran

Munis In Focus: All Tricks No Treats For Muni Bonds (Radio)

Eric Kazatsky, Senior Municipal Strategist for Bloomberg Intelligence, discusses the latest muni market news. Hosted by Paul Sweeney and Kailey Leinz.

Play Episode

Bloomberg Radio

October 29, 2021

Long-Dated Munis Reach Cheapest of 2021 Amid Tax-Hike Debate.

Long-maturity municipal bonds have reached the cheapest levels seen all year as demand for tax-free debt fades with Democratic lawmakers in Congress struggling to determine how to boost revenue to help pay for President Joe Biden’s agenda.

Yields on benchmark 30-year munis are now about 89% of those on similar-maturity Treasuries, the highest proportion of 2021, according to data compiled by Bloomberg. The ratio is extending its climb from record lows set around mid-year as cash flooded into state and local debt, in part from high earners looking for shelter from potentially higher tax levels.

But Democrats’ inability to hammer out an accord on tax increases has helped erode that demand. A proposed levy on billionaires’ assets has been dropped in negotiations, and legislators are now discussing a surtax for those earning more than $10 million, House Ways and Means Chair Richard Neal said Wednesday. The back and forth is adding to the uncertainty around the possibility of steeper taxes on income.

“As long as those prospects continue to wane, I think that is going to have an impact upon municipal demand,” said Jeff Lipton, head of municipal credit strategy at Oppenheimer & Co. “I think by the end of the year, munis will comfortably outperform Treasuries, even though that performance spread may narrow.”

Munis are on track for a third straight monthly decline for the first time since 2016. Driving home the ebbing appetite for the debt, muni mutual funds collected $193 million during the week ended Oct. 20, the smallest intake since an outflow in March, according to the Investment Company Institute.

Even amid the latest slide, state and local debt remains one of the stronger corners of fixed income this year, earning 0.4% through Tuesday’s close while Treasuries have lost almost 3%, Bloomberg index data show. And there’s little doubt that a broad bond-market selloff amid concern about elevated inflation is contributing to the waning appetite for munis.

“Fund flows are weakening because rates are rising, it is as simple as that,” said Vikram Rai, head of municipal strategy at Citigroup Inc.

Still, investors say they’re monitoring the shifting political sands in Washington as a key part of the muni market backdrop in coming months.

“It seems like when the whole Biden infrastructure plan came, a lot of the tax reform was already priced into the market,” said Max Christiana, a portfolio manager at Belle Haven Investments LP. “Now you’ve had a lack of progress from Congress, and you’re seeing some fatigue in the market.”

Bloomberg Markets

By Nic Querolo

October 27, 2021, 10:40 AM PDT Updated on October 27, 2021, 12:46 PM PDT

Munis Head for Longest Slide Since 2016 on Sign of Ebbing Demand.

Municipal bonds are headed for a rare three-month slide, joining a broad slump in the U.S. debt market, amid signs that the insatiable demand that’s buoyed tax-exempt securities this year may be waning.

Muni mutual funds collected $385 million of cash in the week ended Oct. 13, according to Investment Company Institute data. That was the second-smallest haul since March, and it compares with the $1.9 billion weekly average for 2021. What’s more, municipal exchange-traded funds saw an outflow for the first time since February, CreditSights data show.

It’s a possible indication that muni investors may be tiring of waiting for lawmakers in Washington to hammer out new spending measures that include tax increases on wealthy Americans. The expectation of such legislation has been a key driver behind the influx of cash into municipal debt this year, fueling the market’s outperformance relative to Treasuries.

“Some of the slowdown in mutual fund flows may be due to seasonal factors, but because flows into muni ETFs have also slowed in the past two weeks, we think that there is a partial shift in market sentiment occurring,” wrote Patrick Luby and John Ceffalio at CreditSights in a Monday research note.

The lackluster demand combined with rising Treasury yields have munis on track to lose 0.4% in October. It would be the third straight monthly decline, the first time that’s happened since late 2016, according to Bloomberg index data. It’s not as rare an occurrence in Treasuries, which are on the cusp of a similar slump and also suffered a four-month losing streak from December through March.

The appetite for munis may falter further should expectations for higher tax rates not materialize, said Matt Fabian, a partner at research firm Municipal Market Analytics.

“Congressional Democrats are finding those hikes to be difficult to implement,” Fabian and colleague Lisa Washburn wrote in a note dated Monday.

‘More Value’

Some money managers are finding a silver lining. Nisha Patel at Parametric Portfolio Associates LLC said the softening market has created a buying window for the ample amount of cash waiting on the sidelines.

“We saw a bit more value than what the new normal has been as of late,” she said. “It’s as exciting as it’s been in a little bit of time.”

Of note, municipals are still up for 2021, earning 0.4%. That’s better than U.S. Treasuries, which have lost 3% this year as elevated inflation has led investors to bring forward bets on when the Federal Reserve will starting lifting borrowing costs.

“If you pull money out of munis, where are you putting it?” Patel said.

There’s another way to gauge the opportunity created by the selloff. Relative to Treasury yields, muni rates are close to a seven-month high. That ratio hovered near all-time lows for months in 2021 as cash poured into tax-free debt.

“We reached a point where it was logical to have a bit of a pushback,” said James Iselin, head of the municipal fixed-income group at Neuberger Berman Group. “We need higher yields, we need ratios for high-grade bonds to be more attractive, all those things are healthy for the market.”

Bloomberg Markets

By Danielle Moran

October 26, 2021, 11:00 AM PDT

Muni-Bond Niche Defies Sales Slump as Banks Seize on Cheap Rates.

Municipal-bond sales are surging in one corner of the market as banks seize on a way to secure low-cost financing, bucking the broader slowdown in borrowing by state and local government agencies.

Issuance of so-called prepaid gas bonds — which municipal utility agencies sell to lock in long-term fuel supplies from commodity trading arms of banks — have jumped to some $6.5 billion this year, more than four times as many as were sold in all of 2020, according to data compiled by Bloomberg.

While a recent surge in natural gas prices may be giving utilities a reason to borrow to lock in prices now, the increased use of such bonds has been driven by something more technical: the difference between yields in the tax-exempt and taxable debt markets. That gap widened earlier this year as investors shifted into municipal bonds on speculation that tax rates will rise under President Joe Biden.

That’s effectively given banks access to a low-cost source of funds in the municipal-bond market, since they receive the proceeds of the debt sales in exchange for providing gas supplies in the years ahead.

“Its simply cheap financing for banks right now,” said Charlie Hill, a portfolio manager at T. Rowe Price Group Inc. “Munis are very rich to Treasuries in the front end of the curve, so if [prepaid gas bonds] can price relative to a rich AAA, its cheaper than coming in the corporate market.”

Two year tax-exempt bond yields over the past two decades have, on average, been roughly the same as those on Treasuries. But the municipal bonds were yielding about 49% of Treasuries by the close of trading Thursday. In August, that ratio hit a record low 26%, according to data compiled by Bloomberg.

Barclays Plc analysts led by Mayur Patel expect the brisk pace of prepaid gas bond sales to continue, putting them on pace for a potentially record-setting year.

The analysts said that such issuance historically has had more to do with the relationship between market interest rates than it has with commodity prices.

“While higher prices may attract municipal utilities to structure prepay gas deals in order to lock in long-term savings on their natural gas purchases, we find that the historical relationship between natural gas prices and prepaid gas supply is not that strong,” the analysts wrote in an Oct. 21 research note.

Bloomberg Markets

By Nic Querolo and Sri Taylor

October 22, 2021, 11:03 AM PDT

— With assistance by Natalia Lenkiewicz, and Martin Z Braun

High Yield Municipal Bonds Have Pulled Back - A Buying Opportunity?

As long-term interest rates have risen since the start of August from 1.17% to 1.63%, both investment-grade bonds and high-yield municipal bonds have sold off, explains Marvin Appel of Signalert Asset Management.

In the case of high-yield municipal bond funds, declines from August – October have ranged from 1.2%-1.8%. In comparison, the Vanguard Total Bond Market Index Fund (VBMFX), a taxable investment-grade bond fund) lost 1.6% over the same period.

Considering that high-yield municipal bond fund portfolios have longer maturities (typically nine years’ duration) than the average investment-grade bond (6.5 years), high-yield municipal bond funds have held up better than one might have feared. Year-to-date, they remain one of the best areas of the bond market. The benchmark S&P High-Yield Municipal Bond Index is up 5% in 2021, compared to much smaller gains in investment-grade munis (S&P Municipal Bond Index up 0.9%) and to a total return loss of 2% in investment-grade bonds.

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SIFMA: US Fixed Income Securities Statistics

SIFMA Research tracks U.S. fixed income markets, including issuance, trading, and outstanding data breaking out U.S. Treasuries, mortgage-backed securities (MBS), corporate bonds, municipal securities, federal agency securities, asset-backed securities (ABS), and money markets (outstanding data only). Data is downloadable by monthly (issuance and trading only), quarterly and annual statistics including trend analysis.

Current YTD statistics include:

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Climate Change Litigation: The Case For Better Disclosure And Targets

Key Takeaways

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6 Oct, 2021

S&P ESG Brief: ESG Pension And OPEB Analysis In U.S. Public Finance

Environmental, social, and governance (ESG) is integral to our public finance credit analysis and we continue to amplify our transparency efforts for market participants. This brief aims to identify when our view of pension analytics and governance as part of ESG intersects with credit rating analysis.

Credit rating analysis for pension and OPEB is built around cash flows, both current and future, and how contribution costs could negatively affect an issuer’s willingness and ability to meet its debt obligations and operational expenditures. In our view, ESG factors begin to overlap with our credit rating analysis for pension and OPEB when prioritization of plan contributions, through forward-looking plan governance decisions, is viewed through the lens of risk management, culture, and oversight.

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7 Oct, 2021

S&P U.S. Higher Education Rating Actions, Third-Quarter 2021.

View the S&P Report.

13 Oct, 2021

S&P U.S. Not-For-Profit Health Care Rating Actions: September 2021 And Third-Quarter 2021

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14 Oct, 2021

S&P: Pension Obligation Bond Issuances Continue To Increase In 2021

Key Takeaways

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Fitch: U.S. Airport & Toll Road Traffic Inch Closer to Pre-Pandemic Highs

Fitch Ratings-New York-11 October 2021: Traffic at U.S airports and on toll roads continues its gradual return to pre-pandemic levels, according to Fitch Ratings in its latest U.S. Airports & Toll Roads Traffic Monitor.

One of the hardest hit infrastructure sectors due to COVID-19, U.S. airports have recovered to 70% of 2Q19 levels on average through the end of June, with a few airports exceeding pre-pandemic levels in certain leisure focused O&D markets. ‘Airport traffic continues to improve across the U.S., though the recent surge of Delta variant infections is an area to watch to see if it pares back recent passenger growth,’ said Director Henry Flynn. Domestic leisure traffic continues to show strength, while international traffic and business travel are expected to recover more slowly.

Conversely, one of the most resilient sectors during the pandemic continues to recover at a steady pace, with U.S. toll road average traffic volume in 2Q21 at 90% of 2Q19 levels. Certain markets continue to outperform and have already returned to pre-pandemic levels, particularly in Texas and Florida.

The traffic monitor is a web-based interactive platform that provides traffic volume information for more than 50 U.S. issuers. It compares current traffic levels as a percentage of 2019 traffic levels, to allow tracking of the sector’s recovery to pre-pandemic levels. The monitor also compares actual data versus Fitch Rating Case, flagging how each issuer is performing against Fitch’s scenarios. It provides several ways to sort data and produces charts to allow for visual comparisons between issuers. The latest version of the monitor includes enhanced functionality to compare recovery across airports at different time periods since the onset of the pandemic, in addition to map functionality.

To access the Traffic Monitor, visit:

For more information on Fitch’s latest airport recovery assumptions, visit:


Henry Flynn
+1 646 582 4580
Fitch Ratings Inc.
300 West 57th Street
New York, NY 10019

Aysha Seedat
+1 646 582 4278

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Fitch: U.S. Public Finance Strengthening Despite Uptick in 3Q Downgrades

Fitch Ratings-New York-11 October 2021: U.S. public finance sectors hit hard by the coronavirus pandemic continued to move away from the pandemic’s fallout last quarter, according to Fitch Ratings in its latest quarterly rating actions report.

Fitch upgraded 26 U.S. public finance ratings and downgraded 30 in third-quarter 2021 (3Q21) compared with 28 and 18, respectively, in 2Q21. The uptick in downgrades last quarter was partly driven by unusual downgrade activity in the public power sector, namely among Texas public power and electric cooperatives.

The uptick in downgrades was driven in part by changes Fitch made to its criteria for U.S. life plan communities (LPC) earlier this year; subsequent review of credits placed ‘Under Criteria Observation’ contributed modestly to the number of downgrades. Overall, about 87% of U.S. public finance ratings carry a Stable Rating Outlook.

The fiscal turnaround continues for U.S. states with Fitch revising its Rating Outlooks for New Jersey and Nevada to Stable from Negative and Ohio’s Rating Outlook to Positive from Stable last quarter. Updated revenue forecasts for fiscal years 2021 and 2022 generally reflect improved economic performance and outlooks. However, ‘caution is warranted for some states around the tax revenue effects if services spending rebounds while goods spending weakens,’ according to Arlene Bohner, Fitch’s Head of U.S. Public Finance.

Fortunes also continue to improve more broadly for not-for-profit hospitals with most providers well positioned to absorb future coronavirus aftershocks, even with cases on the rise again. Colleges and universities are also seeing improvement with no downgrades in 3Q21, one upgrade and six favorable Outlook revisions thanks to better-than-anticipated enrollment and favorable operating performance. That said, net tuition revenue growth will remain stagnant through both this academic year and the next.

‘U.S. Public Finance Rating Actions Report and Sector Updates: Third-Quarter 2021’ is available at ‘’.


Arlene Bohner
Managing Director, Head of U.S. Public Finance Ratings
Fitch Ratings, Inc.
Hearst Tower 300 W. 57th Street
New York, NY 10019

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Fitch Ratings Publishes Special Report on Transfers for U.S. Public Power Utilities.

Fitch Ratings-New York/Austin-12 October 2021: Fitch Ratings has published a special report on transfers for U.S. Public Power Utilities. This report summarizes Fitch’s view and treatment of transfers in Fitch’s U.S. Public Power Rating Criteria.

The full report, “Transfers Not a Significant Credit Risk for Public Power Utilities”, is available at


Dennis Pidherny
Managing Director
Fitch Ratings, Inc.
300 W. 57th Street
New York, NY 10019

Kathy Masterson
Senior Director

Nicole Markou Wood

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Fitch Ratings Launches Summary Sheet of Changes to ESG Relevance Scores.

Fitch Ratings-London-15 October 2021: Fitch Ratings has summarised changes to ESG Relevance Scores (ESG.RS) for the first nine months of 2021. Across the Fitch rated universe there were nearly 380 instances of an ESG.RS being changed, split nearly equally between scores improving and deteriorating. In some cases, an issuer or issue will see a deterioration and subsequent improvement, but they are counted as unique changes.

Changes to scores related to environmental issues accounted for 19% of score changes, with slightly more than half being improvements to scores, mostly from a ‘3’ to a ‘4’ and a few to a ‘5’. This indicates that a general issue was having a material impact on the credit rating, either in conjunction with other factors (‘4’) or was a key rating driver (‘5’).

‘Exposure to Environmental Impacts’ was the most frequent cited issue, with the highest concentration around US public finance (USPF) entities, specifically utilities affected by the extreme cold weather in Texas in February 2021. With 27 scores increasing, this was the highest concentration in any asset class around a single general issue.

There were also some increases in ESG.RS that reflected a positive impact on the credit rating. These were driven by sustainable building practices that led to a rise in scores in two US structured finance CMBS issues and a non-bank financial institution transaction that focused on sustainable infrastructure.

Improvements in ESG.RS occurred for a variety of reasons and usually scores moved from a ‘4’ to a ‘3’. Most instances were in corporates, with smaller concentrations in financial institutions and public finance. The reduction in ESG.RS scores were due to clear and updated emissions targets, divestment from coal-fired power generation and reduced exposure to extreme weather.

Changes to scores related to social issues accounted for 14% of all changes. Financing and leasing issuers had a high prevalence of deterioration in scores around ‘Customer Welfare’ due to exposure to high-cost consumer lending and to compliance risks. Under general social issues, there were instances of score increases reflecting a positive impact on the rating (signified with a ‘+’ next to the score), mainly revolving around a business’s positive impact on access and affordability of financial or housing services to under-banked or under-served populations. These can be beneficial through a financial institution’s central policy role or through access to state-guarantees to provide banking services to citizens with lower incomes.

The largest share of score changes was in governance, with nearly two-thirds of all score changes, in line with the wider trend of Governance issues being the dominant drivers of elevated ESG risks in credit ratings. The split was equal between scores being raised and lowered.

Half of all score changes within governance were improvements, but nearly 20% of these were instances of the score falling from a ‘5’ to a ‘4’, indicating that the issue was still pertinent for the credit rating. Most decreases were in corporates often due to material weakness in internal controls or owners’ strong influence on management.

North American entities experienced material weakness in internal controls. APAC issuers had problem that caused delays in finalising refinancing and independence risk at board level. European and South American companies had concerns over concentration of ownership and reorganisation. There was also a concentration in ‘Management Strategy’ and ‘Financial Transparency’ issues.

For further details, please see a sample of “ESG.RS Changes Summary 9M 2021” available at The full list of ESG.RS changes, including rationales and links to the relevant RACs, is available for Fitch Solutions feed subscribers.

Marina Petroleka
Senior Director, Sustainable Finance
+44 20 3530 1464
30 North Colonnade, Canary Wharf
London, E14 5GN

Kwok Wan
Associate Director, Sustainable Finance
+44 20 3530 1593

Media Relations: Adrian Simpson, London, Tel: +44 20 3530 1010, Email: [email protected]

Additional information is available on

‘Fiscal Justice Ratings’ Fight Police Brutality With Finance.

A new project aims to incorporate the cost of lawsuit settlements and inequality when rating municipal bonds.

Napoleon Wallace, a bond analyst and municipal budget wonk, sees disaster in the finances of America’s largest cities where others do not.

When it comes to assessing the value of municipal bonds issued by many American cities, he says investors — and the public — are often looking at the wrong numbers, overlooking the true embedded costs of a social justice system that has become normalized. He believes paying more attention could be an path for change.

To Mr. Wallace, factors that contribute to inequality, including police misconduct, add up to trouble for both residents and city finances. He believes that municipal bond investors should consider “fiscal justice” before investing in a city’s debt. His firm, Activest, plans to introduce a new type of ratings system this year to help them do it.

Take Louisville, Ky. The city gets an AA rating or higher from the major credit rating agencies, including Fitch, Moody’s and Standard & Poor’s. Mr. Wallace, however, gives Louisville’s finances poor marks across the board. According to his research, which he plans to publish in a report next month, the city is overreliant on fines and fees to generate revenue, corporate tax abatements are excessive and housing affordability is a problem. Mr. Wallace estimates that it also loses $100 million a year because of inequality, in large part because lower wages for Black and Latino residents result in lower tax revenue for the city and less economic activity.

Then there are the legal settlements. Louisville has paid nearly $31 million over the past five years to settle cases involving excessive police force, according to the report, which used data from the nonprofit Root Cause Research Center in Louisville. Not all of these payments have been publicly disclosed. The largest, $12 million, was made last year to the family of Breonna Taylor after Louisville police officers shot and killed her during a botched raid on her apartment.

A spokeswoman for the Louisville mayor’s office said Activest’s police settlements figure was wrong, but did not offer an alternative. “Equity is the central principle around every decision Louisville Metro Government makes,” said Jessica Wethington, the office’s deputy director of communications. “This year’s city budget focused on accelerating the city’s economic recovery, reimagining public safety, expanding youth development efforts and housing.”

Counting the cost of police misconduct

Activest bases its ratings on eight social and justice factors, with a heavy emphasis on policing, but also education, health care and affordability. Some practices that traditional credit raters see as good, such as high revenue from fines or fees, use of tax abatements and large police budgets, can erode a city’s tax base, exacerbate overpolicing and serve as early warning signs of social unrest, Mr. Wallace says. His fiscal justice ratings aim to account for this long-term impact.

The ratings also acknowledge the potential cost of police misconduct, which traditional rating agencies have typically ignored. In one exception that illustrates how police killings can destabilize city budgets, Moody’s downgraded the bonds of Ferguson, Mo., after a white police officer shot and killed Michael Brown, an unarmed Black teenager, in 2014. Moody’s cited “the potential financial impact of ongoing litigation costs,” legal settlements and negotiations with the Department of Justice to overhaul the city’s justice system.

“The ability to clearly and precisely distill all of the many fiscal justice risks into an outlook is very needed in this market,” Mr. Wallace said.

Activest, which Mr. Wallace founded six years ago with Ryan Bowers, a racial equity consultant, plans to publish research reports and ratings for as many as 50 U.S. cities. The initial goal is to bring to light police settlements, both public and private, and identify cities that are most at risk of not being able to pay them or meet other obligations.

But the ultimate goal is to use the bond market to rein in police brutality and make cities more just. As investors look for socially responsible investments, Mr. Wallace believes Activest’s fiscal justice ratings could influence bond prices and, therefore, the interest rates. By attracting more investors, a city would lower its borrowing costs, improving budgets and possibly allowing politicians to lower taxes or at least spend money elsewhere. And that could provide an incentive to treat citizens more fairly.

E.S.G. for municipal bonds

Municipal bonds were the original socially responsible investment. In ubiquitous television commercials that ran throughout the 1970s and 1980s, the bond salesman Jim Lebenthal stood in front of landfills, power plants and bridges to pitch the idea that investing in local government debt was putting money toward a better America.

But the modern iteration of socially responsible investing, known as the environmental, social and governance, or E.S.G., movement, has mostly steered clear of the muni bond market, and when E.S.G. investing tactics are applied to muni bonds, the focus is usually on environmental issues.

One reason for this, muni market experts say, is a lack of data. Larry Bellinger, the head of municipal bond research at AllianceBernstein, which manages $55 billion in local government debt, said that he had found relatively adequate research on carbon footprints and natural hazards, but that on social and justice issues, “data is a problem.”

That could change as muni bond investors become more interested in these issues. Michael Belsky, a former mayor of Highland Park, Ill., and a municipal bond veteran at HilltopSecurities, said that George Floyd’s murder last year, and the protests that followed, had sparked much of the new interest in E.S.G. from muni bond investors.

After Mr. Floyd was killed by a Minneapolis police officer, there were widespread calls to ban so-called police brutality bonds — municipal bond deals that raise money to pay for legal settlements tied to excessive policing. Banning such bonds is difficult because cities rarely raise money specifically for legal settlements. The same bonds that raise money to pay legal settlements, called general obligation bonds, also help pay for garbage pickup, the upkeep of parks and other city services.

Proposed boycotts fizzled. But an E.S.G. approach, which evaluates a number of measures to find out if investment targets, in this case city governments, are acting responsibly may be more lasting.

Some firms are already seeking better data on cities’ social and justice issues. A number of large money management firms, including BlackRock and Vanguard, have recently joined an effort by two minority-owned underwriting firms, Loop Capital Markets and Siebert Williams Shank, to get local officials to answer questions about policing policies, as well as stats on race-based inequalities.

Activest aims to make this type of data easily accessible.

“What Napoleon and Activest are doing is uncovering a new set of data for investors to use,” said Kimberlee Cornett, the director of impact investing at the Robert Wood Johnson Foundation, a nonprofit that is working on its own racial and equity-focused rating score for cities. “Investors are increasingly asking the racial equity question, and if data becomes consistently available, I think investors will pay attention to it.”

Beyond the data problem

The first money management firm to sign on with Activest, Adasina Social Capital, has raised nearly $60 million in less than a year for its fiscal justice investment strategy.

But even with more data and plenty of investor interest, some experts are skeptical that a fiscal justice rating could meaningfully influence bond prices and, therefore, push cities to tackle racial inequities.

Thomas Doe, the founder of Municipal Market Analytics, said that though environmental data and ratings had been in the muni bond market for a while, they had yet to have much impact on borrowing rates.

“Munis default so infrequently that there isn’t enough data out there to prove that fiscal justice has an impact on default risk,” Mr. Doe said.

And even if social ratings are successful, they could create ethical dilemmas. Minority populations in low-rated cities may see their community resources shrink further when borrowing rates rise.

Mr. Wallace of Activest thinks the firm’s fiscal justice ratings not only can influence bond prices but can also be an instrument of engagement.

“Using the power of the purse to motivate municipalities to ask, ‘Is this really the best use of resources for residents and bond holders?’ is a really compelling way to engage the market,” he said.

Adasina plans to buy bonds of cities that perform poorly in fiscal justice and then address the issues with city managers, who may be more willing to listen to their lenders.

“Fiscal justice strategy is driving more money to majority Black communities,” said Rachel Robasciotti, Adasina’s founder. “Activest’s folks, rather than call for divestment, are advocating for reforming behavior.”

The New York Times

By Stephen Gandel

Oct. 16, 2021

Municipal 30-Day Supply Is Highest Since 2020 at $18 Billion.

U.S. state and local governments are projected to issue approximately $18 billion in bonded debt over the next month, according to data compiled by Bloomberg.

This is the biggest 30-day supply in almost a year, with municipal bond sales peaking at $18.7 billion in November 2020. Investors said seasonal factors help explain the surge, citing states and cities seeking to get deals done before any potential delays during the holiday season as one of the main driving forces.

“This time of the year, the markets begin to get distracted by the string of holidays at the end of the year,” said Patrick Luby, CreditSights senior municipal strategist. “That stretch between labor day and thanksgiving become the time of year where it’s convenient for issuers to issue updated financials.”

The upward drift in supply is also likely a response to the threat of higher rates, according to municipal investors. Issuers are constantly on the lookout for refunding opportunities and taxable bonds have provided solid savings.

Bloomberg Markets

By Sri Taylor

October 13, 2021, 11:13 AM PDT

Cities Sell Muni Debt. One Bank Thinks They Should Buy It Too.

At the Cabrera Capital Markets office in Chicago, public finance bankers Brian King and Edward Kurth were kicking around ideas when it occurred to them: amid the current wave of taxable deals, why not expand the investor base by pitching municipal governments themselves to buy the debt?

Municipal treasurers aren’t typical buyers of the kind of the debt they sell themselves. They don’t benefit from the tax exemption on most muni bonds, and the assets they buy tend to be short-dated. Indeed, state and local governments hold just $20 billion of municipal bonds, a fraction of the universe, according to Federal Reserve data.

But, as King said in a phone interview, municipal issuers always ask underwriters to find more buyers for their bonds. The issuers themselves don’t get calls from muni-bond salespeople, and they sometimes turn to corporate bonds to invest their cash. But the rise of taxable municipal sales provides a unique entry.

“It struck us that this would be a natural way for them to vastly increase their investor base,” King said. “And at the same time provide an opportunity for municipal treasurers to make what would be really good investments in municipal bonds of other governments.”

Since their epiphany at the middle of last year, King said, Cabrera salespeople have ramped up their calls to local governments to buy new muni deals. He and other Cabrera bankers have also pitched government issuers about the potential of tapping this investor base and recommended moves such as marketing directly to governments or even giving such buyers a preference during sales.

Keep Competitive

King doesn’t expect a radical shake-up of the investor base. Still, the pitch shows how underwriters are adapting to developments in the staid municipal-bond market and trying to keep competitive with new ideas. More banks are vying for deals, to the benefit of issuers.

There are about 50,000 governmental units managing more than $7.6 trillion of funds in the U.S., according to a Cabrera presentation in June to the California treasurer’s office obtained through a public-records request.

Underwriters could pitch municipal buyers for the short maturities — six months to five years — that they are interested in, and if such investors get first dibs, corporate buyers would then have to buy debt further along the curve, King said.

“We’re able to generate additional demand in the short end, more order flow,” King said.

The record pace of taxable deals is slowing after last year, however. Still, King said the idea holds value as a long-term approach to building up a diverse investor base. He said Cabrera is recommending to their issuer clients that they tell their other bankers to solicit relationships with government buyers.

It’s positive that underwriters are thinking creatively, said Matt Fabian, partner at research firm Municipal Markets Analytics. Still, he said, the prospect of munis buying munis is “a little weird.”

Sell Quickly

Local governments hold assets that they can sell quickly in times of distress, with their investment policies often requiring highly-rated, short-dated securities.

“If the city itself is in trouble, it’s likely that its peers will be in trouble,” Fabian said. “And so, its investments would thus be underperforming when the city itself needs more money.”

And if there’s a default, a city would find itself in the politically awkward position of being a creditor to another local government, he said.

For Tim Schaefer, California’s deputy treasurer, Cabrera’s pitch was interesting, although “it’s not necessarily as applicable to the state of California simply because of the weighting we give to selling tax-exempt debt and longer-dated debt,” he said. Indeed, the holdings of top 10 local-government investors of California’s general obligation bonds tally about $129 million, much less than the $6.6 billion held by the state’s biggest investor, Vanguard Group, data compiled by Bloomberg show.

Still, Schaefer said, other jurisdictions should “absolutely” consider marketing their taxable deals to others.

“It would be unwise to not explore how to expand your buyer’s market,” Schaefer said. “You won’t know until you try.”

Bloomberg Markets

By Romy Varghese

October 13, 2021, 10:30 AM PDT

— With assistance by Natalia Lenkiewicz

Muni Trading Hasn’t Been So Slow Since Turn of Century.

The loneliest place on Wall Street may be the muni-bond trading desk.

Even with the volume of new state and local government debt sales on pace to surpass last year’s record, trading activity has dried up considerably. The par amount of bonds traded has tumbled by 34% so far this year to $1.43 trillion, a 22-year low, according to data compiled by Bloomberg.

On average, about $8.9 billion of municipal bonds are changing hands each day, the least since 2001.

The dearth of activity is likely a side effect of the massive influx of cash into the $4 trillion municipal securities market, with mutual funds receiving an average of about $2 billion each week since the start of the year, according to Investment Company Institute figures.

As a result, money managers have faced brisk competition to get in on new bond deals and yields have held near the lowest in decades. And it seems those who own the securities are, on the whole, not eager to sell.

“Overall a lot more investors, whether they are participating in new issues or not, they are just holding on to their paper,” Jonathan Law, a portfolio manager at Advisors Asset Management, said in an interview Wednesday.

It doesn’t look like the gulf between supply and demand will narrow much soon. Over the next month, there’s about $10.6 billion of new municipal debt sales scheduled so far, according to data compiled by Bloomberg. That’s about $14.3 billion less than the amount of cash bondholders will receive from debt that’s being paid off, which they typically seek to reinvest.

Bloomberg Markets

By Shruti Singh and Skylar Woodhouse

August 25, 2021, 11:37 AM PDT Corrected October 12, 2021, 11:07 AM PDT

— With assistance by Natalia Lenkiewicz

Munis In Focus: Puerto Rico Pensions (Radio)

Joe Mysak, Editor of Bloomberg Brief: Municipal Market, discusses the latest news from the muni market. Hosted by Paul Sweeney and Matt Miller.

Play Episode

Bloomberg Radio

October 15, 2021

Fitch: U.S. Public Finance Strengthening Despite Uptick in 3Q Downgrades

Fitch Ratings-New York-11 October 2021: U.S. public finance sectors hit hard by the coronavirus pandemic continued to move away from the pandemic’s fallout last quarter, according to Fitch Ratings in its latest quarterly rating actions report.

Fitch upgraded 26 U.S. public finance ratings and downgraded 30 in third-quarter 2021 (3Q21) compared with 28 and 18, respectively, in 2Q21. The uptick in downgrades last quarter was partly driven by unusual downgrade activity in the public power sector, namely among Texas public power and electric cooperatives.

The uptick in downgrades was driven in part by changes Fitch made to its criteria for U.S. life plan communities (LPC) earlier this year; subsequent review of credits placed ‘Under Criteria Observation’ contributed modestly to the number of downgrades. Overall, about 87% of U.S. public finance ratings carry a Stable Rating Outlook.

The fiscal turnaround continues for U.S. states with Fitch revising its Rating Outlooks for New Jersey and Nevada to Stable from Negative and Ohio’s Rating Outlook to Positive from Stable last quarter. Updated revenue forecasts for fiscal years 2021 and 2022 generally reflect improved economic performance and outlooks. However, ‘caution is warranted for some states around the tax revenue effects if services spending rebounds while goods spending weakens,’ according to Arlene Bohner, Fitch’s Head of U.S. Public Finance.

Fortunes also continue to improve more broadly for not-for-profit hospitals with most providers well positioned to absorb future coronavirus aftershocks, even with cases on the rise again. Colleges and universities are also seeing improvement with no downgrades in 3Q21, one upgrade and six favorable Outlook revisions thanks to better-than-anticipated enrollment and favorable operating performance. That said, net tuition revenue growth will remain stagnant through both this academic year and the next.

‘U.S. Public Finance Rating Actions Report and Sector Updates: Third-Quarter 2021’ is available at ‘’.


Arlene Bohner
Managing Director, Head of U.S. Public Finance Ratings
Fitch Ratings, Inc.
Hearst Tower 300 W. 57th Street
New York, NY 10019

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

NLC Releases Annual City Fiscal Conditions Survey.

The National League of Cities (NLC) has released its annual City Fiscal Conditions survey, a national survey of finance officers in U.S. cities with populations greater than 10,000 people. Conducted in June and July of this year, the 2021 data were drawn from 443 cities across the country.

The report finds that on average, cities ended FY 2021 with the first revenue losses since the Great Recession (2007-2009), but federal assistance has helped communities of all sizes begin to recover from the economic damage caused by the COVID-19 pandemic. According to the survey, 81 percent of city finance officers said federal aid had a positive impact on FY2021.

“Cities are leading the way in coming up with equitable ways to recover and rebuild from the COVID-19 pandemic,” said Clarence Anthony, CEO and executive director of NLC. “Municipal finances are on the mend and the economic outlook is improving as a result of direct, flexible federal relief, such as those from investments in the American Rescue Plan. The data is clear—the nation’s economic recovery begins on the Main Streets of our cities, towns and villages.”

Some key findings in the survey include that two-thirds of cities surveyed plan to use their American Rescue Plan Act (ARPA) funds to replace lost revenue, while 54 percent of cities will use the funds to support households, small businesses, nonprofits and impacted industries.

Infrastructure remains an important issue facing cities, with half of the finance officers reporting that it was the factor most hindering their ability to balance FY2021 budgets. During the COVID-19 pandemic, cities were forced to pause infrastructure projects to budgetary constraints, and they continue to face challenges in funding infrastructure maintenance and new projects.

“We look forward to Congress finalizing the Infrastructure Investment and Jobs Act so that municipalities and the federal government can work together to build and strengthen the infrastructure that keeps Americans moving,” Anthony said.

The full City Fiscal Conditions 2021 survey is available to read here.

National League of Cities

Written by Michelle M. Havich

5th October 2021

67% of Cities Plan to Use ARPA for Lost Revenue.

Cities are more likely to use money to replace lost tax revenues than to spend on infrastructure, according to a National League of Cities report.

Two-thirds of cities expect to use American Rescue Plan Act money to cover lost revenues as city financial officers budgeted for continued revenue declines in fiscal 2021, according to the National League of Cities’ annual fiscal survey.

The findings, included in the report released Tuesday, underscore how important federal funding has been for municipalities as they weathered the economic impacts of the coronavirus pandemic, said Clarence Anthony, NLC’s CEO and executive director.

The $46 billion distributed directly to cities through ARPA “is a game changer,” he said as he spoke Tuesday at a panel discussion about the NLC report.

Continue reading.



OCTOBER 5, 2021

For Once, the Federal Government Really Was Here to Help.

The pandemic sent municipal revenues into a tailspin. They still haven’t fully recovered, but $65 billion from Uncle Sam is easing a lot of pain.

Revenue growth for Philadelphia was so strong heading into 2020 that Marisa Waxman, the city’s budget director, felt a little bit like Oprah Winfrey.

“We were so far ahead of estimates, we were bracing for a fight over what to do with all the extra money,” she says. “You get a trash truck! You get a street sweeper! You get a tax cut! It was amazing.”

The giddy feeling of plenty didn’t last. Once the pandemic hit, the city’s revenues dried up. Everything but health, public safety and schools came in for cuts. “We had three amazing quarters,” Waxman says. “Then the bottom fell out.”

It was the same story all over. Cities headed into the pandemic finally witnessing their inflation-adjusted revenues rise above levels last seen in 2007, before the Great Recession. Those gains were wiped out by the pandemic and its immediate shock to the economy.

But revenues turned out not nearly as bad as they could have been. The economy rebounded and remote workers were able to keep spending and paying income taxes. And there were other factors that saved municipal bacon.

Most notably, the American Rescue Plan Act (ARPA), enacted in March, provided $65.1 billion in direct relief for cities, towns and villages. Federal funds were cited by 81 percent of fiscal officers as their single most-positive factor in putting together their fiscal 2021 budgets, according to the National League of Cities’ annual city fiscal conditions survey, released Tuesday.

“Cities ended fiscal year 2020 with a revenue loss – the first since the Great Recession – and they budgeted even larger decline for fiscal 2021,” says Christiana McFarland, NLC’s research director. “These losses pale in comparison to what they could have been without federal intervention.”

ARPA was a godsend, but it hasn’t solved all problems. In fact, cities and states have been slow to allocate those dollars. Large cities have spent just 8.5 percent of the funds they’ve received so far, while states have spent only 2.5 percent, according to an Associated Press analysis.

Philadelphia is using all of its $1.4 billion worth of ARPA money to make up for lost revenues over the next several years. Waxman admits it’s not a very satisfying decision for residents. No new street sweepers, no new trucks.

“It’s new money for old stuff,” she says. “ARPA dollars can be spent into 2024, so we’re drawing them down over a number of fiscal years as a glide path to allow our other revenues to recover.”

Where Taxes Are Collected

Cities caught another break heading into the pandemic. In 2018, the Supreme Court ruled that states could collect taxes on sales from vendors without a physical presence within their borders. The Wayfair decision allowed cities and states to collect billions in revenues that otherwise would have been lost as consumers shifted more of their spending online. “Wayfair was a wonderful, fortuitous decision by the Supreme Court, and a good one,” says Michael Pagano, a municipal finance expert at the University of Illinois Chicago.

Depending on their economic mix, some cities benefited from shifts in the economy. Being home to Procter & Gamble – maker of Bounty, Charmin and many other consumer goods – helped Cincinnati’s bottom line.

“I guess I should thank everyone who ordered toilet paper, but we had some very strong corporate profits that were completely unanticipated,” Andrew Dudas, Cincinnati’s budget director, said during a webinar announcing NLC’s fiscal findings.

Not every ball bounced Cincinnati’s way, however. Corporate and personal income taxes make up more than 70 percent of the city’s revenues. When the bottom fell out in the spring of 2020, the city opened up a $50 million line of credit, since Ohio allows cities to borrow in emergencies to pay for basic services.

Thanks to ARPA, Cincinnati didn’t have to take on that debt. The city is using just over 75 percent of its ARPA money to make up for lost revenues. The rest is going to help businesses that were hit hard by the pandemic.

Since property tax collections are capped at $29 million, Cincinnati is losing out on the increase in residential property values. Meanwhile, like every other city with a central business district, it has to worry about what percentage of the workforce will be coming back to the office, and when.

“We’re estimating around 16 percent permanent reduction to our income tax due to remote work,” Dudas says. “We’ve had some corporations downtown that have brought significant numbers of employees back, but it’s nowhere near where it was pre-pandemic.”

Waiting on Infrastructure

Everyone is wondering how the economy will be restructured, which raises a chicken-and-egg question: Should cities plan to change their tax codes to reflect the new reality, or do they have to wait and see what the new reality might look like in order to figure out how to capture their share? “After this pandemic, no one knows, but we are definitely thinking about it,” says Susan Gooding-Liburd, chief financial officer for Miramar, Fla.

In Philadelphia, remote workers typically make up 40 percent of the city’s earned income tax base. “When we projected our revenue losses across a five-year plan, it is still more than $1.4 billion,” Waxman says. “We’re envious of cities with a property tax.”

Two-thirds of the 444 cities analyzed by NLC have prioritized replacing lost revenue with ARPA funds, while 54 percent are also helping out individuals, businesses and nonprofits hurt by the economic impact of the pandemic.

Cities are all over the place in terms of their current fiscal well-being. For fiscal 2021, 18 percent of cities budgeted for revenue growth above 5 percent, while 29 percent budgeted for greater than 5 percent decline. That kind of range is unusual, McFarland says.

Infrastructure was the category named by most finance officers as negatively affecting their 2021 budgets. Many projects were put on hold by the downturn.

Revving them up might take some time. If and when Congress approves an infrastructure package, finding enough engineers and skilled laborers to do the work is going to be a challenge, Waxman says, given the booming construction market. Meanwhile, the rising cost of materials means money won’t go as far as it would have when many plans were first drawn up.

Still, a trillion or so in federal infrastructure dollars would allow cities to dream big, rather than simply trying to keep their collective heads above water. “We’re trying to make sure we’re positioning ourselves to be able to stand on our own two feet,” Waxman says, “after the federal money draws down.”

October 06, 2021 • Alan Greenblatt

Two Dozen Banks Sidestep Texas Law Punishing Gun, Oil Policies.

More than two dozen banks have said they can continue working with Texas and its local governments in the wake of new state laws seeking to punish financial institutions that have policies aimed at the gun and fossil fuel industries.

Barclays Plc, TD Securities, Stifel Financial Corp., Wells Fargo & Co. and Jefferies Financial Group are among those certifying that that they don’t run afoul of the new laws, according to letters to the state attorney general compiled by the Municipal Advisory Council of Texas, an industry association. The advisory council posted the letters on its web site.

The assertions signal that there are plenty ready to fill the breach left at least temporarily by Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co., all of which have seen business grind to a halt in Texas since the new laws took effect in September.

A Republican-backed gun law bars the state and local governments from working with banks that have moved to curtail ties to the firearms industry, an effort to retaliate against them for weighing in on the national debate on gun control. A separate law restricts state contracts with those that have shunned fossil-fuel producers, a major industry in Texas.

The laws promise to shake up the public finance business in Texas, whose swift growth has made it the second-largest issuer of state and local government debt, with some $58 billion sold last year.

The laws have created legal uncertainty for other banks about whether they can still work for Texas governments.

Citigroup, which has temporarily stopped seeking Texas work, has said it believes it will be able to comply with the law. JPMorgan has said it currently can’t bid for most Texas work. Bank of America has declined to comment, but it hasn’t underwritten any Texas bond deals since the start of last month, according to data compiled by Bloomberg.

Bank of America and Citigroup are listed as not yet posting the letter regarding the effect of the gun and fossil fuel laws on their ability to do business in Texas.

Bloomberg Markets

By Amanda Albright and Danielle Moran

October 8, 2021, 9:42 AM PDT

Bond Giants’ Retreat From Texas Opens Door for Smaller Rivals.

In Texas, plenty of banks are already filling the void left by Wall Street’s giants.

Gone, at least for now, are Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co., the three biggest municipal-bond underwriters, which have seen business grind to a halt since a state law took effect cracking down on companies that restrict work with the gun and fossil fuel industries.

In their place are the likes of UBS AG, Wells Fargo & Co. and smaller players like Hilltop Securities, which are quietly filling the breach in the Lone Star State, where governments and public agencies sold about $58 billion of bonds last year.

UBS, which has been aggressively rebuilding its U.S. municipal bond business, replaced JPMorgan as the underwriter on a hospital debt deal. Wells Fargo, Morgan Stanley and Jefferies Financial Group have all been managing new Texas bond offerings. So has RBC Capital Markets, a unit of the Royal Bank of Canada that has certified that governments can hire it without running afoul of the gun law, according to a person familiar with the matter.

The moves provide an early look at how little-noticed laws that took effect in September are promising to shake up the public finance business in Texas, whose population surged more than any other state’s over the past decade and is home to three of the nation’s 10 biggest cities. That rapid growth made it the second-largest source of municipal bonds in 2020 as governments borrowed to build new roads, schools and other infrastructure. The approximately $58 billion of debt Texas issuers sold last year is about three times the amount of bonds sold by governments in Florida, according to data compiled by Bloomberg.

The potential lost business doesn’t pose much of a risk to Bank of America, Citigroup or JPMorgan. The entire Texas bond market produces only a few hundred million dollars in fees each year, a pittance compared with the nearly $300 billion in annual revenue raked in by those three. Yet it could provide an opening for rivals eager to chip away at their leading position in the municipal-securities business. The three handled more than 100 Texas municipal-bond issues in 2020, totaling $13.7 billion, according to data compiled by Bloomberg. They account for roughly one-third of such deals nationally.

“Where it does help us going forward is having the larger, more sophisticated issuers in the state take a renewed look at FHN Financial and the merits of what we bring,” said Ajay Thomas, the head of public finance for the underwriter. “This gives them an opportunity to take a fresh look at us.”

The Republican-backed laws have far reach. One bars state and local government agencies and school districts from entering into contracts with banks unless they certify that they haven’t enacted policies that discriminate against the gun industry or its trade groups like the National Rifle Association. Another applies similar rules for banks that have targeted fossil fuels.

The wording of the laws has cast uncertainty over some big banks’ ability to work for governments in the state, though that could be only temporary as lawyers decide how to interpret them.

JPMorgan said it can’t currently bid on most business with public entities in the state. Earlier this year, Chief Executive Officer Jamie Dimon told a Congressional committee that his bank won’t finance gun companies that make military-style weapons for consumers. But Citigroup — which has targeted retailers that sell bump stocks like those used in mass shootings and has temporarily stopped bidding for Texas work — has said that it expects to be able to comply with the law.

A Bank of America spokesperson declined to comment.

The legal clouds may have temporarily dampened bond issuance in Texas. In September, the volume of new sales there tumbled about 38% from a year earlier, more than twice as much as the drop nationwide.

Yet the pipeline of upcoming deals shows that many banks are unaffected. Jefferies is serving as lead manager on a $365.8 million sale by the Texas Water Development Board, a major issuer, and the bank is working on a $652 million offering for the Central Texas Regional Mobility Authority. A dozen banks, including Wells Fargo, are included in an upcoming debt sale by the Dallas Fort Worth International Airport, according to a regulatory filing.

Spokespeople for Jefferies, UBS and Wells Fargo declined to comment.

Government officials say they are still working through the impact of the laws, which some have said could potentially cause them to pay higher interest rates if they pushed major banks out of the state. Texas Representative Vikki Goodwin, a Democrat, proposed exempting municipal sales from the law for that reason.

“The state has had a history of passing legislation without really fully understanding the consequences,” she said in an interview.

Bloomberg Markets

By Danielle Moran and Amanda Albright

October 7, 2021, 8:42 AM PDT Updated on October 7, 2021, 11:10 AM PDT

Goldman Joins Retreat From Texas Muni Business After Gun Law.

Goldman Sachs Group Inc. is said to be pulling back from public-finance business in Texas because of new state laws that seek to punish Wall Street banks for wading into the debates over gun control and global warming.

The bank, which is ranked as the sixth biggest municipal-bond underwriter in 2021, is joining rivals Citigroup Inc. and JPMorgan Chase & Co. in halting such business in Texas, at least temporarily, since the Republican-backed laws took effect Sept. 1, according to a state agency that had planned to have Goldman lead an upcoming sale. Bank of America Corp. also hasn’t handled any new Texas bond deals since the start of last month.

One of the laws bars Texas state and local governments from working with banks that have moved to curtail ties to the firearms industry in the wake of U.S. mass shootings. Another restricts state contracts with those that have shunned fossil-fuel producers, a major industry in Texas.

The board for the Texas Public Finance Authority last week voted to appoint a new bank to replace Goldman on an upcoming general-obligation bond sale because the bank is pausing its underwriting work in the state, according to an audio recording of the meeting provided to Bloomberg by the authority.

Patrick Scanlan, a spokesperson for Goldman, declined to comment.

Goldman isn’t as big a force in Texas bond underwriting as rivals like Bank of America or Citigroup, ranking as the 12th-biggest in the state in 2020 with about $1.9 billion of new long-term deals, according to data compiled by Bloomberg.

But Goldman was slated to be the senior manager on the finance authority deal, which could be as big as $856 million. The board issues bonds for state agencies and entities like universities.

Lee Deviney, executive director of the authority, said at the Oct. 7 meeting that a “handful” of municipal underwriters have told the authority that they are on pause in the state due to the new legislation.

“In this case, Goldman Sachs has advised us that they are on pause,” he said at the meeting.

The underwriters that have been affected are deciding how to comply with the legislation or not, he said at the meeting. As part of the gun law, banks have to verify that they haven’t enacted policies that discriminate against the gun industry or its trade groups.

Deviney declined to comment.

The authority’s board members voted to appoint Raymond James Financial Inc. to replace Goldman on the upcoming bond transaction.

That bank is among those filling the breach left by the retreat of some of the biggest underwriters.

Barclays Plc, TD Securities, Stifel Financial Corp. and Wells Fargo & Co. are also among those certifying that that they can keep working in Texas because they don’t have policies targeted by its new laws, according to letters to the state attorney general compiled by the Municipal Advisory Council of Texas, an industry association. The advisory council posted the letters on its website.

Bloomberg Markets

By Amanda Albright and Danielle Moran

October 11, 2021, 9:10 AM PDT Updated on October 11, 2021, 10:19 AM PDT

Munis In Focus With Eric Kazatsky (Radio)

Eric Kazatsky, Senior Municipal Strategist for Bloomberg Intelligence, discusses the latest muni market news. Hosted by Paul Sweeney and Kailey Leinz.

Play Episode

Bloomberg Radio

October 8, 2021

Richest Americans Flee Treasuries With Holdings at 17-Year Low.

America’s super-rich hold fewer U.S. government and municipal securities than they’ve done for almost two decades, according to recent data from the Federal Reserve.

The top 1% of households by income held $887 billion of those assets as of June, the smallest amount in 17 years and down from a peak of $1.5 trillion a decade ago.

Americans lower down the income ladder have been trimming their holdings too. Public and municipal debt held by the bottom 99% of households peaked at about $3 trillion in June 2019, and is down by almost $400 billion since then.

High-earners traditionally tended to buy municipal bonds to take advantage of tax exemptions on the interest income.

But with rates on Treasuries and munis near historic lows, it’s likely that they “searched for higher yields elsewhere, whether via equities, high-yield or investment-grade debt, private credit, non-fungible tokens, crypto, etc.,” said Peter Boockvar, chief investment officer for Bleakley Advisory Group.

Benchmark 10-year Treasuries are currently trading around 1.55%. That’s up from the all-time trough they hit last year, but still just a fraction of the long-run average. Meanwhile, inflation has been above 5% for months.

“Higher-income households are likely well aware that they are receiving negative real returns on U.S. government and municipal securities,” said Chris Ahrens, a strategist at Stifel Nicolaus & Co.

The top 20% of households held 74.2% of U.S. government and municipal securities, the lowest share in records dating back to 1989, according to the Fed.

Bloomberg Wealth

By Alexandre Tanzi and Liz McCormick

October 7, 2021, 7:41 AM PDT

How the Infrastructure Bill Could Benefit Municipal Bonds.

The beleaguered $1 billion infrastructure bill that is still being held up in Congress would spell improvement for a lot neglected and failing parts of the country. In addition to containing funding for improving and repairing roads and bridges, the bill also contains funds for updating public transit, all things that could boost an increase in municipal bond offerings, reported Yahoo Finance.

The infrastructure bill is currently hinging on the much larger $3.5 trillion climate and welfare bill that House Democrats are still negotiating over. Suzanne Shank, president and CEO of investment bank Siebert Williams Shank, one of the nation’s largest underwriters of municipal bonds that specialize in infrastructure, has lent her support to the bill, calling it an “invaluable” improvement for the economy.

“Any plan that helps our country get from the D-plus [infrastructure grade] it has been for so many years, I think we just emerged to a C,” said Shank. “For us to be competitive globally, we need to get to the A-B range.”

The bill as it is includes $110 billion in funding for bridges and roads, and an additional $39 billion for updating public transit. This funding boost by the federal government would most likely cause an increase in investment with local governments offering more municipal bonds as they seek not to repair their infrastructure but upgrade it.

“We hope to see municipalities leverage the infrastructure bill — they will probably have to issue more bonds to match some of the funding from the federal level,” Shank said. “So we think overall, it will be very positive to supply and obviously make our municipalities stronger going forward so they’re not doing emergency fixes.”

ETF Trends

OCT 5, 2021 9:56AM EDT

Declining Trade Volume: MSRB Report

Learn what might be driving a decline in trading volume in the municipal market over the last five years.

Read the MSRB’s latest report.

Muni Trading Surge Drives Bond Values to Cheapest Since March.

After months of scrounging for anything worth buying, municipal debt traders are finally finding plenty to keep them busy.

The amount of debt changing hands in the secondary market has picked up in recent days after a global fixed-income selloff shook the market out of its months-long stupor, driving 10-year tax-exempt yields to their highest relative to Treasuries in seven months. Over $54 billion of bonds changed hands the week ended Friday, the most in a single week since March and the second-largest weekly total of the year, according to Municipal Security Rulemaking Board data compiled by Bloomberg.

“The backup in ratios gave asset managers the chance to put money to work,” said Simone Santiago, senior municipal trader at Eaton Vance. “They are able to swap out bonds they bought earlier in the year at much tighter yields and rebid those positions at wider spreads.”

There’s more to come as supply expands. State and local governments have so far scheduled $14.8 billion of bond sales over the next 30 days, well above the $11 billion average for that gauge this year, according to data tracked by Bloomberg. The actual amount sold will likely be far larger since many deals are scheduled with less than a month’s notice.

Municipal bond yields edged up in recent weeks, tracking a sell-off in Treasury bonds and causing state and local government securities to post a 0.7% loss in September, the worst since February. Ten-year top-rated municipals are yielding about 76% of Treasury bonds, near the cheapest since early March.

The quicker pace marks a shift from earlier in the year when trading volume dropped to the lowest since at least 2001. In the first part of 2021, the market had too much cash and too few new bond sales, which kept yields low and valuations at historically expensive levels. Just last month, when California priced $2 billion of debt, those that mature in 2022 were sold for a yield of only 0.06%, 1 basis point lower than top-rated benchmark bonds at the time.

Santiago said being a trader in that market was like the 1993 film “Groundhog Day,” with little changing from day to day, and she welcomes the newfound activity. “There is more to do, more opportunities if you want to book higher levels,” she said.

Patrick Luby, a municipal strategist at CreditSights, said the largest contributor to the revival in trading is investors preparing for a flood of bond sales that typically happens in October.

“Munis remain a market that is constrained for supply,” he said in an interview. “Having an expanded menu of choices for new deals in the market — that is a big driver.”

This week, the Alabama Federal Aid Highway Finance Authority is planning to sell $1.52 billion of bonds, while San Diego’s public school district is slated to bring $1 billion of debt to market.

The upcoming six weeks are typically the last time investors can get primary market exposure before new bond sales dry up around the winter holidays.

“We’re coming into the part of the year that’s the last sprint before the walk to the finish,” Luby said.

Bloomberg Markets

By Danielle Moran

October 5, 2021, 10:05 AM PDT

— With assistance by Siddharth Chaturvedi

Municipal-Bond Fund Investor Pullback Signals Weakening Market.

Muni-bond yields have climbed in sympathy with Treasuries

Investors in the $4 trillion market for state and local government debt appear to be looking for the exit.

They pulled $344 million from long-term municipal-bond mutual funds and $460 million from high-yield funds during the week ended Wednesday, according to Refinitiv Lipper US Fund Flows data. Overall they put just $37 million into municipal funds, the least since an outflow in March and down steeply from last week’s $408 million inflow.

The easing of fund flows comes during a seasonally weaker period for municipal bonds. The amount of cash flowing back to investors through redemption payments over the next month is near its lowest since July and new sales of debt tend to increase in October. The municipal market posted a 0.7% loss in September, the second consecutive month of negative returns and the worst monthly return since February.

Patrick Luby, a municipal strategist at CreditSights, says there’s no reason to panic just yet but said it is concerning giving broader market and economic trends. “There doesn’t appear to be a wholesale change in sentiment,” he said. “When you look at it within the context of weak prices and concerns about inflation, concerns about everything else I think it’s definitely a yellow flag.”

While these factors haven’t been enough to spur significant outflows, the market is on the precipice, said Vikram Rai, head of municipal strategy for Citigroup Inc.

“It’s not enough to trigger an outflow cycle but we’re getting close,” he said. “I expect that we will survive this. As long as Treasuries don’t continue to sell off.”

The Federal Reserve hinting at the potential pullback of its Treasury purchases as already pushed benchmark yields higher and is another weight on performance. If that trend continues, the weak demand may turn into outflows and create a cycle of under-performance in the market, Luby said.

“The bid side could be pressured pretty quickly if there’s outflows from mutual funds,” Luby said. “If that pressures the entire muni curve I would expect munis would under-perform.”

Bloomberg Markets

By Fola Akinnibi

October 8, 2021, 10:32 AM PDT

These Are The Ten Top California Muni Intermediate Funds.

Investors who want exposure to a specific region or state can invest in bonds and debt securities issued by the companies and government agencies in that region. Those who are risk averse or don’t want to take on much risk can invest in the municipal debt securities of that region. Investors looking for similar exposure in California can invest via California Muni intermediate funds. Such funds mainly invest in California municipal debt. What makes such investment even more attractive is that the income from these bonds is usually free from federal taxes and California state taxes. Let’s take a look at the ten top California Muni intermediate funds.

Ten Top California Muni Intermediate Funds

We have used the past one year return data (from U.S. News) to come up with our list of ten top California Muni intermediate funds. Following are the ten top California Muni intermediate funds:

PIMCO Ca Munil Oppc Val Fd (MUTF:GCMFX, 3%)
GCMFX mainly invests in securities in which interest is exempt from federal and California income tax. It has returned almost 1% in the last three months and over 3% in the last three years. GCMFX has over $230 million in total assets. The top two holdings of the fund are: LOS ANGELES CALIF DEPT ARPTS REV 5% and LOS ANGELES CALIF DEPT WTR & PWR WTRWKS REV 5%.

PGIM California Muni Income Fund (MUTF:PBCAX, 3%)
PBCAX primarily invests in California state and local municipal bonds. It has returned more than 1% in the last three months and over 4% in the last three years. PBCAX has over $230 million in total assets. The top two holdings of the fund are: CALIFORNIA MUN FIN AUTH EXEMPT FACS REV 0.02% and CALIFORNIA ST 5%.

BNY Mellon CA AMT-Free Muni Bd Fd (MUTF:DCAAX, 4%)
DCAAX normally invests in municipal bonds offering interest that is exempt from federal and California state income taxes, as well as federal alternative minimum tax. It has returned more than 1% in the last three months and over 4% in the last three years. DCAAX has over $833 million in total assets. The top two holdings of the fund are: LOS ANGELES CALIF DEPT ARPTS REV 5% and CALIFORNIA ST 5.25%.

Payden California Municipal Scl Imp Fd (MUTF:PYCRX, 4%)
PYCRX normally invests in “California Municipal Securities” that are issued by the State of California, local governments and state authorities. It has returned more than 1% in the last three months and over 5% in the last three years. PYCRX has over $76 million in total assets. The top two holdings of the fund are: United States Treasury Notes 1.12% and HILLSBOROUGH CALIF CTFS PARTN 0.04%.

Western Asset Interm Maturity CA Muni Fd (MUTF:ITCAX, 5%)
ITCAX mainly invests in investment grade “California municipal securities” or investments having similar economic characteristics, including up to 20% in unrated securities. It has returned more than 1% in the last three months and over 3% in the last three years. ITSAX has over $168 million in total assets. The top two holdings of the fund are: SAN FRANCISCO CALIF CITY & CNTY ARPTS COMMN INTL ARPT REV 5% and M-S-R ENERGY AUTH CALIF GAS REV 6.12%.

Principal California Municipal Fund (MUTF:SRCMX, 5%)
SRCMX normally invests in California municipal obligations, in which interest is exempt from state personal and federal income tax. It has returned more than 1% in the last three months and over 5% in the last three years. SRCMX has over $713 million in total assets. The top two holdings of the fund are: CALIFORNIA STATEWIDE CMNTYS DEV AUTH REV and CALIFORNIA MUN FIN AUTH SPL FAC REV.

AB Municipal Income California Portfolio (MUTF:ALCAX, 5%)
ALCAX mainly invests in high-yielding investment grade municipal securities that offer tax free interest. It has returned more than 1% in the last three months and over 4% in the last three years. ALCAX has over $1 billion in total assets. The top two holdings of the fund are: AB Government Money Market AB and LOS ANGELES CNTY CALIF 4%.

DFA CA Municipal Real Return Portfolio (MUTF:DCARX, 7%)
DCARX primarily invests in a variety of municipal securities, including inflation-protected municipal securities issued by or on behalf of the state of California. It has returned more than 2% in the last three months and over 3% in the last three years. DCARX has over $198 million in total assets. The top two holdings of the fund are: CALIFORNIA HEALTH FACS FING AUTH REV 5.25% and CALIFORNIA ST 5%.

BlackRock California Municipal Opps Fd (MUTF:MACMX, 7%)
MACMX primarily invests in California municipal bonds, including a minimum of 50% of its assets in investment grade securities. It has returned more than 1% in the last three months and almost 4% in the last three years. MACMX has over $3.3 billion in total assets. The top two holdings of the fund are: BlackRock Liquidity CA Money Instl and LOS ANGELES CNTY CALIF 4%.

Franklin Templeton SMACS: Series CH (MUTF:FQCHX, 11%)
FQCHX primarily invests in municipal securities, in which interest is tax exempt from the regular federal income taxes and California personal income taxes. It has returned more than 2% in the last three months and has over $3 million in total assets. The top two holdings of the fund are: CALIFORNIA STATEWIDE CMNTYS DEV AUTH REV 5.5% and CALIFORNIA CMNTY HSG AGY WORKFORCE HSG REV 5%.

Yahoo Finance

by Aman Jain

October 5, 2021

Where to Find the Best Municipal Bonds Now, According to Pimco.

Pimco, a name synonymous with active fixed-income management, isn’t the first one you might associate with municipal bonds. But given the idiosyncratic nature of most munis, it’s a sector especially suited for picking individual securities.

The Newport Beach, Calif., firm recently launched the Pimco Municipal Income Opportunities Active exchange-traded fund (ticker: MINO), managed by David Hammer, to complement its stable of established open- and closed-end muni funds and add to its unusually successful lineup of actively managed ETFs.

Fiscal policy—how much the federal government is spending, what it’s spending on, and how it’s paying for it—is driving the economy and markets more than it has historically, forcing stock investors to pay closer attention. Muni managers, however, have always tracked government maneuvers. It seemed an apt occasion to discuss the state of the sector with Hammer, Pimco’s head of munis. An edited version of our conversation follows.

Continue reading.


By Randall W. Forsyth

Oct. 7, 2021 4:15 am ET

NASBO FY22 Summaries of Proposed & Enacted Budgets.

View the summaries.

S&P Evolution Of The Methodologies Framework: Introducing Sector And Industry Variables Reports

S&P Global Ratings is adopting a new criteria-related article, called a sector and industry variables report. Over the next two to three years, the new reports will replace guidance documents, which we’ve used since late 2017. The transition entails moving criteria-related quantitative variables from guidance to new sector and industry variables reports and other guidance content (mostly criteria-related elaborative text) to criteria. We are making this transition to provide more transparency to the market about our methodologies framework.

The methodologies framework will continue to comprise two key components–our criteria and a criteria-related document, which, in the future, will be sector and industry variables reports. We have not changed the definition or role of our criteria, which continue to be published analytical frameworks we use for determining credit ratings. The only change is a revision to the concept and scope of a criteria-related document. Sector and industry variables reports are more streamlined and narrower in scope than guidance and will focus on criteria-related variables that are expected to change over time due to external conditions and, therefore, will be periodically updated.

Here, we aim to help readers better understand the key features of these two concepts and how we plan to use them.

Continue reading.

1 Oct, 2021

Fitch Ratings Updates State Revolving Fund and Muni Finance Pool Program Criteria.

Fitch Ratings-Austin-27 September 2021: Fitch Ratings has published an update to its “State Revolving Fund and Municipal Finance Pool Program Criteria (SRF Criteria)”. The update follows Fitch’s previous announcement that it had published an exposure draft of its “CLOs and Corporate CDOs Rating Criteria (CDO Criteria).” The exposure draft proposed a calibration revision of Fitch’s Portfolio Credit Model, including probability of default assumptions, confidence intervals, and correlation. These proposed CDO Criteria changes were finalized and fully incorporated into Fitch’s criteria as of Sept. 17, 2021.

Given the relationship of the SRF criteria to the CDO criteria, with this update Fitch has finalized modifications to its Portfolio Stress Model incorporating similar changes as those described in the CDO Criteria. Fitch does not expect any ratings changes as a result of these updates.

The updated criteria report is available at ‘’.


Major Parkhurst
Fitch Ratings, Inc.
111 Congress Ave. Suite 2010
Austin, TX 78701

Julie Garcia Seebach

Tim Morilla
Associate Director

Doug Scott
Managing Director

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Report: Urban Wealth Funds Allow Cities to Commercially Capitalize on Their Assets for the Public’s Benefit.

Subways don’t have to exclusively transport commuters; parking lots can provide space for a lot more than cars; buildings can house services alongside town offices. Responsible commercialization and management of public assets can offset operating costs, reducing a municipality’s reliance on taxation and opening revenue for additional infrastructure investments.

In analyzing Boston’s publicly held real estate, for example, a report from the Government Finance Officers Association found that publicly owned properties hold potential as “a major source of revenue for the city.” The report highlights how the city’s real estate could be monetized through an Urban Wealth Fund (UWF), a unified professional investment fund that is set up to manage public assets in the commercial space for the community’s betterment.

Practically, Urban Wealth Funds operate like private firms, the report notes, developing and managing publicly owned assets like parking lots or vacant land and retrofitting outdated buildings for modern use. Under the oversight of an Urban Wealth Fund, municipal buildings with unused space in them could be converted for mixed usage, housing civic departments along with residential units, commercial offices and schools.

“Through a mix of tenants, the UWF would generate a diversified revenue stream that could be used to invest in the maintenance of the water system or airport, as an example. Such a comprehensive approach would not only improve the quality of services from publicly owned utilities and transportation systems but also create a more sustainable environment for the benefit of society,” the report says.

They have potential for cities because governments aren’t designed to manage commercial risk. While being insulated from political instability, an urban wealth fund is able to hire and manage professional property managers and compete with private sector firms, the report says.

“We have looked at cities all over the country. When you do the math, it is easy to see that urban areas all over the United States are sitting on a ‘gold mine’ of resources—their real estate—that is not used as efficiently as it could be,” said Joe Minicozzi, an urban planning consultant who helped put together the report. “If professionally managed, these assets could be a great supplement to tax revenues.”

In Europe and Asia, the report notes UWFs have been successfully implemented in several notable cities including Copenhagen, Sweden and the city-state Singapore, which, “with the help of a UWF … has supplied public housing to 85 percent of its population,” the report continues.

Notably in 2018, then-mayor of Salt Lake County, Ben McAdams, commissioned an analysis of publicly owned land throughout the region’s nearly two-dozen cities and towns. Much of the land was clustered around the subway system in small plots. Because of the proximity to the transit system, its estimated value was pegged at $13.5 billion.

Under the management of a UWF, “Development in these areas could house about 58,000 people and create 39,000 new employment opportunities,” the report says.

This kind of public-private management structure doesn’t yet commonly exist in the United States for a few reasons. For one, public perception of what government should be like has historically drawn a hard line between the public and private sectors—an organization should either be owned by the public or privatized for monetary gain.

“A UWF is a different approach where the assets are owned by the government but with a professional management team in place, using private sector techniques,” the report explains. “It is seperated from politics by a ‘holding company’ at an arm’s length distance to ensure a comprehensive commercial mindset of all assets within the portfolio.”

Further, public assets are owned by a fragmentation of government agencies, making commerical management of them difficult. A UWF could bring them all under one umbrella. And because so much of public land was acquired a long time ago at a fraction of today’s cost, fair market value hasn’t historically been considered.

“Low values or often no value at all attached to an asset will not incentivize investments, maintenance, or even professional management,” the report continues. “For example, there have been cases where local governments have operated garages or vehicle yards on waterfront property because these facilities were built when the land was worth much less.”

A UWF could tastefully develop that land, considering fair market value and making it more attractive for everyone while simultaneously creating new revenue streams for the city.

For cities interested in considering creatign a UWF, the Government Finance Officers Association recommends taking the following steps: Take complete inventory of publicly owned land and project potential market value of it. Explore basic development scenerios and estimate revenue impact.

Written by Andy Castillo

28th September 2021

How Local Governments Can Use the Budgeting Process to Increase Transparency and Trust.

COVID-19 has deepened many citizens’ relationship with their local governments. In the United States, citizens are focused on both the federal government’s response and that of their local governments, which have been highly influential on the overall pandemic response in any given part of the country. In the short term, this focus led to a surge in public trust. Yet, while times of crisis might momentarily bring about more trust between citizens and the government, local governments can’t count on this public trust to last long without additional efforts.

For example, while many governments saw a surge in public trust at the outset of the Coronavirus pandemic in 2020, a global survey by Deloitte shows that by January 2021, the trust in government had fallen by 8 points, highlighting challenges in sustaining trust for extended periods.

This deficit in trust is not just a theoretical concept; it has real-world implications. It can directly affect a government’s long-term goals, including re-election and implementation of policies that were promised during elections. Yet, citizen trust is highly influenced by how governments use their tax dollars. That’s why the COVID-19 pandemic has highlighted the need for governments to rethink how they plan and execute their budgets, with a new commitment to transparency. So, how can governments change their approach to budgeting to create new layers of transparency and sustain public trust?

Continue reading.

Written by Charlie Francis

1st October 2021

The Online Maps Localities Need for the Big Federal Treasure Hunt.

With billions in grants about to start flowing from Washington, they will need comprehensive, timely information on what’s available. They shouldn’t have to wait for the feds to supply it.

“On your marks. Get set. … Now, wait.”

Local officials across America are anxiously standing by to see if, what and how much Congress ultimately approves for both infrastructure and the Democrats’ big budget bill. Although some doubt whether the blue factions will compromise, I predict that the sun will indeed rise as it always has and both will be passed, along with a new debt ceiling.

However, until the ink is dry on both statutes and they’re signed by the president, we won’t know the size and precise details of what’s in there. That said, you can expect every local governing body in the country to soon have members from both political parties pontificating about how best to get their community’s fair share and bring home some bacon.

Continue reading.

by Girard Miller

September 28, 2021

Why Some Small Towns Are Rejecting Federal COVID Relief Funds.

Bingham Township, Pennsylvania, is a quiet, rural place with few local businesses. “I always tell people that the cows outnumber the people over here,” said Cheryl Young, the township’s secretary. Most roads are dirt and gravel, she said, and many of the 600-some residents are Amish.

Congress in March authorized $19.5 billion in aid for cities and towns with fewer than 50,000 residents, including very small jurisdictions such as Bingham. Lawmakers wanted to help every town cover the cost of fighting a pandemic and recovering from last year’s recession.

But in some small, rural or conservative towns, local leaders are refusing the cash. They say they don’t need it, and in some cases, don’t feel comfortable accepting it.

Bingham’s leaders recently turned down about $69,000 in federal COVID-19 relief aid because they couldn’t think of a way to spend it, Young said.

“That’s the main reason why we opted not to do it,” Young said. “There’s no sense having [the money] sit here for two years, then turn around and send it back, because you can’t spend it.”

To be sure, such refusals are rare. Across 14 states where data is available, just 171 communities out of 7,975 that have fewer than 50,000 residents rejected the funds, according to the National League of Cities, a Washington, D.C.-based group that advocates for cities and towns.

The average community that rejected the money has 540 residents, according to the group.

Advocates for cities say towns that decline the funds are missing a big opportunity. “It’s unfortunate that anyone would turn down this money, because I think any community could benefit from it,” said Mike Gleeson, legislative manager for finance, administration and intergovernmental relations on the National League of Cities’ federal advocacy team.

Small towns can team up with their neighbors or with county and state leaders to use the funds, such advocates say. That could mean a regional effort to expand broadband, upgrade water infrastructure or study an area’s housing needs.

“I don’t think there’s any shortage of things to spend the money on, especially when we’re able to think beyond city hall and beyond village hall,” said Chris Hackbarth, director of state and federal affairs for the Michigan Municipal League.

Fourteen Michigan villages and townships declined the funds, out of 1,692 eligible jurisdictions with fewer than 50,000 residents, according to the Michigan Treasury’s latest statistics.

Small towns that accept the funds may need help from states, municipal associations and local accountants to manage their grants. Places as small as Bingham don’t typically have staff used to following federal grant requirements.

Young said that she, three elected supervisors and two road maintenance workers—one of whom also serves on the board of supervisors—are about the extent of the local government. “That’s it,” she said. “You’re looking at us.”

Money for All Municipalities

Last year’s major federal aid package, known as the CARES Act, sent money directly to large cities and counties but not to small ones. States were supposed to transfer a portion of the federal dollars they received to jurisdictions with fewer than 500,000 residents.

That system left many localities behind, however. Almost 30% of towns nationwide didn’t get CARES Act money, according to the National League of Cities.

Congress tried a new approach with this year’s federal relief package, the American Rescue Plan Act. The law sent money to most incorporated cities, towns, townships, boroughs and districts.

“They made sure to include all the small guys,” said Emily S. Brock, director of the Government Finance Officers Association’s Federal Liaison Center. The association represents public finance officials.

U.S. Treasury Department and state officials had to figure out which governments could handle the money, however. Some local governments exist in name only or have limited tax and spending functions.

Brock said her organization advised the U.S. Treasury to avoid allocating funds to such figurehead governments. “There’s no elected officials, there’s no governing body—you cannot give them $100 million!” she said.

Eligible localities can use the latest round of federal COVID-19 relief for a broad range of things: to replace lost tax revenue; pay for pandemic response efforts; help households and businesses recover economically; give essential workers a raise; and invest in water, sewer and broadband infrastructure. The money can’t be used to shore up pension funds or pay for tax cuts.

Towns that accept the money get half of it this year and half next year. They have until 2026 to spend it and must regularly report their spending to the Treasury. Those that fail to spend the money according to the law and Treasury rules must return those dollars to the federal government.

States again have acted as a go-between. Local leaders have to apply to states to either accept or reject their federal allocation. When towns refuse the cash, or simply fail to apply for it, states must reallocate the money among other eligible localities with fewer than 50,000 people.

Some quirky jurisdictions that made the cut have turned their federal grants down, according to state records published online or provided to Stateline.

In Pennsylvania, for instance, the borough S.N.P.J. declined a $1,988 grant. S.N.P.J., or “Slovenska Narodna Podporna Jednota,” is a fraternal benefit association founded by Slovenian immigrants in 1904. The group runs a recreation center that’s incorporated as a borough. S.N.P.J. has just 18 residents, according to the U.S. Census Bureau.

‘It Was No Benefit to Us’

More established towns also have declined the funds. Town leaders who refused the latest federal grants say they lack infrastructure, struggling businesses, essential workers or public health efforts to spend the money on.

“The things that they allowed us to use the money on in that plan did not fall with anything we had in our town,” said Richard Ouellette, chair of the Dummer, New Hampshire, select board. “So really, it was no benefit to us whatsoever.”

Dummer is a rural town with about 300 residents, and it was eligible for about $29,000. “We really had no expenses for COVID,” Ouellette said. “We ended up buying maybe a case of masks for the town office, and that was pretty much it.”

There aren’t many businesses in town, Ouellette said, and residents get water from their wells rather than a municipal water system.

Iowa Park, Texas, received CARES Act money last year, said City Manager Jerry Flemming. That money—$350,020, according to records published online by the federal Pandemic Response Accountability Committee—covered all the town’s pandemic-related needs, he said.

The latest round of aid wasn’t as useful, Flemming said. “We just didn’t have any projects that met the criteria for it, so we didn’t apply for it.” Iowa Park sits near the Oklahoma border, and has about 6,500 residents.

Some local leaders refused the funds partly for ideological reasons. “The main reason we said ‘no’ as a board is because our country is going $29 trillion in debt, and we wanted to do our part to say: Hey, enough’s enough,” said Kevin Green, supervisor of Algoma Township in western Michigan. “We didn’t want to be part of that.”

Greene said the board had two other reasons for rejecting its $1.3 million allocation: Members couldn’t think of a way to use the funds to benefit all 12,055 residents, and they felt rushed.

The U.S. Treasury hasn’t yet released its final rules for spending the money, Green noted. But the Michigan Treasury wanted towns to accept or reject the funds by the end of July. “I think if they had given us a few more months, and we could have thought through it, maybe we could have accepted part of it,” he said.

Algoma did receive CARES Act funds last year, he said. The township used the funds to pay public safety workers overtime. He said local leaders would have liked to use the latest relief money to upgrade the township’s roads and parks, but such general infrastructure projects aren’t allowed under the law.

Following Federal Rules

Many small towns won’t be able to track their spending and report it to the U.S. Treasury without help.

Many leaders of such towns aren’t familiar with federal reporting and audit requirements, said Brock of the Government Finance Officers Association.

“In some cases, they may have to hire an auditor, or a consultant, to make sure they’re doing that right—an added expense on top of the money that they’ve just received,” she said.

About half the counties and more than 100 municipalities in Pennsylvania have hired Zelenkofske Axelrod LLC, an accounting firm, to help them manage the money, said Cory Johnson, a partner at the firm who works with public sector clients.

“There are small townships that have, at best, part-time people, and they’re not accountants,” he said. Some local leaders don’t have strong computer skills, he added. “That’s a big hesitation, in certain parts of the state.”

Assistance is available, though. Town leaders can use their American Rescue Plan Act grants to hire outside help. And they can turn to municipal leagues, professional associations and even public university extension agents, who have been fielding questions about compliance.

Advocates for cities say that once small towns get used to handling federal money, they’ll be well-positioned for any future grant opportunities. “If they can do it this time, it could potentially open up future federal grants,” said Gleeson of the National League of Cities.

Not all local leaders may see things that way. Green of Algoma said that dealing with the CARES Act requirements wasn’t easy, and township leaders weren’t eager to go through the process again this year. “Accounting-wise, it was a little rough,” he said.

The Pew Charitable Trusts

September 28, 2021

States and Cities Slow to Spend Federal Pandemic Money.

As Congress considered a massive COVID-19 relief package earlier this year, hundreds of mayors from across the U.S. pleaded for “immediate action” on billions of dollars targeted to shore up their finances and revive their communities.

Now that they’ve received it, local officials are taking their time before actually spending the windfall.

As of this summer, a majority of large cities and states hadn’t spent a penny from the American Rescue Plan championed by Democrats and President Joe Biden, according to an Associated Press review of the first financial reports due under the law. States had spent just 2.5% of their initial allotment while large cities spent 8.5%, according to the AP analysis.

Many state and local governments reported they were still working on plans for their share of the $350 billion, which can be spent on a wide array of programs.

Though Biden signed the law in March, the Treasury Department didn’t release the money and spending guidelines until May. By then, some state legislatures already had wrapped up their budget work for the next year, leaving governors with no authority to spend the new money. Some states waited several more months to ask the federal government for their share.

Cities sometimes delayed decisions while soliciting suggestions from the public. And some government officials — still trying to figure out how to spend previous rounds of federal pandemic aid — simply didn’t see an urgent need for the additional cash.

“It’s a lot of money that’s been put out there. I think it’s a good sign that it hasn’t been frivolously spent,” Louisville Mayor Greg Fischer said. He was president of the U.S. Conference of Mayors when more than 400 mayors signed a letter urging Congress to quickly pass Biden’s plan.

The law gives states until the end of 2024 to make spending commitments and the end of 2026 to spend the money. Any money not obligated or spent by those dates must be returned to the federal government.

The Biden administration said it isn’t concerned about the early pace of the initiative. The aid to governments is intended both “to address any crisis needs” and to provide “longer-term fire power to ensure a durable and equitable recovery,” said Gene Sperling, White House American Rescue Plan coordinator.

“The fact that you can spread your spending out is a feature, not a bug, of the program. It is by design,” Sperling told the AP.

The Treasury Department set an aggressive reporting schedule to try to prod local planning. It required states, counties and cities with estimated populations of at least 250,000 to file reports by Aug. 31 detailing their spending as of the previous month as well as future plans.

More than half the states and nearly two-thirds of the roughly 90 largest cities reported no initial spending. The governments reported future plans for about 40% of their total funds. The AP did not gather reports from counties because of the large number of them.

To promote transparency, the Treasury Department also required governments to post the reports on a “prominent public-facing website,” such as their home page or a general coronavirus response site. But the AP found that many governments ignored that directive, instead tucking the documents behind numerous navigational steps. Idaho and Nebraska had not posted their reports online when contacted by the AP. Neither had some cities.

Officials in Jersey City, New Jersey, required the AP to file a formal open-records request to get its report, though that shouldn’t have been necessary. City employees in Laredo, Texas, and Sacramento, California, also initially directed the AP to file open-records requests. Laredo later told the AP it had spent nothing. Sacramento relented and eventually provided a short report stating it had spent nothing but might put its entire $112 million allocation toward replacing lost revenue and providing government services.

Among states, the largest share of initial spending went toward shoring up unemployment insurance trust funds that were depleted during the pandemic. Arizona reported pouring nearly $759 million into its unemployment account, New Mexico nearly $657 million and Kentucky almost $506 million.

For large cities, the most common use of the money was to replenish their diminished revenue and fund government services. San Francisco reported using its entire initial allotment of $312 million for that purpose.

Those reporting no initial spending included Pittsburgh, whose mayor joined with several other Pennsylvania mayors in February on a column urging Congress to pass “crucial” aid for state and local governments.

“Congress must act, and they must act soon. Our communities cannot wait another day,” the Pennsylvania mayors wrote.

Pittsburgh ultimately ended up waiting to spend the money until the Treasury guidelines were released, community members had a chance to comment and the City Council could sign off on the spending plans. In the future, the city plans to use part of its federal windfall to buy 78 electric vehicles, build technology labs at recreation centers and launch a pilot project paying 100 low-income Black women $500 a month for two years to test the merits of a guaranteed income program.

The federal money also will help pay the salaries of more than 600 city employees

“Even though the money hadn’t technically been expended” by the Treasury Department’s reporting timeline, “the receipt of the money was enough for us to hold off on major layoffs,” said Dan Gilman, chief of staff to Pittsburgh Mayor William Peduto.

Some officials are intentionally taking their time.

Missouri Gov. Mike Parson, a Republican, opted not to call a special session to appropriate money from the latest federal pandemic relief act. So far, he’s publicly outlined just one proposal — $400 million for broadband.

Parson’s budget director said the administration will present more ideas to lawmakers when they convene for their regular session in January. Until then, the state should have enough money left from a previous federal relief law to cover the costs of fighting the virus, budget director Dan Haug said.

“We want to try to find things that are going to benefit Missouri not just next year or the year after, but 10 or 20 years down the road,” Haug said. “That takes some thought and some planning.”

Republican state Rep. Doug Richey, who leads a House panel on federal stimulus spending, said he’s not convinced Missouri needs to spend all of its American Rescue Plan funds.

“To the extent that we spend these dollars, we are participating in an ever-increasing federal debt or bad monetary policy,” Richey said.

Missouri was one several states that waited to request its initial allotment. Five other Republican-led states — Oklahoma, South Carolina, South Dakota, Tennessee and Texas — waited so long that they weren’t required to file reports by the Treasury’s Aug. 31 deadline.

Tennessee wanted to make sure small cities were prepared for a 30-day clock that starts ticking for them to seek funding once the dollars arrive at the state, said Lola Potter, a spokesperson for the state Department of Finance and Administration. A South Dakota official cited similar reasoning for the delay. Financial Systems Director Colin Keeler said it’s difficult for small towns to take the steps needed to apply.

“The state was in no rush at all,” he said. “The cities wanted to get theirs, but we needed to be prepared.”



OCT 03, 2021

Muni Market Promotes Inequality: Jenkins

In this edition of Bloomberg Equality, Romaine Bostick, Caroline Hyde and Taylor Riggs spoke to Stanford Professor and Author of “The Bonds of Inequality: Debt and the Making of the American City.” which presents the postwar history of the San Francisco municipal bond market.

Watch video.


October 1st, 2021

Munis In Focus: Infrastructure And The Bears (Radio)

Joe Mysak, Editor of Bloomberg Brief: Municipal Market, discusses the latest news from the muni market. Hosted by Paul Sweeney and Kailey Leinz.

Play Episode

Bloomberg Radio

October 1, 2021

How Public Pensions Fared During a Year Marked by the Pandemic.

The share of large state and local government pension plans around the U.S. that maintained funding levels at or above a national average slid somewhat last year, according to a new report.

Last year, the average “funded ratio” for 169 plans was around 72%. This is a measure of how the plans’ assets stack up against benefits they will owe to retirees in the years ahead—the lower the percentage, the bigger the gap and the weaker a plan’s financial health.

Average funding levels for the plans have been in the low 70% range since 2012, compared with upwards of 100% in the early 2000s.

The new analysis found that, last year, the share meeting the 70% funded ratio threshold fell to about 56% from around 60% in 2019.

Overall, the data in the report, released by MissionSquare Research Institute, do not indicate that the Covid-19 pandemic delivered a severe blow last year to pension plans. The stock market generally performed well in 2020 despite the turmoil brought on by the virus.

Looking at 154 plans, the authors of the report found that, in about eight out of 10 cases, government employers made at least 90% of the contributions recommended—or “actuarially determined”—to keep the plans adequately funded. That’s roughly in line with 2019.

Pension plans depend on putting employer and employee contributions into the stock market and other investments and then using the investment returns to help cover benefit costs.

Recent years have seen a rise in the share of funding that plan managers are plowing into so-called alternative investments, a category that includes hedge funds, real estate, private equity and commodities. This trend kept up in 2020, with about 28% of investments for plans the researchers examined parked in alternatives, compared with 26% in 2015.

Meanwhile, the amount of money in equities was down slightly at 47%, compared to 50% in 2015. The share of fixed income investments grew by a percentage point over that time to 23%. In 2005, just 9% of investments were in alternatives and 61% in equities.

“Diversification can help protect against being over-invested in any given area, but some alternative investments may carry higher risks, and therefore may reflect a choice by fund managers to compensate for smaller contributions with a higher risk/higher reward investment policy,” the report authors note.

The paper relies on data from the Public Plans Database, a collaborative project involving MissionSquare, the National Association of State Retirement Administrators and the Center for Retirement Research at Boston College.

Route Fifty

By Bill Lucia

September 30, 2021

JPMorgan’s Texas Muni Work Becomes Latest Culture War Fallout.

The largest U.S. bank says it’s being shut out of underwriting municipal-bond deals in Texas after the state enacted a law banning government work with banks that limit business with the firearms industry.

Due to the legislation, JPMorgan Chase & Co. won’t bid on business with public entities in Texas, a key market where the bank underwrote $3.6 billion of municipal debt sales in 2020. Texas-based borrowers sold more than $58 billion of bonds in 2020, the most of any state after California, according to data compiled by Bloomberg. As part of bond offerings, borrowers often hire banks ahead of time and pay them a fee for underwriting the sales.

It’s one of the first signs of fallout from the Texas GOP’s effort to punish Wall Street banks for restrictive gun policies, with politicians in the gun-friendly state seeing it as a way of retaliating against them for weighing in on America’s fraught culture wars.

The law prohibits governmental entities from working with a business that “discriminates” against firearm and ammunition businesses or organizations, according to Republican Governor Greg Abbott, who has touted the legislation.

“While our business practices should permit us to certify, the legal risk associated with this ambiguous law prevents us from bidding on most business right now with Texas public entities,” Patricia Wexler, a spokesperson for the bank, said in an emailed statement.

The law was enacted as part of a flurry of GOP legislation, such as a law that restricts abortion rights and another that punished cities that defund their police departments. As part of Senate Bill 19, companies have to provide a written verification that they comply with the law, which applies to a contract that has a value of at least $100,000.

JPMorgan was ranked as the seventh-biggest underwriter of deals out of the state, which is one of the biggest markets for the muni-bond business thanks to its fast-growing population.

JPM Replaced

This legislation could be detrimental to municipal issuers in Texas, depending on ultimately how many banks are “captured” by the new law, said Martin Luby, a professor of public affairs at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin. “There is a concern that the state and local governments wont have access to as many investors if the big banks aren’t participating in these transactions.”

Earlier this year, JPMorgan CEO Jamie Dimon told a Congressional committee that his bank won’t finance gun companies that make military-style weapons for consumers.

Still, the effect of the law is not entirely clear in Texas. Another bank that was targeted by the legislation, Citigroup Inc., said in June that it didn’t think it was affected by the law. In 2018, Citi said it would prohibit retailers that are customers of the bank from offering bump stocks or selling guns to people who haven’t passed a background check or are younger than 21. The bank was ranked as the biggest underwriter of Texas muni sales in 2020, when it was credited with underwriting $6.3 billion of long-term sales.

Mass Shootings

Bank of America also announced in 2018 it would stop making new loans to companies that make military-style rifles for civilian use. Its policy came after dozens of employees lost family members or suffered other trauma related to mass shootings in the past few years.

Bank of America was credited with underwriting $3.8 billion of municipal debt sales in Texas in 2020, making it the fifth-biggest underwriter there. A spokesperson for Citi didn’t provide an immediate comment on Thursday. Representatives for Bank of America and UBS did not respond to a request for comment.

It’s not the first time that municipalities or states have sought to punish Wall Street by cutting them off from new business. In 2018, Louisiana officials barred Bank of America and Citi from a bond sale, citing their restrictive gun policies.

And states like California in 2016 suspended Wells Fargo & Co. from bond work over the bank’s bogus accounts scandal.

Hospital Deal

The law is already crimping new business for JPMorgan.

This week, JPMorgan was replaced by UBS Group AG as the underwriter of a bond issue for Texas’s Decatur Hospital Authority, a local agency, according to a bond filing Thursday. The authority is an arm of a 7,000-person Texas city that operates Wise Health System. Decatur is the seat of Wise County and is about 65 miles (105 kilometers) northwest of Dallas. In July, the agency had disclosed that it was planning to have JPMorgan serve as senior managing underwriter on a financing that could include the sale of up to $150 million of bonds.

The authority cited “uncertainty related to the implementation of new legislation passed by the State of Texas,” though it didn’t specify which law.

Todd Scroggins, chief financial officer for Wise Health, didn’t respond to a request for comment, nor did a hospital spokesperson.

Bloomberg Markets

By Amanda Albright and Danielle Moran

September 30, 2021, 1:33 PM PDT Updated on September 30, 2021, 4:26 PM PDT

BofA, Citi, JPMorgan See Texas Muni Business Halt After Gun Law.

Wall Street’s three biggest municipal-bond underwriters have seen business grind to a halt in Texas after the state enacted a law that blocks governments from working with banks that have curtailed ties to the gun industry.

Since the Republican-backed law took effect on Sept. 1, neither Bank of America Corp., Citigroup Inc. or JPMorgan Chase & Co. has managed a single municipal-bond sale in the state, according to data compiled by Bloomberg. It was the first time that’s happened since at least late 2014.

JPMorgan said Thursday that it has decided that it can no longer bid for most municipal-debt business in Texas due to the law. On Friday, rival Citigroup said it has temporarily stopped underwriting deals there while it evaluates the law, though it expects to be able to resume work eventually.

Spokespeople for Bank of America declined to comment.

The Texas law marked the latest clash between Republican lawmakers and corporations that have been drawn into America’s fraught cultural wars, such as the efforts to enact more restrictive voting laws in the wake of Donald Trump’s defeat last year. Lawmakers in the gun-friendly state enacted the restriction to punish banks that curbed ties to firearm and ammunition makers in the wake of mass shootings like the one at a Parkland, Florida, high school in 2018 that left 17 dead.

The legislation, Senate Bill 19, requires that governments receive a written verification from companies that they do not have a practice, policy, guidance or directive that “discriminates against a firearm entity or firearm trade association.” They also have to verify that they will not do so during the term of the contract.

In 2018, Bank of America said it would stop making new loans to companies that make military-style rifles for civilian use. That same year, Citigroup said it would prohibit retailers that are customers of the bank from offering bump stocks or selling guns to people who haven’t passed a background check or are younger than 21. JPMorgan Chief Executive Officer Jamie Dimon told a Congressional committee this year that his bank won’t finance gun companies that make military-style weapons for consumers.

The Texas municipal-bond market isn’t a major profit center for the Wall Street goliaths, so the law doesn’t threaten a major hit to their bottom lines. But it does lock them out of a big corner of the state and local underwriting business because Texas’s swift growth has made it one of the biggest issuers of such securities.

The ambiguity around the law was what led JPMorgan to decide it can’t bid on most business with public entities in Texas, according to a company spokesperson.

“While our business practices should permit us to certify, the legal risk associated with this ambiguous law prevents us from bidding on most business right now with Texas public entities,” Patricia Wexler, a spokesperson for the bank, said in an emailed statement.

On Friday, Citigroup said in a statement that it believes it can comply with the law but has temporarily pulled back.

“While we are dedicated to staying involved in the Texas market and serving our public sector clients, we have elected not to engage in primary market underwriting temporarily as we work through the certification process,” the bank said in a statement to Bloomberg News.

The legislation has also sown some consternation among local officials concerned that limiting the number of banks at work could affect their ability to raise money or leave them paying higher costs.

Denise Tacke, the finance director for the city of Plano, Texas, said it’s unclear how big of an impediment the legislation will be until the city sells bonds again and sees how many underwriters participate and whether it has an impact on how the bonds price. She said it’s still unclear which financial institutions the city is barred from working with.

“We were concerned about the bill and we did let our legislators know that it might negatively impact us,” she said in an email.

Bloomberg Markets

By Amanda Albright and Danielle Moran

October 1, 2021, 11:10 AM PDT

— With assistance by Natalia Lenkiewicz

Wall Street’s Muni Slowdown Dials Back Hopes for a Blowout Year.

Wall Street’s municipal-bond underwriters may not get as big a year as they once expected.

Even before this week’s selloff drove 10-year benchmark yields to the highest since March, the volume of new state and local government bond sales was slowing from last year’s record-setting pace.

Such governments sold about $33 billion of debt in September, a 30% drop from a year earlier, according to data compiled by Bloomberg. That’s left issuance so far this year at $335 billion, up less than 3% from 2020, thanks to a surge in borrowing in the first half of 2021.

On top of that, next month’s issuance may trail the nearly $72 billion that flooded the market last October, when officials rushed to get ahead of any potential havoc following the presidential election.

The slowdown reflects the rise in interest rates, the economic uncertainty cast by the delta variant, and a decline in taxable bond sales for a key type of refinancing as Democrats in Congress push to restore governments’ ability to sell cheaper tax-exempt debt for that purpose instead. The odds of President Joe Biden enacting an infrastructure program has been another wild card.

“You have a lot of uncertainty in the market right now and when you have a lot of uncertainty, that gives the issuer community pause,” said Jeff Lipton, a managing director at Oppenheimer & Co.

Many municipal-bond strategists had high expectations for 2021, with those at Citigroup Inc., Morgan Stanley and Municipal Market Analytics late last year all forecasting that sales would hit $500 billion or more. Long-term municipal debt sales totaled about $455 billion last year, not including those with corporate-bond identifiers, according to data compiled by Bloomberg.

Yingchen Li, co-head of municipal-debt research at Bank of America Corp., attributed the recent slowdown to a drop in taxable debt issued for refinancings.

“Now, the question is: is it possible to catch up?” said Li. The bank has maintained its annual forecast even though issuance is behind schedule by an estimated $20 billion.

“It’s really whether we can make up $20 billion more in refundings,” he said. “If there’s a lot more new money than we thought, then that’s another way to catch up. The fourth quarter is normally very big.”

Analysts at Citigroup led by Vikram Rai have already rolled back their forecast, predicting $515 billion of long-term sales this year, down from the $550 billion projection made at the end of 2020. Rai stands by that call, saying that the fall season typically brings stronger sales.

“It’s definitely do-able,” he said in an interview.

Tom Kozlik, head of municipal strategy and credit at Hilltop Securities in Dallas, has been estimating that states and local governments will sell around $460 billion. He said the pace of sales next month will be a big factor in whether his target proves correct, given that it’s a crucial month before the winter holidays.

JPMorgan Chase & Co.’s Peter DeGroot, head of municipal research and strategy for the bank, cut his forecast in the middle of the year because of the dip in taxable debt sales. He now predicts about $465 billion by the end of the year, including those sold into the corporate-bond market.

Yet even if 2021 sales fall short of last year’s record, issuance could be the second-busiest year since at least 2013, according to data compiled by Bloomberg.

“At the onset of the year we expected another year of record supply,” DeGroot said in an interview. “That record supply was largely beholden to an increase in taxable issuance.”

“We do expect issuance to be somewhat lower but still relatively high,” he said.

Bloomberg Markets

By Danielle Moran and Shruti Singh

September 28, 2021, 11:08 AM PDT

Stir-Crazy Americans Hit Road, Spurring Muni Toll-Bond Demand.

Americans eager to get out of the house are jumping in their cars for trips near and far, spurring a faster-than-expected rebound in traffic and investor demand for bonds funding municipal toll roads, bridges and tunnels.

Many non-profit toll operators are seeing traffic at around 90% to 100% of 2019 activity, after a shallower drop and stronger rebound than anticipated, said S&P Global Ratings Analyst Scott Shad. While volume overall won’t hit 2019 rates this year, it will probably recover to pre-pandemic levels in 2022 and grow 5% in 2023 given a pickup in the economy and pent-up consumer demand, Shad said.

Such metrics are drawing the attention of investors who are trying to find higher yields in muni bonds at a time when returns are low, and when record federal aid has given a boost to nearly all issuers. Debt issuance for state and local tollways, bridges and tunnels has reached about $9.77 billion, the highest for the year-to-date period since 2017, according to data compiled by Bloomberg.

The combination of aid and market technicals has made it “really hard to distinguish the good from the bad,” said Mathew Kiselak, head of long term municipal portfolio management for Vanguard, which holds $222 billion in muni assets. Toll roads stand out as attractive investments, he said.

“It’s really looking at sub-sectors that benefit from an improving economy,” Kiselak said in an interview. “We love toll roads.”

A North Texas Tollway System bond that matures in 2048, among the debt held in funds that Kiselak manages, has seen a 55 basis point premium to benchmark securities in January fall to a discount of 36 basis points earlier this month. The spread above the benchmark for debt issued by the Pennsylvania Turnpike Commission that matures in 2027, another Vanguard holding, has shrunk to 23 basis points this month from 49 basis points in May.

Part of the sector’s strength stems from Americans choosing to hit the road rather than flying, Kiselak said. The total number of vehicle miles traveled in the U.S. is close to pre-pandemic levels based on a weekly U.S. Department of Transportation report that compares current interstate highway traffic to the same week in 2019.

Separating the mileage data between commercial and passenger shows that truck volume helped kick off the rebound in mid-2020 when shoppers jumped online for purchases and the delivery sector surged. Passenger traffic began to gain more in the new year and is now close to pre-pandemic levels, according to the government data.

Weekly vehicle miles traveled are recovering faster than expected

Better still, often issuers can increase tolls with inflation, giving investors some benefit from recent rising price levels. Increases to toll rates and other “prudent” management steps have kept credit stable and meant no downgrades in 2020 or 2021 across 55 toll road operators rated by S&P. Debt coverage “remained strong despite declines in operating revenues” in 2020, according to S&P.

This sector has “proven its worth,” Ed Paulinski, a portfolio manager and head of muni separately managed accounts at Goldman Sachs Asset Management, said in an interview.

“A lot of the transportation-related sectors actually survived the downturn pretty well and toll roads was certainly one them,” Paulinski said. “The revenue has been in line or in some cases better than pre-Covid. I think that in combination with spreads is hard to find.”

Bloomberg Markets

By Shruti Singh and Skylar Woodhouse

September 27, 2021, 10:45 AM PDT

— With assistance by Natalia Lenkiewicz

S&P: Wildfires Are Becoming The New Normal In Western States; Their Unpredictable Nature Increases Long-Term Risk

Since 2018, wildfires have become increasingly common and are a credit risk for municipalities in high fire-risk areas across several western states such as California, Washington, Oregon, and Colorado. The ongoing drought, particularly in California, is a likely contributor to the reoccurrence of wildfires in areas with historically low rainfall. With the effects of climate change likely to stay, we believe wildfires will remain a common occurrence for the foreseeable future.

However, despite the number of wildfires in the western states, S&P Global Ratings has not taken any negative rating actions to date. Although some wildfires are close to municipalities that we rate, most of these municipalities’ boundaries and property values have not been materially damaged. We closely monitor wildfire risk across the western states.

Continue reading.

28 Sep, 2021

Municipal Bond Market Outlook - A Lot Of Uncertainty.


Continue reading.

Seeking Alpha

Oct. 04, 2021

Fitch: Effects of US Fed Govt Shutdown Would Be Limited for Public Finance

Fitch Ratings-New York-29 September 2021: A US federal government shutdown as a result of the failure to pass legislation to extend government funding would unlikely affect most US public finance credits in the near term, Fitch Ratings says. However, a prolonged shutdown without a clear path or timeline for resolution could lead to disruption in federal payments to public and private entities and limited economic effects in areas with larger concentrations of federal employment. Moreover, political deadlock complicates policymaking, which may have longer-term implications for entities relying on federal funding. Government funding expires at midnight on October 1.

It is unclear what agencies and services would be affected in a shutdown, as President Joseph Biden has discretion about what would be considered essential functions of the government and would, therefore, continue through any shutdown. This shutdown may have more extensive reach than prior ones, as Congress has not yet passed any funding bills that would maintain ongoing operations for certain agencies.

Payments to states and local governments under the American Rescue Plan Act should not be affected, as remaining allocations are not due until 2022. Medicaid, which is the largest federal government transfer to states, and Medicare are expected to continue as both are considered mandatory spending programs. It is unclear if the funding and operations of public health agencies, such as the Centers for Disease Control and Prevention and US Food and Drug Administration, would be disrupted.

Most federal employees, including Defense and the US Postal Service, which together make up almost half of the total of employees, would not see changes to their employment or pay status. Other employees could be furloughed or required to work without pay. Localities with the highest proportion of federal employment are unlikely to see long-lasting effects on economically-sensitive tax revenues as the Government Employment Fair Treatment Act (GEFTA) of 2019 ensures payment of federal salaries deferred during a shutdown. The District of Columbia’s operations are protected by the fiscal 2021 D.C. Appropriations bill, which excepts the district government from a shutdown in fiscal 2022.

Universities and non-profit entities may experience temporary pressures if federal research grants are not processed and disbursed. A short-term shutdown would have little effect but those that rely most heavily on federal grants or contracts would suffer in a longer shutdown. Student financial aid will likely be unaffected, as most disbursements for fall have occurred already.

Federal Housing Administration (FHA) loan applications may be stalled for new single-family FHA mortgages and multifamily properties with FHA risk share loans. This will delay the addition of new mortgage assets to Housing Finance Agency (HFA) programs, which could potentially cause a turnaround in the aggregate increases in total assets that HFAs experienced over the last five fiscal years.

Infrastructure projects backed by federal dollars may be affected in a prolonged shutdown. Federal highway transportation funding to states and local governments through the Highway Trust Fund is authorized outside of the annual budget process through multi-year legislation. The current authorization expires on October 1 as well, with reauthorization included in the Infrastructure and Investment Act (HR 3684) scheduled for a final House vote on Thursday. The Senate already cleared HR 3684 and the President plans to sign it if passed by the House.

Extending federal government funding seems to have support across the aisle, which may ease passage of a bill this week. These discussions are related to, but separate from, the deadlock over the debt limit. The Senate recently voted against a measure that combined the two issues, with all Republicans voting against it. The debt limit could be suspended or raised by other means before the limit is reached, estimated to be mid-October.


Amy Laskey
Managing Director, US Public Finance
+1 212 908-0568
Fitch Ratings, Inc.
Hearst Tower
300 W. 57th Street
New York, NY 10019

Sarah Repucci
Senior Director, Fitch Wire
Credit Research & Risk Analytics
+1 212 908-0726

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings.

Alternative Bond ETF Strategies to Diversify Risk, Maintain Yields.

Fixed income investors should consider the risks of traditional market cap-weighted bond indexing and look to alternative exchange traded fund methodologies to help diversify their risks and maintain income.

In the recent webcast, The Quest for Income: Smarter Approaches to Meet Client Income and Stability Needs, Katherine Nuss, vice president and fixed income client portfolio manager at Columbia Threadneedle Investments, touched upon the current economic environment, with labor markets progressing but still below their peak and core inflation decelerating. The Federal Reserve is still waiting on the labor markets to make a full rebound and insists that inflation remains transitory.

Nuss argued that investors should consider the value in diversification rather than further upside potential, especially with the markets more at risk of rising interest rates. However, credit valuations leave little room for error with tight spreads reflecting high valuations in the credit markets already.

Marc Zeitoun, head of strategic beta and private client advisory at Columbia Threadneedle Investments, argued that there may be room for fixed income investors to find value, but people will have to go beyond their comfort zones or away from traditional bond benchmarks like the Bloomberg U.S. Aggregate Bond Index.

“Bloomberg U.S. Aggregate Bond Index investors are taking more risk to generate less income than ever before,” Zeitoun said.

Zeitoun warned that investors need more credit exposure or even 80% in high yield in today’s low-rate environment to generate a 4% yield, but this would expose them to risks that many may not be comfortable with. Income is a driver of total return, and its contribution is magnified in short duration. On the other hand, Zeitoun argued that investors need to consider a diversified, flexible portfolio that can better balance today’s market risks.

For example, Jay McAndrew, vice president and national sales manager at Columbia Threadneedle Investments, highlighted the Columbia Diversified Fixed Income Allocation ETF (NYSEArca: DIAL), the Columbia Short Duration Bond ETF (SBND) and the Columbia Multi-Sector Municipal Income ETF (MUST).

McAndrew underscored the improving income and diversification through a broader opportunity set. For example, high yield and emerging market debt produce the most yield relative to duration. They also exhibit low correlation with the Bloomberg 1-5 Government/Credit Index.

DIAL provides convenient access to six sectors attractively priced and managed by senior fixed income portfolio managers. For instance, the ETF focuses on BBB- and BB-rated sovereign EM bonds that have provided income at a reasonable volatility. McAndrew noted that DIAL’s indexing methodology provides a more differentiated country and currency exposure, investing in higher-yielding countries and a modestly shorter duration.

DIAL helps investors focus on areas that have been largely ignored by traditional bond benchmarks. The typical short-term bond fund lacks meaningful exposure to higher income-producing sectors, according to McAndrew. Meanwhile, with short-term rates so low, fees can even negate the impact on effective yield.

Additionally, SBND, which tracks the Beta Advantage® Short Term Bond Index, provides convenient, diversified access to four sectors, managed by senior fixed income portfolio managers at a competitive price. The thoughtfully constructed, diversified portfolio can mitigate duration risk while capturing higher current income opportunities. In order to maximize the potential for risk-adjusted returns and income, the underlying Beta Advantage Multi-Sector Municipal Bond Index is designed to exploit inefficiencies inherent in traditional passive approaches.

Lastly, MUST broadens the opportunity set by providing thoughtful access to municipal sectors at an attractive price and is designed by senior municipal fixed income portfolio managers.



SEPTEMBER 30, 2021

S&P U.S. State Ratings And Outlooks: Current List

View the Current List.

22 Sep, 2021

NASBO: Links to State Recovery Plans

View the NASBA list of State Recovery Plans.

Build Back Better: Notable Infrastructure and Other Public Finance Provisions Make Progress in Congress - Foley & Lardner

On Wednesday, September 15, 2021, the House Committee on Ways and Means advanced the infrastructure bill (also called the Build Back Better Act). Of particular interest to the public finance market are Subtitles F and G, which are Infrastructure Financing and Community Development, and Green Energy, respectively. The legislation includes dozens of development finance provisions related to bonds, tax credits, and housing. The link to Subtitles F and G can be found here.

Notably, the infrastructure bill includes the restoration of Advance Refunding Bonds, a Bond Category for Electric Vehicle Charging Stations, creation of new Qualified Infrastructure Bonds, a permanent extension to the New Markets Tax Credits, and an increase in the threshold for bank qualified bonds.

We will continue to provide updates on the status of the infrastructure bill and legislative next steps. At this point, it is important to caution that it is anticipated the bill will go through additional revisions. Committee Chair Richard Neal is a recognized friend of the muni market and the bill’s finance provisions may well face headwinds from other sectors.

New Measures

The following are notable measures included in the Ways and Means Committee’s portion of the infrastructure bill:

Infrastructure Financing:

Other Provisions Related to Infrastructure Financing:

Housing Provisions:

Green Energy Provisions:

Steps to Passage

The House Budget Committee and House Rules Committee will consider the bill before it is voted on by the full House, though the timeline for additional House and Senate action is unclear after a number of moderate House and Senate Democrats expressed concerns over the overall price tag and individual components of the bill.

September 23, 2021

© 2021 Foley & Lardner LLP

Hospital Muni-Bond Issuance on Track for Slowest Year Since 2014.

U.S. hospitals are pulling back on issuing municipal debt in the midst of the ongoing Covid-19 pandemic, following a wave of federal aid that softened borrowing needs and uncertainty that has clouded capital spending plans.

Muni-bond sales by U.S. hospitals have fallen about 34% to $12.6 billion this year compared to the same period in 2020. The borrowings are on pace to be the lowest since 2014, according to data compiled by Bloomberg.

The slowdown in such debt sales may reflect a slump in planned capital expenditures given the uncertainty surrounding the pandemic, said Ryan Ciavarelli, senior research analyst for Belle Haven Investments. “You don’t see a lot of hospitals issuing new money debt to build a new hospital unless they had those plans in the works,” he said.

Taxable health-care issuance, on the other hand, is roughly on track for an average year, likely because many hospital systems are refinancing tax-exempt debt with longer calls and terming out lines of credit tapped during the early stages of the pandemic, Ciavarelli said.

Another factor driving the decline may be the presidential election in 2020, which spurred borrowers to move deals forward that year to avoid potential market disruption in the aftermath of the vote, said Steve Sohn, senior vice president at health-care consultancy Kaufman Hall & Associates LLC.

Hospitals generally performed better in 2020 than many investors expected after elective surgeries, which had been deferred during the peak of the virus, recovered and an influx of federal aid strengthened balance sheets. Many systems are now better equipped to handle Covid-19 case surges while still continuing to provide elective procedures, a major driver of revenue.

The Bloomberg Hospital index has returned 2.72% year to date, the strongest performance among municipal revenue bond sectors tracked by Bloomberg. The high-yield hospital bond index returned 6.67% over the same period.

Under the CARES Act passed in March 2020, the U.S. Department of Health and Human Services received $175 billion to distribute to hospitals and health-care providers. The American Rescue Plan Act also secured additional aid for providers.

“The need to come to market isn’t quite so great with the federal stimulus money being allocated,” said Kim Olsan, senior vice president for municipal trading at FHN Financial. “As states have found with G.O. debt, airports, transit systems, a lot of that federal money is taking the place of traditional financing needs.”

Still, the outlook for the sector is complex. Covid-19 cases and hospitalizations spiked in recent weeks as delta spread, reaching a seven-day moving average of nearly 160,000 cases earlier this month. Kaufman Hall projects hospitals nationwide will lose an estimated $54 billion in net income over the course of 2021, even considering federal relief from the CARES Act. More than a third of U.S. hospitals will maintain negative operating margin through year end, according to a September report from Kaufman Hall.

Like other businesses and governments, staffing is also a concern that is prompting some hospitals to look into closing service lines, cross-training nurses and offering signing bonuses to new hires, which could compress margins.

“Pretty much every single major health care system is having challenges with labor, especially on the nursing side,” Kaufman Hall’s Sohn said.

Bloomberg Markets

By Nic Querolo and Sri Taylor

September 23, 2021, 11:41 AM MDT

— With assistance by Danielle Moran

BlackRock, Goldman Join Racial-Justice Push in Muni-Bond Market.

Some of Wall Street’s biggest buyers of America’s state and local government bonds are starting to ask questions about racial equity.

Five investment giants — BlackRock Inc., Goldman Sachs Asset Management, Lord, Abbett & Co., Morgan Stanley Investment Management and Vanguard Group Inc. — are working with two minority-owned underwriters, Loop Capital Markets and Siebert Williams Shank & Co., to develop and distribute a questionnaire that governments will be asked to fill out before new bond deals are arranged. It will ask about policing policies, efforts to combat race-based inequality, social services and the demographic breakdown of the government’s workforce, among other things.

“The pandemic has brought up the broad range of inequity in our society and it’s important to understand how everyone is working on that,” said Daniel Solender, head of municipal bonds at Lord, Abbett, which manages about $36 billion of the securities.

“We want to engage: we can ask questions, we can compare different issuers for what they’re doing,” Solender said. “It’s important for us to know what we’re investing in.”

The push reflects the growing influence of the socially responsible investment business, with Wall Street funds eager to cater to investors seeking to use their funds to combat global warming or promote societal change.

The industry has been making inroads into the $4 trillion municipal securities market, a slow moving haven of buy-and-hold investors seeking tax-free income.

But the market has broad reach that’s drawn attention from activists, since it finances everything from hospitals and water systems to sports stadiums and legal settlements for victims of police brutality. And governments themselves have started courting the do-good investors: they sold a record $10 billion of so-called social debt so far this year, and they frequently put green-bond labels on debt issues that finance public transportation, energy efficient buildings and other projects with environmental benefits.

The questionnaire project, called the Municipal Issuer Racial Equity & Inclusion Engagement Framework, marks a step to provide more information to investors interested in how cities are working to address the nation’s legacy of racial inequality. It was organized in part by the non-profit JUST Capital.

The protests that gripped the U.S. in the summer of 2020 underscored the need for investors to know what cities are doing to promote racial equity, said Alexa Gordon, head of municipal ESG at Goldman Sachs Asset Management. She said that eventually the responses may help investors decide what to buy.

“There may be a time where we look to invest in certain issuers because they are willing to engage with us,” she said.

The firms aren’t bound to use the information in their investment decisions, nor will the underwriters require governments to participate. Yet backers said the involvement of such massive investment companies gives the project significant heft and lets governments know that social concerns are beginning to matter to buyers of their bonds.

“These are among the largest municipal bond holders; they are mammoth institutions that can impact pricing levels on municipal bonds and their position is that we need this information,” said Suzanne Shank, chief executive officer of underwriter Siebert Williams Shank. “Issuers want to access the best rates at the best time in the market. If investors are demanding this, we want to make our issuer clients aware that this is something that will be increasingly scrutinized.”

Peter Hayes, who oversees about $183 billion as the head of state and local government debt investing at BlackRock, called the survey a first step.

“This will continue to evolve,” he said, noting that the use of the data to determine which bonds to invest in is “a bit down the road.”

Bloomberg Markets

By Danielle Moran

September 24, 2021, 6:00 AM MDT

NFMA Green Bond Survey.

We are seeking member input for the NFMA Green Bond Survey. Your input matters!

Please complete this Green Bond survey to assist the NFMA Green Bond Committee determine what disclosures investors seek from issuers of Green Bonds.

The survey will take approximately 10 minutes to complete and it is anonymous.

S&P U.S. Transportation Infrastructure Sector Update And Medians: Not-For-Profit Toll Roads and Bridges

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22 Sep, 2021

S&P Green Transaction Evaluation: Washington Suburban Sanitary District Consolidated Public Improvement Bonds of 2021 (Second Series) (Green Bonds)

The Washington Suburban Sanitary District will use bond proceeds to improve the water system throughout the service area. The projects were necessitated by aging infrastructure, a consent decree, and the desire to improve water sustainability and reduce pollution.

Read the S&P Green Transaction Evaluation.

Fitch: Delta Variant Slows Job Growth in US Metros

Fitch Ratings-New York-22 September 2021: Jobs continue to rise in major metropolitan statistical areas throughout the U.S., but Fitch Ratings’ latest U.S. Metro Labor Markets Tracker shows the rate of growth is slowing due to the Delta variant.

The median jobs recovery rate for U.S. metros rose to 68% in July with 49 of 53 major metros seeing employment growth, a significant increase from June. Much of the growth came from metros in the South. Nationally, however, employment growth slowed in August largely due to the impact of the Delta variant on pandemic-sensitive sectors such as leisure and hospitality.

“Recent federal vaccination mandates for employees of firms with 100 or more employees will likely lead to an uptick in vaccination rates but may also result in a more challenging job-seeking environment for those who decline vaccination,” said Senior Director Olu Sonola. “L&H, education and health services and local government jobs still account for 71% of total job losses in major metros, which are still well below pre-pandemic levels despite some recent growth.”

The employment recovery rate for major Southern metros rose to 78% in July from 74% in June. The region still has weak pockets including Memphis, Oklahoma City, San Antonio, and Virginia Beach. Three major metros (Richmond, New Orleans, and Orlando) remain particularly challenged by the current economic environment, with employment recovery rates below 50%. The struggles of New Orleans and Orlando largely reflect the cities’ heavy exposure to tourism activities.

‘U.S. Metro Labor Markets Tracker’ is available at ‘’.


Olu Sonola
Senior Director
+1 212 908 0583
Fitch Ratings, Inc.
300 W 57th St.
New York, NY 10019

Nicholas Rizzo
+1 212 908 0596

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Wave of Public Finance Retirements to Worsen Worker Shortage.

Record amounts of federal aid set to flow through state and local coffers will add to the workload of public accountants and investment officers, pressure that could build further as a potential surge of retirements exacerbates a worker shortage.

The demand for public finance employees based on online job postings surged 84% between 2016 and 2020, even after a slight year-over-year dip last year due to the pandemic, according to a study released Tuesday by the National Association of State Treasurers Foundation.

Over 2019 and 2020, public sector employers across all levels of government posted more than 112,000 jobs online including chief financial officer, accountant, financial analyst, auditor, debt manager and budget specialist, according to the report.

Additionally, the sector that employs more than 850,000 state, county and city government workers may be on the verge of a so-called “silver tsunami,” according to the association. The public finance workforce, 31% of which is over the age of 55, and 60% is over the age of 45, “is on the brink of a wave of retirements,” the report said.

“We are entering a potentially tumultuous era of employment and staffing in the public finance sector,” Indiana Treasurer Kelly Mitchell and Connecticut Treasurer Shawn Wooden said in the opening remarks in the report.

Facing Pressure

The industry is facing “unpredicted rates of retirement,” fewer applicants and competition from the private sector, according to the report. Those challenges come at a time when federal investments in local economic recoveries and infrastructure are increasing public spending as well as the need for employees with skills to manage those resources. The latest stimulus package, the American Rescue Plan Act, is sending $350 billion to state and local governments over the next few years.

The finance segment of the state and local workforce is one of several in the government sector facing pressures around the country. U.S. state and local government job openings jumped to 936,000 in July, the highest since at least 2000, according to the U.S. Labor Department this month.

U.S. state and local job openings hit a record in July

The foundation undertook the study in collaboration with Emsi Burning Glass to understand the skills needed along with short- and long-term staffing and skills challenges. Demand numbers are reported as a two-year snapshot between Jan. 1, 2019 and Dec. 31, 2020 “to smooth out” some effects of the pandemic. Emsi Burning Glass also analyzed growth rates between 2016 and 2020.

Public sector agencies may need to expand capacity, staffing, and hiring given the level of anticipated retirements “may further exacerbate skills and worker shortages,” according to the report. The sector, however, has several points working its favor for recruiting and retaining employees.

Important Work

Low barriers to entry, an already diverse workforce and entry-level pay that on average is higher than the private sector can help, according to Joel Simon, vice president for workforce strategies at Emsi Burning Glass. Women making up about 52% of the public finance workforce and the sector mostly mirrors the racial and ethnic profile of the broader U.S. workforce.

“It’s a bigger, wider door,” Simon said.

The importance of the work is also key, said Mitchell, Indiana’s Treasurer. The office serves as the chief investment officer for the state and manages nearly $10 billion. Done properly, public finance posts such as treasurer offices can save money for taxpayers by lowering borrowing costs with higher credit ratings and increasing funds with higher returns on investments, she said.

“I try to draw that line financially between what we do and the impact on individuals own wallet,” Mitchell said in an interview.

Bloomberg Politics

By Shruti Singh

September 20, 2021, 10:01 PM MDT Updated on September 21, 2021, 11:16 AM MDT

Corporate and Municipal CUSIP Request Volumes Slow in August.

Second Consecutive Monthly Decline in Muni Volume

NEW YORK, Sept. 20, 2021 /PRNewswire/ — CUSIP Global Services (CGS) today announced the release of its CUSIP Issuance Trends Report for August 2021. The report, which tracks the issuance of new security identifiers as an early indicator of debt and capital markets activity over the next quarter, found a monthly decrease in request volume for new corporate and municipal identifiers.

CUSIP identifier requests for the broad category of U.S. and Canadian corporate equity and debt fell 15.4% versus July totals. The decrease was driven largely by a decline in requests for domestic corporate equity and Canadian corporate identifiers. On a year-over-year basis, corporate CUSIP request volume rose 0.1%.

Monthly municipal volume decreased in August, the second consecutive monthly decline in muni CUSIP request volume following seven straight months of increases. The aggregate total of all municipal securities – including municipal bonds, long-term and short-term notes, and commercial paper – fell 1.7% versus July totals. On an annualized basis, municipal CUSIP identifier request volumes were up 2.4% through August. Texas led state-level municipal request volume with a total of 221 new CUSIP requests in August, followed by New York with 123 and California with 81.

“It is noteworthy that we’re seeing a second month in a row of declining CUSIP request volume, but it is also important to recognize that August is a historically slower month for issuers,” said Gerard Faulkner, Director of Operations for CGS. “We will continue to monitor request volumes closely to get a clearer read on expected issuance activity as we head into the fourth quarter.”

Requests for international equity and debt CUSIPs both declined in August. International equity CUSIP requests were down 8.7% versus July. International debt CUSIPs were down 0.3% on a monthly basis.

To view the full CUSIP Issuance Trends report for August, click here.

Treasury Urged to Ban Use of Stimulus Aid to Build New Prisons.

Activists and investors are asking President Joe Biden’s administration to ban the use of federal stimulus funds to build prisons in Alabama and elsewhere.

Dozens of signatories, including the American Sustainable Business Council and Justice Capital, sent a letter to Treasury Secretary Janet Yellen and other administration officials asking them to “explicitly prohibit any state, including Alabama, from using CARES Act, American Rescue Plan (ARP), infrastructure funds or any other federal dollars for prison construction projects.”

The push comes after Alabama Governor Kay Ivey, a Republican, this week called a special session of the state legislature to address “longstanding” issues with correctional facilities. As part of the plan to modernize the state prison system, lawmakers could consider a bill to sell as much as $785 million of bonds and tap as much as $400 million in federal aid from the Biden administration’s American Rescue Plan, according to the governor’s office.

State lawmakers are considering those funding options after a controversial debt financing didn’t move forward in the municipal bond market. In that proposal, the state would have contracted with prison company CoreCivic Inc. to build and own the facilities while leasing them to the state’s corrections department. The state terminated its 30-year lease with CoreCivic in August.

The activists say the federal aid should be allocated to those who have been disproportionately impacted by the pandemic, like Black, Brown and indigenous communities.

“If permitted to use federal dollars, the State will squander a once-in-a-generation opportunity to invest in our communities for productive infrastructure like K-12 and early childhood education, access to high quality and affordable healthcare, clean water and sanitation,” the group wrote in the letter dated Sept. 23. “Aid should be allocated to explicitly center and uplift widespread economic prosperity.”

Bloomberg Markets

By Danielle Moran and Amanda Albright

September 24, 2021, 8:22 AM MDT

Alabama’s Scuttled Prison Deal Spurs Pivot to Bonds, U.S. Aid.

Alabama may seek to use debt and federal aid to fix longstanding issues with its prisons after a controversial financing plan fell apart earlier this year.

Governor Kay Ivey, a Republican, announced on Thursday that the legislature would meet in a special session on Sept. 27 to address the state’s “longstanding” issues with correctional facilities, according to a statement from her office. Alabama and its corrections department were sued by the U.S. Department of Justice in December 2020 for failing to protect male prisoners from violence and unsanitary conditions.

As part of plans to modernize correctional facilities, lawmakers could consider legislation authorizing the sale of up to $785 million in bonds for prison projects, according to the governor’s proclamation. It could also consider a bill that would authorize using up to $400 million in federal aid from the Biden administration’s American Rescue Plan and up to $154 million from the state general fund.

Earlier this year, the state abandoned its plan for prison company CoreCivic Inc. to build and own new prisons after a controversial debt financing didn’t move forward in the municipal-bond market. The state’s corrections department terminated its 30-year lease with CoreCivic in August.

“I am pleased and extremely hopeful that we are finally positioned to address our state’s prison infrastructure challenges,” Ivey said in a statement. “I appreciate the hard work of the legislative leadership and the many members who have worked diligently with my team to put us in position for a bipartisan proposal.”

In July, the state asked the Treasury Department whether Covid-19 relief aid can be used to fund correctional system projects. Alabama is eligible to receive $2.12 billion from the American Rescue Plan’s aid package for states.

Bloomberg Markets

By Amanda Albright and Danielle Moran

September 23, 2021, 2:03 PM MDT

Pension Funding is Down Over the Last Decade, But Has Held Steady Through the Pandemic.

Two decades ago, most American cities were making adequate contributions to their municipal pension funds—the national funded ratio-average for cities across the nation was more than 100 percent. But that percentage dropped when the dot-com bubble popped, and in 2007, the Great Recession pushed it down further.

It’s hovered in the low 70s since 2012.

At the pandemic’s onset last year, there was concern that suddenly tightened budgets would drive municipalities further into the hole, exacerbating an already serious fiscal problem. That hasn’t been the case so far, according to an analysis of public retirement plans released this month by MissionSquare Research Institute.

Most pension plans continued making all or most of their annual contributions throughout 2020.

“Despite the early economic disruption of the COVID-19 pandemic, the average funded ratio among state and local pension plans has held steady at 72 percent for plans included in the Public Plans Database,” according to a statement from the research institute released along with the report, “Public Plans Database—Snapshot as of September 2021.”

The Public Plans Database, described in the statement as “a comprehensive database of public sector retirement plans,” was developed and is maintained by the MissionSquare Research Institute in collaboration with the Center of Retirement Research at Boston College, the Government Finance Officers Association and the National Association of Retirement Administrators.

According to the statement, the database “contains detailed information on the 210 largest state and local (defined benefit) pension plans in the U.S., representing 95 percent of all state and local pension assets and participants. The PPD was expanded in 2020 to include data from public sector DC retirement plans. For this report, 2020 data were available for most but not all of the 210 total plans, depending on when a plan’s fiscal year closed.”

Through the first quarter of this year, defined benefit plans accumulated $5 trillion in assets and defined contribution plans contributed $531 billion.

“The Public Plans Database continues to be an excellent resource for understanding the public sector retirement plan landscape,” said Joshua Franzel, Ph.D., managing director at the research institute. “As we continue to expand the PPD to include more defined contribution plans, it will provide stakeholders with an even more comprehensive view of public retirement plans.”

Just as the average ratio for funded pension plans held steady, the share of cities and states with around or above 100 percent funding also remained high, “although decreasing from 85 percent of all plans in 2019 to 83 percent in 2020,” the statement says. And the percentage of plans paying less than 70 percent “decreased from 9 percent of all plans in 2019 to 6 percent in 2020.”

Of the 16 pension plans with a funded ratio below half, 13 contributed at least 70 percent last year and three contributed between 60 and 70 percent.

When economic downturns happen and revenue dries up, reducing pension contributions can be a tempting temporary solution for city leaders, the report notes. But “doing so has the potential to adversely affect long-term funded ratios as it reduces the principal available for investment.”

Driven by a changing economic landscape, cities and states have begun to shift away from exclusively employer-paid pension plans. The number of plans that include a payroll contribution has more than doubled since 2001. Even so, defined benefit pension plans (when an employer promises a specified payment plan, lump-sum or a combination of the two) are still the most common form of state and local retirement plans—offered to 86 percent of public state and local employees.

Defined contribution plans (those in which an employee contributes money and their employer typically makes a matching contribution) account for 37 percent of all plans.

Written by Andy Castillo

27th September 2021

S&P: U.S. States Weigh Risk Reduction In Managing Pension And OPEB Liabilities

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Keeping The Wolf From The Door: U.S. HFA Multifamily Programs Perform Well During The Pandemic

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23 Sep, 2021

S&P: U.S. Housing Finance Agency Ratings Hold Strong Despite Pandemic Pressure

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23 Sep, 2021

S&P: Despite Weaker Loan Performance, HFA Single-Family Program Ratings Remain Strong

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23 Sep, 2021

RJ Gallo on Fed Tapering & the Muni Bond Space (Radio)

RJ Gallo, Senior Fixed Income Portfolio Manager & Head of the Municipal Bond Group at Federated Hermes, discusses the Federal Reserve taper timeline, and the municipal bond space. Hosted by Paul Sweeney and Matt Miller.

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Bloomberg Radio

September 20, 2021

Barclays Sees Challenges for Muni Market Amid Rates Volatility.

Pressure is building for the municipal-bond market after a selloff in U.S. Treasuries this week, according to Barclays Plc.

Rates market volatility is one of the challenges facing state and local debt performance in the near-term, according to a Sept. 24 note by strategists Mikhail Foux, Clare Pickering and Mayur Patel. Municipal bonds have posted losses this week but outperformed U.S. Treasuries, which sold off after the Federal Reserve announced it could begin scaling back asset purchases in November.

The bonds were able to “hold their ground relatively well” amid the bond market selloff, the Barclays strategists said. Benchmark AAA yields have climbed as much as five basis points higher since the start of the week.

“However, if rates remain under pressure, at some point tax-exempts will have to follow,” they said.

The Barclays strategists also pointed to more supply as a challenge facing the market, given that the volume of bond sales tend to pick up in October, which can weigh on performance. But any selloff over the next four to six weeks could be a buying opportunity, they added.

“In general, we are not overly concerned, as we see this as a temporary dislocation,” they said.

Bloomberg Markets

By Amanda Albright

September 24, 2021, 10:40 AM MDT

Munis In Focus: Active Versus Passive In ETFs (Radio)

Eric Kazatsky, Senior Municipal Strategist for Bloomberg Intelligence, discusses muni market news. Hosted by Paul Sweeney and Matt Miller.

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Bloomberg Radio

September 24, 2021

Cryptocurrency: U.S. Public Finance Issuers Cautiously Consider Its Applications

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Record Number of Muni Issuers Bet on Pension Debt With Rates Low.

Unprecedented number of muni issuers selling pension debt

A record number of U.S. state and local issuers are selling debt to pay for retirement benefits, tapping borrowing costs near historic lows as they eye surging returns in investments such as stocks.

Seventy-four issuers have sold debt to finance pension costs in 2021, the highest number year-to-date in records starting in 1999, data compiled by Bloomberg show. The combined amount of more than $10.3 billion, encompassing all bonds where at least a portion of the proceeds goes toward pension funding, is the highest since the all-time peak in 2003, which included a $10 billion Illinois sale.

The offerings have come from states and an array of other borrowers, including cities, townships, fire and school districts, a community college and a university. Growing unfunded liabilities, which add budget stress each year, are a key driver, and with some Wall Street banks anticipating higher long-term rates, the timing appears right. For UBS Group AG’s Tom McLoughlin, it adds up to a third major wave of such sales, after one following the 2008 financial crisis and another in 2003.

“The low rates in the market, if they persist, you could expect this wave to be larger,” said McLoughlin, head of fixed income, Americas.

Municipalities nationwide are grappling with a pension shortfall that amounted to around $4.5 trillion as of 2018, according to the Federal Reserve’s latest analysis. Years of underfunding and aggressive assumptions for returns at times were big contributors. The pain is only increasing now as the slow recovery in state and local employment from the pandemic has left fewer workers contributing to retirement systems, McLoughlin said.

The gamble for issuers is that they’ll be able to earn more investing the proceeds of the bond sales than they need to repay the debt. It’s been an appealing option in 2021, with major stock indexes marching to a series of record highs, even as valuation questions are mounting.

‘Pros and Cons’

In June, when the border town of Douglas, Arizona, sold almost $39 million in pension-obligation securities, it looked “at the pros and cons extensively, and felt this was the best way” to avoid a crisis down the road, said its mayor, Donald Huish.

The community had expected its annual fire and police pension payments to jump to $4.4 million in 2038, from $2.4 million in fiscal 2022, Huish said. Douglas sold the debt with an average rate of about 2.9% and projects a 7.3% annual return.

Many issuers are drawn by the arbitrage opportunity and the bonds “probably look pretty attractive” said Lisa Washburn, a managing director at research firm Municipal Market Analytics. The risks they carry, however, mean they’re “not a sure thing.”

The Government Finance Officers Association has advised against using them and analysts warn that they take a “soft” liability such as an annual contribution that some governments reduce in times of financial challenges and turn it into a hard liability, like fixed debt service.

A spokesperson for Stifel, which has managed the most such deals in 2021 — 27 of the 74 sold — said the firm didn’t have a comment.

Timing Challenge

The catch with pension bonds is two-fold. First, they don’t offer a permanent fix to the fiscal strains that pushed municipalities to sell them, says Michael Rinaldi, a Fitch Ratings analyst. The second is the issue of market timing.

Timing worked against Stockton, California, which sold pension debt in 2007 and filed for bankruptcy in 2012. The 2008 crisis drove investment returns below assumptions and the bursting of the housing bubble slashed revenue collections.

One reason for confidence now is that Treasury yields remain low by historical standards, with 30-year rates hovering below 2%. The yield will probably be closer to 2.6% a year from now, according to the median forecast in a Bloomberg survey.

In August, Kansas sold about $500 million of pension bonds, its first such issuance since 2015, “to take advantage of the attractive interest rates in the bond market right now,” Adam Proffitt, the state’s budget director, said in an email. Proceeds will go into the public pension system to pay down a portion of its unfunded actuarial liability and accelerate payments, he said.

Dozens of smaller governments have jumped in as well.

Localities are addressing “unsustainable” costs and unfunded liabilities that are threatening the ability to serve residents, said Kevin Phelps, city manager for Glendale, Arizona, which issued about $253 million in pension bonds in June. The city pays around $50,000 a year per firefighter and per police officer into the retirement system, close to the median household income in the community, he said.

The sale of almost $54 million in pension debt in recent days by Naugatuck, Connecticut, will go toward financing unfunded retirement obligations for borough employees and firefighters. The borough ended its defined-benefit pension plan in 2012 and shifted to a 401(k) plan for new employees to ease pressure on its budget long-term.

“We can definitely see the end,” said Mayor Pete Hess.

Bloomberg Markets

By Shruti Singh

September 9, 2021, 11:00 AM MDT

— With assistance by Natalia Lenkiewicz, and Francis Yatzun

Future Returns: Navigating the Municipal Bond Market.

The prospect of higher taxes has fueled interest in muni cipal bonds since state elections in Georgia assured Democrats of a slim majority in Congress at the beginning of the year.

That’s because municipal bonds allow investors to earn tax-free income. But the benefits of owning the highest quality of these tax-free securities relative to Treasuries or investment-grade corporate bonds have diminished as the rush to munis has pushed prices higher, and yields lower.

The yield-to-worst (the potential lowest yield for a security) of the S&P Municipal Bond Index was only 1.03% on Monday, slightly above a low of 0.92% hit on July 27 this year. By comparison, the U.S. 10-year Treasury closed Monday at a yield of 1.36%

But high prices, and low yields, haven’t quashed investor interest in munis. Estimated net cash flows into municipal bond mutual funds and exchange-traded funds reached US$79.25 billion through the end of August this year compared with US$15.73 billion in the same period a year ago, according to Refinitiv Lipper data. Those are the largest inflow totals for municipal bonds on record, according to the firm, a unit of the London Stock Exchange Group.

“There’s only been one or two weeks over the last 60 that we haven’t had positive cash flows into municipal bond funds,” says John Flahive, head of fixed income investments at BNY Mellon Wealth Management.

Penta recently spoke with Flahive about how wealthy investors should approach the municipal bond market amid low interest rates throughout the world of fixed income.

A Rapidly Declining Ratio

Before the pandemic, the yield on 10-year triple-A-rated municipal bonds was about 85% to 90% of the 10-year Treasury yield. For investors in a 40% tax bracket, the taxable-equivalent yield on those municipal securities would be 0.30-0.50 of a percentage point higher (depending on the yield of the security at the time), Flahive says.

But prices of municipal bonds tanked, and yields rose, in the first few months of 2020 as investors feared pandemic-related lockdowns would cause state and local governments to run into financial difficulties. That would mean they could have trouble making bond payments to investors.

As a result, yields on muni bonds rose to nearly four times comparable Treasuries by the end of March 2020, according to research from Brookings.

But interventions by the Federal Reserve during the height of the crisis quickly stemmed fears. By the time the pandemic-related eligibility of municipal securities for the Fed’s Commercial Paper Funding Facility and for the Money Market Mutual Fund Liquidity Facility expired on March 31, muni rates had fallen to about 50% of comparable Treasuries, Brookings researchers wrote in an Aug. 31 post.

As Flahive noted in a mid-year report on the bond markets, the yield on 30-year triple-A rated municipal bonds rose just 0.07 percentage point in the first half of this year compared with a 0.47 percentage point gain in 30-year Treasury yields.

The relative after-tax advantage of munis, as a result, was historically low on all maturities as of the first half. Today, the tax-equivalent yield differential between munis and Treasuries is so slim that in some cases it doesn’t exist at all, Flahive says.

Total returns for munis have also been modest. The US$14 billion Vanguard Tax-Exempt Bond fund, a national intermediate municipal bond fund, returned 1.32% through Monday, Sept. 13, compared to 4.98% in 2020 and 7.45% in 2019, according to Morningstar.

The credit outlook for municipal securities, meanwhile, “is as favorable as we can recall” as a result of federal fiscal stimulus during the pandemic, Flahive said in the mid-year report. While that stimulus swelled general fund balances, he cautioned that spending budgets by these municipalities will expand, “which could make it more difficult to manage during an economic downturn.”

Still Worth Owning

For wealthy investors, the tax advantages of municipal bonds mean the securities are worth buying compared with taxable securities of similar credit quality and with durations of more than five years.

More important for investors, however, is to have a diversified fixed-income portfolio. According to Flahive, investors should even consider giving up some after-tax yield to include taxable bonds among their holdings.

“There’s nothing wrong with taking on some corporates, and for those who can take on some risk, there’s nothing wrong [with having] exposure to high-yield, floating-rate high-yield, and maybe even emerging market debt,” he says.

Sticking With Bonds

Even with rates low across the board, BNY Mellon says investors, generally, should own bonds—albeit a judicious amount. While a generic, moderate-risk portfolio might typically call for 60% in stocks and 40% in bonds (taxable and tax-free), for instance, the wealth manager’s high-level recommendation is now for something less than 30% in fixed income, Flahive says.

Of that approximate 30% allocation, most should be in “core” securities, such as intermediate municipal bonds. Generally, this allocation should include about 80% in state-issued municipal securities (for those who live in states with good bond ratings, such as New York or California), and about 20% in national bonds. The portfolio should be diversified between revenue bonds (used to fund specific projects) and general obligation bonds.

Another 6% or so of the total fixed-income allocation could then be in riskier, higher-yielding securities, including opportunistic municipal bond strategies, he says.

“You are probably better off following a diversified fixed-income approach even though you might be taking more volatility asset class by asset class, [because] at least it’s not just one asset class,” Flahive says.


By Abby Schultz

Updated Sept. 14, 2021

Introducing Sustainable Fitch: ESG. Focused.

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Are States And Cities Taking On Too Much Debt?

Fears are receding of immediate state and city budget crises, due to the double impact of federal spending and restored economic and revenue growth. But low interest rates and pent-up public spending needs are leading to a great deal of new state and local borrowing. Are states and cities taking on too much debt?

In 2020, falling revenues due to the Covid-19 recession led to significant new muni borrowing. In fact, 2020 saw municipal bond sales set a new record of $451.2 billion, up 11% over 2019.

2021 has seen continued issues from states and cities, “5% above the 5-year average” in June according to Blackrock. But muni supply is being swamped by demand, with large inflows of purchasing funds and less supply due to investors buying and holding munis.

Continue reading.


by Richard McGahey

Sep 8, 2021

S&P U.S. Not-For-Profit Health Care Rating Actions, August 2021.

Table of Contents

S&P Global Ratings affirmed 17 ratings without revising the outlooks and took 12 rating actions in the U.S. not-for-profit health care sector in August 2021. There were 11 new sales in August including ratings initially assigned to AtlantiCare Health System, N.J. and St. Lukes Hospital of Duluth, Minn. We also assigned an issuer credit rating to Antelope Valley Hospital, Calif. The 12 rating and outlook actions were comprised of the following:

The table below summarizes S&P Global Ratings’ monthly bond rating actions for U.S. not-for-profit health care providers in August. We based the credit rating affirmations and rating actions on several factors within enterprise and financial profiles, including business position, utilization, financial performance, debt levels, bond-issuance activity, physician relationships, and the external regulatory and reimbursement environment. This also incorporates our stable sector view and our assessment of COVID-19, economic developments, and market volatility.

Continue reading.

13 Sep, 2021

Fitch 2021 Median Ratios for Not-for-Profit Life Plan Communities.

Fitch Ratings-New York-13 September 2021: Fitch Ratings has released its 2021 Median Ratios for Not-for-Profit Life Plan Communities (LPCs). The data presented in this report are limited solely to audited fiscal 2019 results.

“The sector remained resilient during the coronavirus pandemic, which is reflected in the sector’s 2020 financial results,” said Margaret Johnson, Director. “Most of Fitch’s rated communities availed themselves of various forms of emergency stimulus funding to alleviate the operational pressure of the pandemic, which included increased expenses, lower revenues as a result of a decline in post-acute rehabilitation volumes and pressured cash flows from curtailed turnover due to severe limitations imposed on move-ins to communities during the pandemic.”

As of Aug. 4, 2021, Fitch maintained public ratings on 161 LPC providers, of which 151 are included in the medians report. The median rating is ‘BBB’ and the number of ratings in the ‘BBB’ rating category remains the most numerous at 77 (or about 51%) versus 34 (or 22%) in the ‘A’ rating category. Within Fitch’s median portfolio, Type A contract providers remain the plurality with 57 (about 38% of the portfolio), followed by Type C contract providers and Type B contract providers.


Margaret Johnson, CFA
+1 212 908 0545
Fitch Ratings, Inc.
300 W. 57th Street
New York, NY 10019

Richard Park
+1 512 813 5704

Gary Sokolow
+1 212 908 9186

Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

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Update on the Reconciliation Package: Municipal Bonding Priorities

Pullman & Comley’s Public Finance tax attorneys are pleased to bring you the latest development on the budget reconciliation front as it relates to municipal bonding. Last Thursday, September 9, 2021, the House Ways and Means Committee kicked off a multiday markup of key elements of $3.5 trillion social spending package. In the evening on Friday, September 10, the House Ways and Means Committee released the remaining tax subtitles for consideration in their portion of the reconciliation package. The proposed legislation, which the Committee will mark up this week, includes the following municipal bond priorities (among others):

The Committee’s section-by-section summary is below. There are still no firm details on the Senate’s tax provisions or on the anticipated schedule for consideration.

Section-By-Section Details for Select Sections of Subtitle F – Infrastructure
Financing and Community Development

Sec. 135101. Credit to issuer for certain infrastructure bonds.

Based on the successful Build America Bonds program enacted in the 2009 American Recovery and Reinvestment Act, issuers of qualified infrastructure bonds would receive a tax credit equal to an applicable percentage of the interest, providing direct financing support for infrastructure investments made by state and local governments. The applicable percentage of the credit for interest paid with respect to qualified bonds is determined in the year the bond is issued as follows:

2022 through 2024 – 35%
2025 – 32%
2026 – 30%
2027 and thereafter – 28%

State and local governments may claim this credit for bonds whose interest would otherwise be eligible for tax-exempt status in the Internal Revenue Code, and the entirety of whose net proceeds are used for capital expenditures or the operation and maintenance of capital expenditures.

This provision requires that 100% of the proceeds of a bond issued under this provision meet the requirements in the Davis-Bacon Act. Payments under this section are grossed up in the event of sequestration. This provision applies to qualified infrastructure bonds issued after December 31, 2021.

Sec. 135102. Advance refunding bonds.

Advance refunding refers to a state or local government holding the proceeds of a refunding issue for longer than 90 days before using such proceeds to pay off a refunded issue, allowing state and municipal governments to take advantage of lower interest rates to refinance long-term debt obligations. Prior to repeal in the 2017 Tax Cuts and Jobs Act, interest on advance refunding bonds was exempt from tax. This provision would once again allow interest on advance refunding bonds issued by state and local governments to be exempt from tax. This provision applies to advance refunding bonds issued more than 30 days after date of enactment of this Act.

Sec. 135103. Permanent modification of small issuer exception to tax-exempt interest expense allocation rules for financial institutions.

As a general rule, no deductions are allowed for expenses that are allocable to tax-exempt income, including tax-exempt interest received by holders of certain municipal bonds. The same general rule applies to financial institutions to disallow a deduction for interest expense that is allocable to tax-exempt interest income. However, present law provides an exception for interest expense allocable to certain tax-exempt obligations issued by qualified small issuers, which are defined (in part) as issuers that are not reasonably expected to issue more than $10 million in tax-exempt obligations during a calendar year. This provision revises the definition of qualified small issuers by increasing the $10 million limit to $30 million (indexed annually for inflation). In addition, this provision treats qualified 501(c)(3) bonds as tax-exempt obligations for purposes of the small issuer exception, and makes permanent certain rules related to qualified financings.

Sec. 135104. Modifications to qualified small issue bonds.

This provision expands the definition of eligible manufacturing facilities eligible for financing through qualified small issue bonds to include facilities used for the creation or production of intangible property, and facilities functionally related and subordinate (or directly related and ancillary) to facilities used for the manufacturing, creation, or productions of tangible or intangible property. This provision also raises the aggregate cap for prior issues from $10 million to $30 million, indexed annually for inflation.

Please contact Michael J. Andreana, Sandra D. Dawson or Glenn G. Rybacki with any questions.

by Michael J. Andreana, Sandra D. Dawson and Glenn G. Rybacki


Pullman & Comley, LLC

Biden Warns States, Cities of Fallout From Debt Default.

President Joe Biden’s administration is warning state and local governments that the risk of a default on U.S. debt could trigger a recession and curb the flow of federal aid, as it urges Congress to raise or suspend the federal borrowing ceiling and avoid a crisis.

“Hitting the debt ceiling could cause a recession. Economic growth would falter, unemployment would rise, and the labor market could lose millions of jobs,” the White House said in a letter to state and local governments, released Friday.

The White House said disaster relief payments, Medicaid and the children’s health insurance program, as well as funding for education, infrastructure and child nutrition could be disrupted.

“If the U.S. defaults on its obligations, the ripple effects will hurt cities and states across the country,” the letter said.

The letter comes after Senate Minority Leader Mitch McConnell this week rejected an appeal by Treasury Secretary Janet Yellen for Republicans to join with Democrats in raising the federal debt ceiling, leaving the two sides at odds with potentially just weeks to go until the limit is breached.

The debt limit snapped back into place at the beginning of August, but Treasury has been using so-called extraordinary measures since then to avoid a default. Yellen has warned that those measures will run out some time in October.

“If the U.S. defaults on its debt – cities and states could experience a double-whammy: falling revenues and no federal aid as long as Congress refuses to raise or suspend the debt limit,” the White House warned, adding that a debt limit crisis could also raise the cost of borrowing for states and municipalities.

It warned that the S&P 500 could plunge in the event of a prolonged standoff, “and the value of state pension fund assets would fall as a result, hampering states’ ability to pay their pension obligations.”

The administration has been urging Congress to simply raise or suspend the limit, as has been done regularly in the past, though Republicans have seized on the issue as a way to combat Biden’s domestic fiscal agenda, which includes tax increases for corporations and a series of proposed spending measures that the GOP opposes.

National Economic Council Director Brian Deese said Friday that the administration ultimately expects Congress to avoid a debt limit crisis.

“We have seen this done in a bipartisan way consistently and the best way to do this is without a lot of drama, without a lot of self-inflicted harm to the economy and to our country, and that’s what we’re going to do,” Deese told MSNBC. “Now, there’s a lot of posturing on this issue, but we’re confident at the end of the day we’ll get this done.”

The U.S. Conference of Mayors on Friday urged Congress to act on a bipartisan basis.

“Both parties in Washington have added to our debt, and both parties have an obligation to make sure the United States can continue to pay its bills,” Dayton, Ohio Mayor Nan Whaley, the group’s president, said in a statement. “This is one of the most basic responsibilities of Congress, and there is no good reason for lawmakers to create a crisis that undermines the full faith and credit of the United States.”

Bloomberg Politics

By Josh Wingrove

September 17, 2021

States and the Fiscal Experiment Flowing from Washington.

Despite predictions that COVID-19 would crush state tax revenues, most of them didn’t need megabillions in pandemic aid to balance their budgets. But for the most part they seem to be spending the money wisely.

It’s time for macroeconomists and public finance pundits to eat crow. Early last year, almost all of us — myself included — predicted that states would encounter major revenue shortfalls as the nation locked down to fight the coronavirus. In retrospect, that proved to be a false alarm, at least for all but a third of the states. So the megabillions of federal dollars allocated to them by the 2020 CARES Act and the 2021 American Rescue Plan are largely going someplace other than budget balancing. Has a half-century of empirical public finance wisdom gone out the window?

As for my own humble pie, hopefully I can pass up the largest slice: While I was among the pundits predicting significant tax revenue shortfalls, I did make the case in this space in April 2020 that the size of federal relief packages being proposed at the time by congressional liberals and advocates of state and local government were double or even quadruple the realistic magnitude of what the pandemic could inflict. Beginning with the data point that total state and local sales and income taxes garner about $1 trillion annually, my bar-napkin estimate of the likely revenue shortfall was a range of 10 to 25 percent of that number, so perhaps $100 billion to $250 billion. At the time, governors were pleading for $500 billion, and I explained how that was probably going to be far more than was actually needed.

Although the 2020 CARES Act focused mostly on direct aid to individuals and small businesses, it did include about $150 billion for states and localities. With Democrats relentlessly pushing for more, the bigger funding package came later in this year’s pandemic relief legislation: the American Rescue Plan, which earmarked another $350 billion for intergovernmental aid — a number that will be debated for many years to come.

Continue reading.

September 14, 2021 • Girard Miller

Tax Hike Seen Luring Banks Back to Munis After Trump-Era Exodus.

The Democrats’ push to raise the corporate income tax will likely drive banks and insurers to step up their purchases of municipal bonds, a haven for tax-averse investors.

House Democrats are looking to increase the top corporate rate to 26.5% from 21% to help finance President Joe Biden’s $3.5 trillion economic plan.

That could spark demand for state and local government debt from financial firms seeking to ease their tax burden. Banks, property and casualty insurers and life insurance providers are active investors in the $4 trillion municipal-bond market, collectively holding a combined $1 trillion of the securities as of March 31, according to Federal Reserve data.

“With the increase in the tax rate you would see more demand for tax exempts from banks and property and casualty insurance, especially because they’re quite sensitive to tax-rate changes and often times they make decisions between municipal bonds and corporate bonds,” said Karel Citroen, head of municipal research at Conning, which oversees $9 billion of state and local debt, mostly for insurance clients.

The tax increase would partially roll back the deep cuts in the 2017 law enacted under former President Donald Trump, which reduced the corporate rate from 35%. That caused banks to slash their holdings of municipal bonds by lessening the need for the tax shelter.

Such holdings by financial institutions and insurers are down from $1.1 trillion at the end of 2017, the Fed’s data show.

The latest tax-law changes could also affect demand from the wealthiest investors. The steps approved by the House Ways and Means Committee would raise the highest tax rate and impose a 3% surtax on incomes over $5 million.

The impacts appears largely priced into the market, given that yields have been largely unchanged since the measures were rolled out. Investors have widely anticipated such tax hikes under Biden, contributing to a large influx into tax-exempt bond funds.

“If the tax changes are implemented in the current form, we will likely see demand for the product remaining quite strong,” Barclays strategists wrote in a report Wednesday. “Higher individual tax rates, and a 3% surcharge for adjusted gross income above $5 million, should increase appetite even further, given that individual investors in top tax brackets own the bulk of tax-exempt bonds.”

Bloomberg Markets

By Michelle Kaske

September 16, 2021

Americans Storm Blackjack Tables in Fiscal Tailwind for States.

In a boon for U.S. states that tax gambling revenue, the nation’s commercial casinos are earning record sums as Americans hungry for leisure and entertainment storm back to play blackjack, work the slots and bet on sports.

July was a historic month for commercial casinos, which earned $4.83 billion after paying out winnings, according to the latest data from the American Gaming Association.

It was also the fifth consecutive month of double-digit revenue growth over the same period in 2019, and the year’s total, $29.6 billion, almost matches the entire intake for 2020. The peak year was 2019, at $43.6 billion, and 2021 looks like it may give it a run for the money.

This is more good fiscal news for states and localities, already awash in cash as the result of stronger-than-forecast tax revenue as the economy rebounds from the pandemic, as well as $350 billion in federal aid. The robust financial backdrop has been one of the pillars supporting municipal debt this year as it’s outperformed the broader U.S. fixed-income market.

“For those states that collect gaming taxes, we have seen steady collections from online gaming activity as well as a recovery in in-person gaming receipts, primarily due to a surge in domestic leisure travel and limited alternative entertainment options that conform to social-distancing practices,” Ladunni Okolo and Sussan Corson of S&P Global Ratings said in an email Tuesday.

The totals from the AGA represent gambling in the 25 states with commercial casinos, and don’t include revenue from Native American tribal operations. July marked the first full month since the onset of the pandemic in which casinos in all 25 of those states could open at full capacity, the association said.

Turnaround 2021

It promises to be a big turnaround year from the perspective of the tax collectors. In 2020, commercial gaming and sports-betting operations paid $6.7 billion in taxes, down from $10.2 billion in 2019, according to AGA data.

Massachusetts gambling operations have reaped the biggest increase in revenue this year: The $560 million they’ve taken in amount to a 79.2% increase over the same period in 2019. Nevada casinos brought in the most, at $7.4 billion, which is a 6% increase over the January-July period in 2019.

Las Vegas has seen visitors increase steadily this year, according to data through July, which was just as the delta variant of the coronavirus was causing cases to soar again.

For municipalities, gambling tax revenue is only part of the story, said Douglas Goldmacher, a senior analyst at Moody’s Investors Service.

“Although the overall impact is undeniably positive, the specific impact on a given state or local government is more variable as it depends on the tax structure of the jurisdiction,” he said via email Tuesday.

“For some, there is a direct link between higher revenues and higher taxes, but for others, the effects may be more indirect and may depend less on total revenues and more on the number of jobs or ancillary economic impacts,” he said.

Bloomberg Markets

By Joseph Mysak Jr

September 15, 2021, 9:06 AM MDT

— With assistance by Alexandre Tanzi, and Danielle Moran

Muni Market Facing Bond-Sales Deluge in Democrats’ Budget Plans.

A flurry of legislative activity in Congress is promising to shake up the $4 trillion municipal-bond market by unleashing a potential surge of new debt sales and altering tax rates in ways that could affect demand from investors.

The proposals are among those included in legislation released by Democrats in the U.S. House of Representatives who are moving to implement President Joe Biden’s tax-and-spending agenda.

The steps, if enacted, would upend the calculations used in the tax-exempt bond market, where valuations have surged and investors have flooded in over speculation that Biden will raise taxes on the highest earners. Yet the varying elements make it difficult to gauge exactly how it will affect prices, particularly since some elements would likely increase demand as well as supply.

One set of proposals would almost certainly set off a large increase in new bond issuance by subsidizing governments that sell taxable debt for infrastructure projects and restoring the tax-breaks for a refinancing tactic that was effectively ended by Donald Trump in 2017. That could be offset at least in part by moves to raise corporate tax rates and apply a surcharge on individual incomes over $5 million, providing a potential increase to demand.

“It’s a little hard to predict how that all comes out in the wash at this point,” said James Iselin, head of the municipal fixed-income group at Neuberger Berman Group.

The legislative push could inject more volatility into the state and local government bond market, where yields have been little changed since April.

JPMorgan Chase & Co. estimated that the move to allow governments to again sell tax-exempt bonds for so-called advance refundings could fuel over $100 billion of debt sales in 2022 alone. At the same time, lawmakers are seeking to revive the Obama-era Build America Bonds program, which covered part of the interest bills on taxable municipal bonds to spur infrastructure projects. About $186 billion of such debt was sold in 2009 and 2010.

The House Ways and Means Committee’s proposal to raise the top corporate tax rate from 21% to 26.5%, however, could affect demand from buyers such as banks that pared their municipal-bond holdings after taxes were cut under Trump. Even so, some lawmakers are pushing to eliminate the $10,000 cap on state and local tax deductions that was widely seen as increasing demand for tax-free bonds from wealthy Americans, particularly in states like New York that were heavily affected by the limit.

Overall, though, money managers said the provisions could ease the shortage of new bonds that resulted from a steady influx of cash this year. Municipal debt sales have increased just 3.5% this year, according to data compiled by Bloomberg.

“Most market participants feel there’s just not enough tax-exempt bonds relative to that demand,” Iselin said. “It could wake the market up from this more doldrum-like state. Everybody would be happy for that.”

A surge in debt sales would in theory weigh on performance given that the market tends to be heavily driven by supply and demand dynamics. But any selloff as a result of the expectations for higher supply would be “healthy,” said Jeff Timlin, a managing partner at Sage Advisory Services, and so far prices have barely budged.

Municipal bonds have posted small gains this year, bucking the losses seen in other parts of the fixed-income markets. And the yields on 10-year tax-exempt bonds have averaged about 66% of those on Treasuries this year, down from 106% in the second half of 2020, indicating valuations have risen.

Any pullback could “help the muni market reprice to levels or valuations that are more sustainable in the long run,” Timlin said.

Bloomberg Markets

By Amanda Albright

September 14, 2021, 11:07 AM MDT

Muni-Bond Buyers Wish for ‘Time Machine’ as Airport Sells Debt.

When the Hartsfield-Jackson Atlanta International Airport offers nearly $342 million of municipal debt Tuesday, bond investors may wish they could go back in time.

When the airport, one of the busiest in the world, sold bonds during the depths of the pandemic in September 2020, it paid 49 basis points above AAA rated securities on debt due in 2030. Since then, the additional yield that investors could get on airport bonds has dwindled, lowering the yield penalty on those Atlanta bonds to 19 basis points in secondary market trading on Sept. 8.

Betting on bonds that will benefit from the pandemic recovery is a trade that’s losing its shine in the municipal market. The additional yield that investors received on airport debt has dwindled after the market’s steep selloff in spring 2020 as buyers became more confident in airports’ ability to weather the pandemic.

“If I had a time machine I’d like to go back to May 2020 and buy a bunch of these,” said Paul Toft, senior portfolio manager for municipal investments at Key Private Bank.

Toft said he’ll likely sit out this week’s sale because airport bonds have become “overvalued” over the last six to 12 months.

Why It’s Noteworthy

Municipal-bond investors have been showing confidence in airports, citing their ample supply of liquidity going into the pandemic. Cash on hand for airports rated by Moody’s Investors Service totaled 652 days in fiscal 2019, a record.

Atlanta’s Department of Aviation, which operates the city-owned airport, had 1,026 days of cash on hand as of June 30, 2021. The federal government has provided several rounds of aid to airports through stimulus legislation, and Atlanta’s has received nearly $800 million in relief.

Jason Appleson, a portfolio manager at PT Asset Management, said the airport benefits from its large size and being the largest hub for Delta Air Lines Inc. “They’re well positioned to sustain a temporary loss of passengers from Covid,” he said.

He said credit spreads in the bond market haven’t reacted much to the spike in Covid-19 cases. U.S. carriers have warned that the rise in Covid-19 infections is delaying their recovery after a strong travel season this summer.

Greg Richardson, chief financial officer of the airport, said in an emailed statement that the airport is seeing signs of “traffic recovery.” Enplanements in June 2021 totaled about 75% of June 2019 levels, according to bond offering documents. He said the airport has about $600 million of unused pandemic relief aid which it can use to address future challenges.

Market’s View

The Atlanta airport debt is rated Aa3 by Moody’s, which said the airport is in a “solid position.” Loop Capital Markets is serving as the senior manager on the sale.

Richardson said the airport is expecting very strong interest from investors and he hopes to achieve savings of more than $90 million from the refinancing.

“The market for airport debt remains strong as investors understand the essential role ATL and other airports serve in the national and global transportation network,” he said.

Toft said expects the Atlanta airport deal to price around 20 basis points higher than five-year AAA debt issued by Georgia, which he uses as a proxy for where top-rated municipal credits are trading. He said higher quality debt may make more sense given there is “downside” potential for airports with credit spreads at tight levels.

Appleson said he would consider buying the debt if there was a price “concession” but said he has not been actively buying airport bonds.

“Spreads are so tight in the sector that you’re not getting paid to take airport bond risk,” he said.

Bloomberg Markets

By Amanda Albright

September 13, 2021, 11:04 AM MDT

Build America Bonds, Advance Refunding Revived by Panel.

Build America Bonds are back.

So is the ability to refinance debt that comes due years later on a tax-exempt basis. There’s also an increase, to $30 million from $10 million, in the amount of bonds that can be sold by small issuers and for which banks can deduct their cost of carry. And Native American tribes will find it easier to borrow in the municipal market, while companies will get a new tax credit for wages paid in U.S. possessions.

These are among the proposals affecting the municipal bond market in the text of a bill released late Friday by the House Ways and Means Committee, which on Tuesday will resume discussion of the Build Back Better Act, its portion of President Joe Biden’s $3.5 trillion economic agenda.

The return of so-called tax-exempt advance refunding bonds is something municipal market participants have been advocating for since they were prohibited under President Donald Trump’s tax overhaul in 2017. The wish for a return of Build America Bonds, a type of subsidized taxable bond, goes back even further, to the end of 2010, when the program expired.

“It’s safe to say there’s a lot of very happy issuers out there,” Emily Swenson Brock, director of the Government Finance Officers Association’s Federal Liaison Center, said in an email on Sept. 11. The group, which represents state and local governments in the U.S. and Canada, has been lobbying for both provisions.

Brock cautioned that the House had a big list to tackle before its self-imposed Sept. 27 deadline, and that Speaker Nancy Pelosi had “to get the caucus in lock-step for reconciliation, which will require some give and take.”

Issuers sold $187 billion in Build America Bonds, created by the American Recovery and Reinvestment Act of 2009, before the program expired at the end of 2010. BABs provided issuers with a direct-payment 35% subsidy on the interest they paid to investors, making the taxable borrowing even cheaper than tax-exempt. The subsidy was later lowered as a result of budget sequestration.

“Short opinion is that Christmas came early!” Dave Erdman, Wisconsin’s capital finance director, said in an email. “Yes ‘some assembly required’ and some details need to be worked out, but very happy with the work completed by the Ways and Means Committee!”

New BABs will offer a direct-payment subsidy of 35% from 2022 to 2024 and decrease to 28% by 2027 and after that. Brock of the GFOA said Monday that the committee clarified that the bill would offer direct-pay bonds to the issuer, rather than a credit allowed to the buyer. The committee plans to clarify this in the markup this week, according to Brock.

Burned Last Time

“There will be many issuers out there who felt burned by sequestration-related subsidy cuts last time and may not even consider this taxable financing option without overwhelmingly attractive subsidy rates,” said Tom Kozlik, head of municipal strategy and credit at Hilltop Securities in Dallas, Texas.

Advance refundings once counted for anywhere between 25% and 30% of municipal bond sales every year. In recent years, issuers have turned to doing them with taxable munis because interest rates had become so compressed.

“The muni-friendly provisions in the Ways and Means reconciliation draft is nothing short of a love letter to MuniLand,” said Eric Kazatsky of Bloomberg Intelligence in an email. “While we don’t know what will make the final cut, it is safe to say that public finance bankers should have their hands full going forward.”

The Joint Committee on Taxation on Sept. 11 released a report on the budgetary effects of each of the proposals being considered by Ways and Means. New BABs would cost the government $22.5 billion between fiscal 2022 and 2031, while allowing tax-exempt advance refundings would cost $14.9 billion. Expanding bank-qualified issuance would cost $3.97 billion.

Bloomberg Politics

By Joseph Mysak Jr

September 13, 2021, 12:00 AM MDT Updated on September 13, 2021, 11:44 AM MDT

— With assistance by Erik Wasson

Muni-Bond Sales Set to Surge in Boon to Funds Awash With Cash.

The pace of new municipal-bond sales is poised to surge, snapping back from the late-summer lull and promising to ease a supply dearth that’s left money-managers competing to get in on debt offerings.

State and local governments are expected to sell $15.9 billion of bonds over the next 30 days, the fastest pace since June. The actual amount issued will be much higher because many offerings are scheduled with less than a month’s notice.

Continue reading.

Bloomberg Markets

By Danielle Moran

September 10, 2021, 9:13 AM MDT

Munis In Focus: The Delta Variant (Radio)

Eric Kazatsky, Senior Municipal Strategist for Bloomberg Intelligence, discusses muni market news. Hosted by Paul Sweeney and Matt Miller.

Play Episode

Bloomberg Radio

September 10, 2021 — 11:00 AM MDT

Muni Buyers Look for Shift From ‘Inertia’ That’s Gripped Market.

Volatility in the state and local debt market has dwindled

Municipal-bond investors and traders are looking for something, anything, to get the market out of its doldrums.

Trading has slowed. Debt sales are up, but only by a paltry 4%. The amount of cash pouring into municipal investment funds has become predictable. State and local debt even defied the selloff in bonds globally on Tuesday, with yields barely budging.

The conditions have meant there hasn’t been much volatility that investors often pounce on for buying and selling opportunities. A gauge measuring that volatility in the market over a 30 day period has fallen to the lowest since January.

“Absolute muni yields are too low to sell and too low to buy,” said John Ford, co-head of municipal trading at broker-dealer firm Wall Street Access, who described the market as being stuck in a period of “inertia.”

“Nobody wants to enter the market at these levels,” he said.

Barclays Plc municipal strategists say they think the next few months could get more eventful, publishing a note on Friday with a title that referenced “Let’s Get It Started,” a song by the Black Eyed Peas, a pop-rap group. The note detailed the potential factors that could drive more activity in the market, including federal infrastructure legislation.

Dave Isaak, owner of Isaak Bond Investments, said he thinks buyers are worried about the risk of inflation, and that may be causing buyers to struggle to commit to a big position making a call on the direction of interest rates.

“There’s a level of hesitation,” he said. “Because the risk of inflation being more than transitory is out there.”

The muni-bond market is also watching for any related change in policy from the Federal Reserve. If the Fed sought to taper its bond purchases, it could cause Treasury yields to increase, which could drive up yields on muni bonds, Ford said.

Still, Ford said he thinks any taper-related selloff would likely be muted compared to what happened during the taper tantrum in 2013, given the Fed has refined its messaging strategy and would telegraph a change in policy well in advance.

That would likely limit any increase in muni yields and would mean the securities could have a “lid” on them for a while longer, he said. “I think munis are overpriced here and I hope that a new buying opportunity emerges.”

Bloomberg Markets

By Amanda Albright

September 7, 2021, 11:00 AM MDT

HUD Opens Access to $5 Billion in American Rescue Plan Grants to Prevent and End Homelessness.

WASHINGTON – The U.S. Department of Housing and Urban Development today issued the HOME-ARP Implementing CPD Notice, Requirements for the Use of Funds in the HOME-American Rescue Plan Program (“the Notice”). The new HOME-ARP notice is a critical step taken by HUD to expeditiously allow communities to begin accessing funds from the nearly $5 billion funds allocated from the American Rescue Plan to help communities across the country create affordable housing and services for people experiencing or at risk of experiencing homelessness.

“With rates of COVID-19 transmission still high, there is no time to wait to assist the more than half a million Americans on any given night who are enduring this pandemic in crowded shelters or on the streets,” said Secretary Marcia L. Fudge. “Today’s release of guidance opens up access to the critically needed American Rescue Plan funds that will help communities provide the safety and security of a stable home to more Americans.”

In April, HUD announced the American Rescue Plan funding allocations and broad contours of how the funds can be used. Today, this notice sets forth specific program requirements that participating jurisdictions or grantees must meet to begin planning for their use of their HOME-ARP funds in earnest. Under the regular HOME program, grantees must wait until their allocation plans are completed and approved by HUD in order to access funds. Given HOME-ARP’s focus on addressing the urgent needs of people experiencing and at-risk of homelessness, HUD is providing grantees with five percent of their HOME-ARP grant upfront to support eligible program planning activities related to the development of their HOME-ARP Allocation Plans. Participating jurisdictions will be provided access to the balance of its HOME-ARP grant, including the remaining 10 percent of its administrative and planning set-aside, after HUD reviews and accepts its HOME-ARP Allocation Plan.

The $4.925 billion in HOME-ARP funding will play a critical role in developing housing to address homelessness and homelessness risk among extremely low-income households. The funding also gives participating jurisdictions flexibility to best meet the needs of people experiencing or at – risk of experiencing homelessness, including through the development of affordable housing and permanent supportive housing, the provision of tenant-based rental assistance, the delivery of supportive services, and acquisition and development of non-congregate shelter units.

September 15, 2021

ESG Is Coming to Municipal Bonds ETFs. What to Know.

Municipal bond ETFs are getting into something that stock fund managers have been doing for a while now—sustainable investing.

On Friday, asset manager VanEck launched the first municipal bond exchange-traded fund explicitly focused on the type of investment that goes by many names—sustainable, values-aligned, but most commonly ESG, which stands for environmental, social, and corporate governance.

The VanEck HIP Sustainable Muni ETF (ticker: SMI) will hold investment-grade state and local government debt that promotes positive social, environmental and economic outcomes, according to the company.

Continue reading.


By Evie Liu

Sept. 10, 2021

High-Yield Munis Worth Considering as Default Rates Cooperate.

Yields are low across the fixed income universe this year, and municipal bonds aren’t exempt from that trend.

That may sound like an invitation to embrace high-yield municipal bonds and exchange traded funds like the VanEck Vectors High Yield Muni ETF (HYD). After all, the $4 billion HYD sports a 30-day SEC yield of 2.20%. That’s a lot better than the 0.75% on the widely followed S&P National AMT-Free Municipal Bond Index.

Of course, the trade-off for more yield on any bond usually is elevated default risk, among other concerns. Fortunately, muni defaults remain rare and that’s a plus for investors considering HYD.

“While they may have become more common over the last 10 years, municipal defaults and bankruptcies still remain rare overall,” says Michael Cohick, VanEck senior ETF product manager. “(Indeed, during the period of significant market stress during 2020 resulting from Covid, there were only two municipal defaults and neither were virus related.) Second, muni bonds continue to be highly rated compared to corporates. While there were municipal ratings downgrades during the year, global corporates’ ratings’ downgrades were more frequent.”

Municpal bonds, high-yield and otherwise, are seen as long-term investments, ideal for conservative investors and retirees. On that note, a recent study by Moody’s Investors Service notes the long-term default for munis is rather low.

“The five-year all-rated cumulative default rate (CDR) of municipal bonds throughout the study period (1970-2020) was unchanged at 0.08% and still remains very low,” adds Cohick. “Likewise when compared to the five-year CDR of 6.89% for global corporates over the same time period. Of the two muni defaults in 2020, one was rated and the other was “’by a Moody’s rated entity albeit on an unrated instrument.’”

Low default rates are particularly relevant in the case of HYD, not just because the fund holds high-yield debt, but also because of some of its state exposures. For example, Illinois, one of the more financially challenged states, accounts for 11.7% of the ETF’s roster. California, a state with ballooning public pension obligations, is the fund’s largest allocation at 13.7%. Those are points to consider, but history is on HYD’s side.

“If one looks at long-term municipal bond obligations, across all sectors, between 1970 and 2020, according to the Moody’s report, there were only 114 distinct Moody’s-rated defaults, representing a little over $72 billion, out of a universe of more than 50,000 different state and local governments and other issuing authorities,” according to Cohick.




Muni Market ETFs Ripe For Active Mgmt.

Though the ETF wrapper’s genesis was in benchmark-tracking, with the launch of the SPDR S&P 500 ETF Trust (SPY) in 1993, active ETFs have begun to gain ground since their debut in 2008. Fixed income ETFs have been particularly well-suited for active management, especially in the current low rate environment.

With the return of near-zero interest rates in the wake of the pandemic, active fixed income managers can adjust interest rate sensitivity based on their prediction of the next Federal Reserve action.

Active managers can also conduct analysis on various credits, picking and choosing which might be best-positioned to make good on their debts.

Continue reading.

by Jessica Ferringer

September 08, 2021

ICE and ADP Introduce Workforce Demographics Data for Municipal Bond Investors.

ATLANTA & NEW YORK, September 07, 2021–(BUSINESS WIRE)–Intercontinental Exchange, Inc. (NYSE: ICE), a leading global provider of data, technology and market infrastructure, and ADP (NASDAQ: ADP), a leading global technology company providing human capital management (HCM) solutions, today announced the launch of a new data service that helps investors better understand and assess the economic stability and creditworthiness of fixed income issuers in the U.S. municipal bond market.

The new service links aggregated and anonymized human resources and compensation data from ADP directly to more than one million municipal bonds covered by ICE’s reference data service. This can allow municipal bond investors, and other market participants, to assess a wide range of dynamics that could impact a municipal issuer and supplement their fundamental research.

“This data is incredibly powerful and can be used by market participants to drill into the financial stability of a municipal issuer,” said Lynn Martin, President of Fixed Income & Data Services at ICE. “ADP’s human capital data is impressive in its timeliness and breadth of coverage, and by linking it to our municipal fixed income data, we’re able to give investors and market participants convenient access to a broad set of alternative datasets to better understand the implications and risks of their investments.”

“Our work with ICE highlights that ADP’s anonymized and aggregated data can help investors discover and better understand the U.S. municipal bond environment,” said Jack Berkowitz, Chief Data Officer at ADP. “ADP serves more than 900,000 clients worldwide, including approximately 75% of the Fortune 500. Our depth of information and data makes us a powerful input for real-time socioeconomic analysis.”

Users will have access to granular aggregated and anonymized human capital data, including average gross pay, total projected income, average commute distance, details into specific job sectors and more than 50 other distinct fields. It can also be used to see trends over time, including migration, which is particularly relevant in understanding how a municipality or region’s population changed over periods of time. ICE’s data will be consistently updated with ADP’s anonymized and aggregated data , making it a compelling complement to sources of public information.

For more information about ICE’s reference data service, please visit:

ESG Is Coming to Municipal Bonds ETFs. What to Know.

Municipal bond ETFs are getting into something that stock fund managers have been doing for a while now—sustainable investing.

On Friday, asset manager VanEck launched the first municipal bond exchange-traded fund explicitly focused on the type of investment that goes by many names—sustainable, values-aligned, but most commonly ESG, which stands for environmental, social, and corporate governance.

The VanEck HIP Sustainable Muni ETF (ticker: SMI) will hold investment-grade state and local government debt that promotes positive social, environmental and economic outcomes, according to the company.

Continue reading.


By Evie Liu

Sept. 10, 2021

Get Hip to Green Municipal Bonds With This New ETF.

Green bonds are a growing part of the fixed income landscape, and there’s an appetite for those issues. The success of the VanEck Vectors Green Bond ETF (NYSEArca: GRNB) confirms as much.

In traditional form, green bonds are debt used by companies and governments to fund environmentally friendly projects. With governments prioritizing climate awareness and sustainability, there are myriad avenues for increasing green debt issuance, including in the municipal bond market. The new VanEck HIP Sustainable Muni ETF (SMI) taps into that theme.

SMI, which debuted last week, is an actively managed ETF. Active management could serve investors in the green municipal bond space, a corner of the bond market that’s still in its infancy.

Continue reading.



SEPTEMBER 16, 2021

VanEck Launches First Sustainable Muni ETF as Funds Lure Cash.

VanEck is breaking new ground in the nearly $80 billion municipal exchange-traded fund business with a product focused on sustainable investing.

The asset manager on Friday introduced an actively managed fund, the VanEck HIP Sustainable Muni ETF, which will focus on investments in projects that advance sustainability or those with “positive social, environmental and economic outcomes,” according to a statement by the company. It will trade under the ticker SMI.

The fund will seize on growing demand for investments — in both stocks and bonds — that have a positive social or environmental impact. At the same time, municipal ETFs have lured a record amount of cash this year as investors seek out the tax-free securities to shield income from potentially higher levies under the Biden administration.

The fund, which will be managed by Jim Colby and Stephanie Wang, will add to VanEck’s existing muni ETF lineup, which has over $7 billion under management. The company is partnering with research firm HIP Investor on the new product.

“Clients all across the board in every channel have been indicating interest in ESG broadly, but specifically an option they can use in an ETF format in this asset class,” Michael Cohick, senior ETF product manager at VanEck, said in an interview.

The fund enters a burgeoning corner of the fixed-income ETF industry focused on investments with a positive environmental or social impact. Janus Henderson Group on Thursday announced two sustainable ETFs dedicated to fixed income, buying corporate credit and other bonds. U.S. fixed-income ETFs that follow certain ESG criteria have amassed about $4.7 billion, according to Bloomberg Intelligence.

VanEck is using four different screening processes from HIP, which evaluates securities for their environmental and social impact, to determine whether debt is eligible for the fund. The filters take into account resilience to climate threats and proximity to opportunity zones that are typically home to lower-income and racially diverse populations, for example.

The fund, HIP Investor’s first co-branded ETF, uses a broad index with about 60,000 securities in it. After applying the four screens in early August, there were around 23,000 securities remaining, Cohick said. He noted the firm is seeking to construct a “highly sustainable” portfolio that maintains the yield and duration characteristics of the benchmark.

Initial holdings include debt of the state of Minnesota, which will likely become a “climate crisis destination” amid global warming, said R. Paul Herman, chief executive officer of HIP Investor. Another is a California school district that uses solar energy, which helps reduce energy costs and train students about taking climate action, he said.

Transparency Push

The new ETF’s data-driven approach to bond picking will help make clear why securities are in the fund, Herman said.

“It can bring new transparency and accountability to the muni market,” he said.

Cohick said he expects the fund will gain traction with a variety of investors. The muni ETF industry is dominated by passively run products that follow an index, but more companies have launched actively run funds focused on state and local debt. This week, Pacific Investment Management Co. also introduced an actively managed muni ETF.

In its research, VanEck found that its new ETF strategy outperformed the two largest, passively run muni ETFs, Cohick said.

“We thought an active approach made sense for this fund, the novelness of it,” he said.

Bloomberg Markets

By Amanda Albright

September 10, 2021, 7:30 AM MDT

Bitvore Announces Availability of Cellenus® ESG Dataset for the Municipal Bond Market.

New Cellenus ESG for Muni’s dataset features ESG topics across all 1.5 million active CUSIP’s to reduce investment risk

IRVINE, Calif., Sept. 14, 2021 /PRNewswire/ — Bitvore, the leading provider of AI-driven intelligence for third-party risk management, today announced availability of a new Cellenus Environmental, Social and Governance (ESG) dataset targeting the municipal bond market.

ESG refers to the three central factors in measuring the sustainability and societal impact of municipal bond debt issuances. These criteria help to better determine the future financial performance of issuers in terms of return and risk. Bitvore’s continuously updated ESG topics are derived from over 60K quality unstructured data sources (including news, press releases, EMMA filings and more), and identify what nearly 50k issuers are doing regarding ESG transparency.

“We’re excited to announce our new Bitvore Cellenus ESG Dataset for the municipal bond market,” said Elizabeth Pritchard, CEO, Bitvore. “It is fast becoming a requirement for investors to evaluate the financials of a muni offering together with the sustainability impact. Our new ESG insights will allow municipal bond analysts to get the full picture of the value of a bond.”

The Cellenus Muni ESG dataset is derived from more than 60K unique unstructured data sources, including both publicly available and licensed subscription sources. Using machine learning models and NLP, Bitvore derives 34 unique ESG Muni topics, allowing customers to quickly identify specific ESG topics of interest such as GHG emissions, Diversity & Inclusion, Climate Change, Cybersecurity and more. In addition to the continuously updated ESG topics, Bitvore allows existing customers to effortlessly request ESG topics be included into daily surveillance alerts. Bitvore’s surveillance alerts assist in mapping out any potential ESG risk that may be found in a portfolio of municipal bonds or across a sector.

Bitvore’s Cellenus platform provides continuous, AI-powered analysis of unstructured data sources, linking the right obligor to specific ESG events or topics and providing early warning of any potential ESG violations. It also offers the capability to monitor specific topics across the entirety of the municipal bond market. For example, monitoring the expanding drought across the western United States or monitoring which municipalities are meeting goals around recycling or net-zero emissions. The Cellenus Muni ESG dataset may also aid in complying with future regulatory requirements by surfacing relevant ESG related topics and mapping the content back to a relevant obligor for transparency purposes.

Bitvore Cellenus datasets are accessible via API, file downloads and full research applications.

For more information about Bitvore Cellenus, please visit

How Well Did the Fed’s Intervention in the Municipal Bond Market Work?

The beginning of the COVID-19 pandemic strained many sectors of the economy, including the municipal bond market, prompting an unprecedented intervention by the Federal Reserve. This post summarizes the latest research on the effectiveness of the Fed’s response to COVID-related distress in the muni market, which finances more than 50,000 local and state governments and other entities.


Prior to the pandemic, the muni market was ebullient. According to Morningstar, between the beginning of 2019 and February 2020, investors put $105 billion into muni mutual funds and exchange-traded funds, the largest annual influx in the muni sector in 25 years.

COVID-19 hit nearly every sector of the financial market. In the muni market, investors apparently feared that state and local government revenues would fall and spending would increase, hurting governments’ ability to service their debt.

Continue reading.

The Brookings Institution

Sophia Campbell and David Wessel

August 31, 2021

Billion-Dollar Muni Deals a Rarity as Free Cash, Revenue Pile Up.

U.S. states and localities have sold 15 bond deals of at least $1 billion this year, on pace to surpass the total of 18 offered in 2020 and potentially even challenge the record 26 issued in 2018, data compiled by Bloomberg show.

And yet, it’s still a far cry from the hundreds of megadeals sold in the world of U.S. corporate bonds this year. Muni investors may be looking to the corporate-debt space with envy, amid a dearth of trading activity in the state and local-government market.

The conditions are right: The amount that municipalities are paying to borrow is at rock-bottom generational lows. Their credit has never been better because it has been rendered almost irrelevant by free money from the federal government aimed at bolstering the economic rebound from the pandemic. And investor demand is seemingly insatiable.

Two primary forces are holding them back from issuing larger sums, analysts say. The first is, they don’t need to, in part as many states and cities are refilling their coffers more quickly than they’d anticipated.

“Tax revenues have surged with the economy re-opening this year and when combined with the stimulus funds from the American Families Plan and more coming from the Infrastructure Investment and Jobs Act, they’re simply flush with cash,” said Matt Buscone, co-head of portfolio management at Breckinridge Capital, in an email last week.

Some municipalities may use part of the federal money for deferred maintenance; others will tap it for debt reduction and fund more of their capital budgets on a pay-as-you-go basis, Buscone added.

Size Mismatch

A second key reason why states and localities aren’t bringing more extra-large deals is that size matters.

It’s “primarily attributable to the size of corporations versus municipalities,” said Cooper Howard, director of fixed-income strategy at the Schwab Center for Financial Research. “There are many more bonds in the muni index, but they are much smaller on average than the corporate market.”

To illustrate, he said there are a bit fewer than 7,000 bonds in the Bloomberg Corporate Bond Index, compared to more than 55,000 in the Bloomberg Municipal Bond Index. The size of the average bond in the muni index is a little over $30 million, compared with around $1 billion for the corporate index, according to Howard.

The average size of new muni deals was $34 million from January to July, according to the Municipal Securities Rulemaking Board. More than half were for $10 million or less.

So for every Texas Municipal Gas Acquisition & Supply Corp III (which sold $1.06 billion in bonds in January) or California State University ($1.66 billion in July), there are hundreds of issuers more like Cimarron, Kansas (population around 2200; borrowed $975,000 in February), and Pomeroy, Iowa (population roughly 660, borrowed $995,000 in March).

But a more fundamental reason may be at work, which is that most of the nation’s 90,126 units of government — the tally in the Census of Governments 2017 data — don’t seem to like debt.

That may explain why they pay some of it off every year and why 31% of it will mature or be called by the end of 2026, according to a study by Municipal Market Analytics.

Bloomberg Markets

By Joseph Mysak Jr

August 31, 2021

— With assistance by Danielle Moran

Even With Covid, Muni Bonds Report Shows Defaults Remain Rare.


Continue reading.

Seeking Alpha

Sep. 03, 2021

NFMA Recommended Best Practices in Disclosure for Toll Road Bonds.

The Disclosure Committee is pleased to release the final version of the Recommended Best Practices in Disclosure for Toll Road Bonds, dated August 2021.

To view this paper and other work products of the Disclosure Committee and the Industry Practices Committee, go to Best Practices in Disclosure and Position Statements under Resources.

Main Street Pensions Take Wall Street Gamble by Investing Borrowed Money.

Municipalities have assumed about $10 billion in debt this year to shore up retirement obligations

Many U.S. towns and cities are years behind on their pension obligations. Now some are effectively planning to borrow money and put it into stocks and other investments in a bid to catch up.

State and local governments have borrowed about $10 billion for pension funding this year through the end of August, more than in any of the previous 15 full calendar years, according to an analysis of Bloomberg data by Municipal Market Analytics. The number of individual municipalities borrowing for pensions soared to 72 from a 15-year average of 25.

Among those considering what is known as pension obligation borrowing is Norwich, a city in southeastern Connecticut with a population of 40,000. Its yearly payment toward its old pension debts has climbed to $11 million in 2022—four times the annual retirement contribution for current workers and 8% of the city’s budget. The city will vote in November on whether to sell $145 million in 25-year bonds to cover the pensions of retired police officers, firefighters, city workers and school employees.

Norwich’s rating from Moody’s Investors Service is in line with the median for U.S. cities, and officials expect to pay about 3% in interest. Norwich’s pension consultant, Milliman, projects investment returns of 6.25%.

Comptroller Josh Pothier said that spread helped him overcome his initial hesitation. “It’s pretty scary; it’s kind of like buying on margin,” he said he thought to himself. “But we’ve had a long run of interest rates being extraordinarily low,” he added.

Milliman forecasts that Norwich would save $43 million in today’s dollars over the next 30 years.

Over the past few decades, state and local governments across the country have fallen hundreds of billions of dollars behind on savings needed to pay public employees’ future promised pension benefits. Officials have been trying to catch up by cutting expenses from annual budgets and making aggressive investment bets.

With big pension payments looming and Covid-19-era federal stimulus pushing municipal borrowing costs to record lows, local officials are taking a gamble: that their retirement plans can earn more in investment income on bond money than they pay in interest.

Here is how a pension obligation bond works: A city or county issues a bond for all or a portion of its missed pension payments and dumps the proceeds into its pension coffers to be invested. If the returns on pension investments are higher than the bond rate, the additional investment income will translate into lower pension contributions for the city or county over time. (The $10 billion in pension borrowing captured by the Municipal Market Analytics analysis also included some money used directly for pension benefits, rather than being invested, and at least one borrower directed some bond proceeds to other uses.)

Pension obligation bonds can backfire. If investments don’t perform as expected and returns fall below the bond interest rate, the city can end up paying even more than if it hadn’t borrowed.

Norwich is one of many smaller municipalities venturing into pension borrowing. This summer local governments issued 24 pension obligation bonds with an average size of $112 million, according to data from ICE Data Services. That compares with 11 deals with an average size of $284 million during the same period last year.

The Government Finance Officers Association, a trade group, in February reaffirmed its recommendation against the practice. “Absolutely nothing has changed,” said Emily Brock, director of the group’s federal liaison center. “It’s still not a good choice.”

In 2009, Boston College’s Center for Retirement Research examined pension obligation bonds issued since 1986 and found that most of the borrowers had lost money because their pension-fund investments returned less than the amount of interest they were paying. A 2014 update found those losses had reversed and returns were exceeding borrowing costs by 1.5 percentage points.

By swapping out their pension liability for bond debt, local pension borrowers give up the budgetary flexibility to skip a retirement payment in an acute crisis. Pension obligation bonds have contributed to the chapter 9 bankruptcies of Detroit, Stockton, Calif., and San Bernardino, Calif. Chicago three years ago considered, and then scrapped, plans for a big pension borrowing deal.

Other local officials are starting to educate themselves about the deals. More than 200 people attended the webinar “How to Explain Pension Obligation Bonds to Your Governing Board,” hosted by the law firm Orrick, Herrington & Sutcliffe last month.

For investors, the bonds can be more of a mixed bag. A pension obligation bond approved by Houston voters in 2017 earned praise from analysts because the city paired it with benefit cuts.

Howard Cure, director of municipal bond research at Evercore Wealth Management, said that though he occasionally purchases the securities, the decision to issue them raises red flags. “I have a lot more questions about how an entity is governed if they’re using this tactic,” Mr. Cure said.

The Wall Street Journal

By Heather Gillers

Sept. 4, 2021

As Wildfires Burn, ICE Shows How Sophisticated ESG Tools Have Become.

Wildfires are raging across the western United States, destroying homes, commercial buildings and entire towns. The biggest is the Dixie Fire, which has spread across more than 700,000 acres in Northern California and turned more than 1,200 buildings to ash.

“My defiantly quirky, beautiful adopted hometown turned into a ghost town last night,” reporter Meg Upton wrote on Aug. 5 in the Plumas News. In an unstoppable march of heat and flame, the Dixie Fire erased the bulk of Upton’s hometown of Greenville from existence.

As with many of the more than 150 wildfires burning today, the Dixie Fire was fueled by dry timber and high temperatures amid a changing climate.

A nation away, experts at Atlanta-based Intercontinental Exchange, known as ICE, and climate and ESG data provider risQ, headquartered in Boston, work to help identify and quantify the risk associated with such potentially disastrous events. Their efforts power a young service called ICE Climate Risk, developed for those who invest in the trillions of dollars in bonds that municipalities have sold to pay for hospitals, power plants, schools and other critical infrastructure.

ICE Climate Risk sits at the cutting edge of modern ESG tools, with the most advanced growing remarkably sophisticated in recent years as those who invest in a variety of asset classes pay rapt attention to environmental, social and governance issues.

“ESG is definitely evolving,” says Mark Heckert, who oversees ICE’s fixed income and data services products.

ICE Climate Risk works by dividing the nation’s 48 contiguous states into 100-square-meter cells and analyzing each for its risk from different climate events. Comprising more than 1.3 billion cells in total, the data set quantifies risk for events including flooding, hurricane, heat stress, drought and, of course, wildfire.

Climate risk can be particularly important to investors in municipal bonds, as these securities are tied to the locations of the projects they fund. For example, a bond sold to pay for a new library in an area with a high risk of flooding may warrant a different price than a similar bond in a location with little threat from the climate.

“We can tell you for every patch of dirt in the U.S., what debt is sitting on it,” says risQ CEO Evan Kodra.

Indeed, ICE Climate Risk had identified Plumas County, where Upton’s hometown of Greenville is located, as falling in the 98th percentile of wildfire risk across the United States and the 86th percentile in the fire-prone state of California. Of course, the database could not predict when the Dixie Fire would occur. It can and did, however, quantify the likelihood of such an event.

“It was way at the top end of the percentile in that risk,” says ICE’s Spencer Gallagher, who helped develop ICE Climate Risk together with Kodra.

ESG investing has been around for some time, with the United Nations launching its Principles for Responsible Investment in April 2006 at the New York Stock Exchange, which is owned by ICE. Yet, demand for high-tech ESG tools like ICE Climate Risk has grown most rapidly in recent years as investors have demonstrated a keen interest in projects and organizations whose values and approaches align in these areas.

In addition to climate risk, ICE is involved in many other areas of ESG investing. “ICE was an early investor in this space and has been helping develop these markets for many years,” says Brookly McLaughlin, who oversees ICE’s sustainability efforts.

In some ways, the company’s offerings represent a microcosm of the modern ESG universe.

For equity investors, ICE’s ESG Reference Data tracks about 500 ESG metrics across publicly traded companies including carbon emissions, renewable energy, diversity and inclusion, and board profile. The NYSE leverages this data as it works with its 2,400 listed companies to help them adopt best practices in ESG standards and disclosure.

The NYSE Arca exchange lists more than $23 billion of ESG-focused ETFs. ICE also lists numerous climate-related futures contracts in Europe and North America, allowing companies and other organizations to offset their carbon footprints.

In early August, ICE, together with risQ, announced that municipal bond investors can now receive data to help evaluate the potential social impact of an investment, an area of fast-growing interest. Similar to ICE Climate Risk, they can use this information to analyze poverty, employment, racial diversity and other factors in the geographies where the bonds’ underlying projects live.

Growth in the importance of ESG investing doesn’t seem likely to disappear anytime soon. Earlier this month, the U.N.’s Intergovernmental Panel on Climate Change published a report that received wide media coverage, finding that temperatures will continue to rise globally “until at least the mid-century.” This almost certainly will make the ability to identify the risk of climate events like the Dixie Fire even more critical in the years ahead.

“When we first started, a lot of the market originally was skeptical that a lot of this stuff was ever going to matter,” Kodra recalls. “That clearly changed.”


August 31, 2021

By Farrell Kramer, Head of NYSE Communications, New York Stock Exchange

The World of Alternative Revenues: Low Carbon Fuel Standard Credits.

In a normal public finance transaction to raise capital, local governments often have to pledge some form of revenue stream that’s both reliable and enough to meet the debt service for the capital raised.

For most municipal debt issuances, these revenue streams are often limited to sales tax, property tax, some form of utility user tax, or a combination of all three. However, with the constantly evolving capital markets and its investor base, issuers are demanding more creative ways to pledge alternative revenue sources to take the pressure off their other revenue streams.

In this article, we will take a closer look at the world of Low Carbon Fuel Standard Credits (LCFS) and how some transportation agencies are pledging them as a revenue source to issue green debt for their respective capital needs.

Continue reading.

by Jayden Sangha

Sep 01, 2021

SIFMA US Municipal Bonds Statistics.

SIFMA Research tracks issuance, trading, and outstanding data for the U.S. municipal bond market. Issuance data is broken out by bond type, bid type, capital type, tax type, coupon type and callable status and includes average maturity. Trading volume data shows total and average daily volume and has customer bought/customer sold/dealer trade breakouts. Outstanding data includes holders’ statistics. Data is downloadable by monthly, quarterly and annual statistics including trend analysis.

YTD statistics include:


September 2, 2021

S&P U.S. State Ratings And Outlooks: Current List

View the list.

2 Sep, 2021

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