Cash-Flooded Muni Market Beats Treasuries by Most Since 2009.

Mom and pop investors are helping the municipal-debt market stand firm in the face of broader fixed-income pain in 2021.

State and local debt is poised to outperform U.S. Treasuries by the most in any quarter since 2009, according to Bloomberg Barclays indexes. While municipals have been pressured by the selloff in Treasuries — they’re on pace for a 0.3% quarterly loss — the flood of cash coming in has helped the market avoid a major slump. Treasuries, in comparison, are down 4.2%.

Muni funds have pulled in a net $26.18 billion this year through the week ended March 24, according to Refinitiv Lipper data that include municipal exchange-traded funds. State and local-debt ETFs alone are poised for their second-best quarter of inflows on record, reaping about $5.1 billion this year, according to Bloomberg Intelligence data. Meanwhile, there’s been an outflow of around $1.3 billion from government-focused ETFs during the period, mainly consisting of Treasuries, the data show.

Bonds have tumbled in 2021, driving Treasury yields to the highest in more than a year, amid expectations for a rapid economic recovery. But the money flowing into state and local debt is providing a cushion. Barclays Plc strategists said in a March 26 note that mutual funds’ large “cash buffers” would likely limit a selloff, because the funds are ready to step in and start buying if yields rise to more attractive levels.

“We’ve had such ridiculously high fund inflows,” said Peter Block, head of municipal strategy at Ramirez & Co., who said he expects the demand to continue.

The bonds are luring investors because of their status as a haven where defaults are rare. They also pay interest that’s tax-free, which is appealing at a time when the Biden administration is discussing tax increases. It also helps that wealthy Americans — some of the core buyers of municipals — have grown richer during the pandemic, which could be driving some of the demand.

“There’s a lot of money that needs to be put to work,” said Jason Ware, managing director at 280 CapMarkets. The influx of cash has meant that new deals are being gobbled up in the primary market and there are few sellers, Ware said.

See here for more on munis and inflation expectations

When municipals do see short periods of underperformance, investors are jumping in, he said.

“It seems like buyers are kind of waiting to pounce on any of that,” Ware said.

Bloomberg Markets

By Amanda Albright

March 30, 2021, 11:43 AM MDT

— With assistance by Danielle Moran, and Katherine Greifeld

5 Muni Market Incentives to ‘Build Back Better.’

The White House is formulating a massive infrastructure package. Here are cost-cutting ways for Congress to help states and localities float the bonds to fund their share. Muni “flower bonds,” anyone?

With Transportation Secretary Pete Buttigieg, a former mayor, leading the charge to make good on President Biden’s campaign pledge to “Build Back Better,” state and local officials are daring to hope that a massive new federal infrastructure program will pay for upgraded roads and bridges, transit lines, civic and school buildings, water and sewer systems, and the jobs that building and operating them would bring.

But no matter what shape a congressional deal takes, many if not most intergovernmental grants will require local matching funds to be raised with bond issues and repaid over the life of the new facilities. As Congress plays poker on the overall package, it must also make it easier and more cost-effective for states and localities to finance their matching shares. The federal jackpot will sit just there if governors and mayors can’t pony up their ante.

The traditional vehicle for funding public works at the local level has been tax-exempt municipal bonds, which usually enjoy a lower interest rate than equivalent-quality taxable corporate bonds. In the 1988 case of South Carolina v. Baker, the Supreme Court held that this muni bond tax exemption was just a privilege granted by Congress, not guaranteed by the 10th Amendment. Conservative muni finance advocates (and self-interested underwriters) are keen to preserve this privilege and avoid rocking the boat with alternative financing schemes. So don’t be surprised to hear some pushback on innovative policy options — especially those that displace the bond peddlers — despite their obvious economic merits. Here are five fiscally efficient ideas that ought to be aired with the White House and the Treasury:

1. Rebrand BABs as B4s. In 2009, responding to the global financial crisis, Congress gave states and localities the option to issue their bonds with taxable interest, with a generous promise to cover 35 percent of the interest costs for the life of the bond. They were called Build America Bonds (BABs). That program expired in 2010. Economists can demonstrate that a more modest, yet ultimately equivalent upfront federal project subsidy today of 25 percent could be more economical for many local taxpayers than allowing wealthy investors to avoid taxes on muni bond interest. Nobody can argue that the muni market wouldn’t benefit from having a portion of its bonds taxable, expanding the pool of buyers by making them attractive to pension funds, IRAs and foreign investors who don’t care about tax exemption. Call them “Build Back Better Bonds” (BBBBs, or B4s).

2. Go bigger with cheap muni money, right now. Municipalities are required to spend bond proceeds within a limited time period to prevent profiting from playing off short-term taxable money-market interest rates against tax-free muni bond rates. Violations risk loss of tax exemption. This rule makes no sense in today’s low-rate market. Congress should actually encourage states and localities to issue the largest possible long-term bond issues they can afford right now, at today’s skimpy interest rates. Just eliminate restrictions on investment income before 2026 for muni bond sales in 2022 with a 10-year or longer average life. Only issuers that fail to break ground by 2026 should forfeit any investment profit on the bond proceeds. This can help accelerate infrastructure expenditures in the next two years, when the economy is still recovering, and “bank” low-cost bond proceeds for immediate deployment later, when opportune. Let’s outrun inflation in construction costs and inevitably higher interest costs by selling as many munis as possible now, while the Federal Reserve remains accommodative.

3. Open the FFB window to Build Back Better. I’ve previously suggested that the Federal Financing Bank, an arm of the Treasury, could provide lower-cost loans to states and state bond banks. In today’s skewed capital markets, taxable Treasury bonds carry lower interest rates than AA-rated tax-exempt munis, so a straight pass-through would be a win-win for both federal and muni taxpayers. For qualifying deals in 2022-23, the FFB could charge states for principal only, with Congress paying the interest expense until 2025. In today’s low-rate marketplace, the FFB’s interest cost would then be less than the income tax subsidy now enjoyed by tax-exempt munis. Conceptually, if every municipal bond sold nationwide in 2020 were instead funded this way using 10-year Treasury notes, Uncle Sam’s total cumulative net cost would be less than $30 billion over the standard congressional 10-year budget scoring period, about $3 billion annually. That is just a rounding error in a multi-trillion-dollar infrastructure plan.

Of course, an interest-free window that big would put the entire muni bond underwriting industry out of work, which is sure to invite heated muni underwriter and bond counsel opposition cloaked as principled conservatism. A more politically palatable strategy would allow FFB access only for specified priority initiatives. That could include health and safety hazard remediation (including water systems and bridges), mass transit and green initiatives, while keeping this brief FFB borrowing window a limited experiment.

4. Provide a tax break for qualified P3 bonds and dividends. An infrastructure bonanza will undoubtedly include pitches for public-private partnerships, dubbed “P3s” by the trade. Various projects to fund facilities that can be financed by user charges are ripe targets for such privatization or semi-privatization.

What if private partnerships that work collaboratively with public agencies could issue their bonds or preferred stock with payouts subject to preferentially lower tax rates? Normally such income from partnerships is taxable at higher ordinary income tax rates, so the financial incentive would be meaningful. The advantage here is that state income tax revenues would not be reduced, but actually bolstered when compared with tax-free muni bond interest. To qualify, such projects should clearly benefit public purposes and cut carbons while requiring revenue- or profit-sharing with a public agency.

5. Protect bond investors from inflation. All this deficit spending has investors worried about future inflation, which has nudged interest rates higher lately. If future inflation arises, it’s arguably a problem caused by Congress and the central bank, not states and localities. To protect fixed-income investors, Congress can add inflation protection to Treasury bonds held at least 10 years by a pension fund or a qualified retirement account, or purchased through local banks as a retail savings bond. Public pension funds can employ these useful tools for various portfolio strategies, including sophisticated swap transactions to attach the inflation protection to their diversified bond portfolios. Congress could also reimburse an inflation adjustment of principal at maturity of taxable municipal bonds (the B4s described above), which would be ideal investments for pension funds and insurance companies.

A novel tax-exempt muni bond enhancement could borrow conceptually from special redemption privileges attached to low-rate Treasury bonds in the late 20th century. They were known as “flower bonds” (as in lilies at a funeral) because they were redeemable at their face value for settlement of federal estate taxes. For zero-coupon muni flower bonds — which would pay no interest and be sold at a discount — that are issued before 2024, Congress could reimburse Federal Reserve System banks for tax-free make-whole redemptions at their accreted value when held by retirees for at least 10 years, or in settlement of estate taxes. That would enable today’s issuers to enjoy the lowest borrowing rates of a lifetime while protecting investors from future inflation. All of these inflation protections would reduce municipal borrowing costs, and if future inflation remains as tame as many economists and public officials continue to predict, it would be a win-win for everybody.



Biden's $2.25T Plan Will Impact Every Muni Sector, Hilltop’s Kozlik Says.

In this week’s “Muni Moment,” Tom Kozlik, head of municipal strategy and credit at Hilltop Securities, says President Joe Biden’s “extraordinarily comprehensive” infrastructure spending plan will “potentially impact every single sector of the municipal bond market.”

Watch video.

Bloomberg Muni Moment

March 31st, 2021

Build America Bonds May Stage a Comeback in Biden's Infrastructure Plan.

March 31 (Reuters) – Build America Bonds may return after a 10-year absence as part of U.S. President Joe Biden’s $2.3 trillion plan to tackle the nation’s infrastructure needs, although some past issuers are wary about selling more of the federally subsidized debt.

The popular bond program was created under the Obama administration as part of an economic stimulus law, allowing states, cities, schools, airports, mass transit agencies, and others to sell for a limited time taxable debt with the federal government contributing 35% of interest costs.

Between April 2009 and when the authorization expired at the end of 2010, $181.5 billion of the so-called BABs were issued to fund construction projects aimed at helping the nation recover from the financial crisis.

Over the last 10 years, BABs on average have outperformed corporate bonds, U.S. Treasuries, and municipal bonds due to factors including the debt’s hefty coupons and scarcity.

Now the $3.9 trillion U.S. municipal bond market is buzzing with speculation that with Democrats in control of the White House and the U.S. Congress, legislation for Biden’s plan will bring BABs back.

“Build America Bonds successfully delivered significant savings to New York City, and if the Biden administration reintroduces the program, it could bolster the city’s economic recovery from the pandemic,” the city’s comptroller Scott Stringer said in a statement.

U.S. Transportation Secretary Pete Buttigieg told CNBC late last week that BABs show “promise.”

“Democrats have been trying to relaunch BABs since BABs expired,” said Matt Fabian, a partner at Municipal Market Analytics, adding that Congress was likely to leverage bond-related ideas like BABs that were already discussed or included in past legislation.

Katie Kramer, vice president of the Council of Development Finance Agencies, said BABs’ reinstatement was part of a big infrastructure bill the House passed last summer and that House Ways and Means Committee Chairman Richard Neal “is very fond of that particular tool.”

Fabian cautioned that Republican opposition to BABs could be a problem in the future if the party returns to power and interferes with the program. Another concern is that the subsidy has been subject to across-the-board federal spending cuts known as sequestration that were as high as 8.7% in 2013.

“I would support giving communities the choice to use direct subsidy bonds – another tool in the toolkit, as they say, with the condition that they are protected from sequestration and that the protections are binding,” said M. Elizabeth Reich, chief financial officer of the City of Dallas, Texas.

She said sequestration created mid-year budget problems for many issuers including Dallas, which lost more than $4.5 million in credit for debt service between 2013 and 2019.

Wisconsin, which sold $1.1 billion of BABs, would have been better off issuing fewer BABs and more tax-exempt bonds due to the impact of sequestration, according to David Erdman, the state’s capital finance director.

“We’d take a look at (BABs) if there were some protections,” he said. “But are protections really protections? Laws can always be changed.”

Reporting By Karen Pierog in Chicago; Editing by Alden Bentley and Marguerita Choy

Build America Bonds May be Key to Financing Biden’s Infrastructure Plans.


Republicans and Democrats agree that the U.S. is in dire need of a major infrastructure overhaul, and at the very least, that Congress should authorize significant repairs to roads and bridges.

The fierce disagreement between the two parties begins over which provisions are worthy of running the federal deficit higher, as well as over how to finance such a massive undertaking.

And while Wall Street worries about potential increases to corporate and individual income tax rates, Democrats may soon turn to an Obama-era tool to finance their infrastructure plans: Build America Bonds.

BABs are special municipal bonds that allow states and counties to float debt with interest costs subsidized by the federal government. That underwriting not only served to ease jittery investors in the aftermath of the financial crisis, but also made municipal debt even more attractive with rates sometimes north of 7%.

This approach could be especially helpful in President Joe Biden’s infrastructure push, especially after the hefty price tag of his $1.9 trillion Covid-19 relief package. Even by the most modest estimates, the cost to repair the nation’s infrastructure reaches into the trillions of dollars.

The country’s overall infrastructure needs over the next 10 years total nearly $6 trillion, according to a report published earlier in March by the American Society of Civil Engineers. It says there’s a $125 billion backlog on bridge repairs, a $435 billion backlog for roads and a $176 billion backlog for transit systems.

Those sums, merely for repairs already deemed necessary, come before the expansive and innovative technologies Democrats hope to include in Biden’s forthcoming bill. The White House is expected to pitch a bill worth at least $3 trillion and include a litany of infrastructure and social assistance programs.

Biden for BABs?

Vikram Rai, head of Citi’s municipal bonds strategy, thinks Build America Bonds are the answer.

Build America Bonds entered U.S. markets more than a decade ago as the Obama administration sought ways to finance capital projects across the country and jumpstart the economy in the aftermath of the Great Recession.

The beauty of subsidizing the interest associated with muni bonds, Rai argues, is that every dollar spent by the federal government works to reinforce the integrity of larger spending projects that, legally, only states and localities have the power to pursue.

The federal government owns less than 10% of the nation’s infrastructure, while the rest is operated by states, cities and the private sector.

“This price tag of $2 trillion, $3 trillion — that’s not really accurate because the price tag is only that big if the federal government is going to give state and local governments grants,” Rai said in a phone interview earlier in March.

Instead, when the federal government underwrites BABs, it allows states and cities to issue far more debt than investors would otherwise accept without astronomical interest costs and doubts over whether they would be able to repay.

“What a lot of people don’t realize is that just some tax raises — like increasing the corporate tax rate or implementing a carbon fuel tax — even those very marginal tax increases will be more than enough to fund the initial outlay of infrastructure projects,” Rai said.

“These projects are, ultimately, self-sustaining,” he added. “There’s a magnifier effect, a stimulative effect: It generates employment, it generates tax revenues. So, it’s a no-brainer.”

Rai added at the time that it’s almost certain the White House is considering BABs among a variety of financing options.

Transportation Secretary Pete Buttigieg confirmed later Friday, after this story was initially published, that the administration is considering the bonds amid other financing options.

“I’m hearing a lot of appetite to make sure that there are sustainable funding streams,” Buttigieg said. Build America Bonds show “a lot of promise in terms of the way that we leverage that kind of financing. There have been ideas around things like a national infrastructure bank, too.”

A critical feature of BABs is that unlike 83% of the market for municipal bonds, they are taxed by the federal government.

Most bonds issued by state and local governments under “normal” conditions are attractive to investors because the interest is generally exempt from federal income taxes. As a result, U.S. investors are willing to accept a lower interest rate than they would otherwise demand.

For foreign investors, however, the interest on U.S. municipal bonds is still taxable by their home country, so they are generally apathetic low-yielding debt issued in the U.S.

But by making BABs subject to federal taxes, state and local governments are forced to offer higher interest rates on their bonds to guarantee investors the same effective rate of return.

Given that foreign investors, with their multitrillion-dollar demand base, have expressed an unwavering interest in investing in U.S. infrastructure, they would be keenly interested in a taxable structure. This is because from their perspective, BABs are indistinguishable from a conventional taxable bond, according to Rai.

Political perils

The drawback of BABs, though perhaps more impactful than grants written for the equivalent amount, is that the federal government is still on the hook for billions of dollars’ worth in interest costs until the BABs mature.

The Obama-era program, which had no annual caps and subsidized interest costs at 35%, expired at the end of 2010 after states and municipalities sold more than $180 billion of the bonds, far more than the federal government initially expected.

Some lawmakers, such as Sen. Ron Wyden, D-Ore., remain supportive of the program and open to the possibility that they could play a role again in future infrastructure initiatives.

“Build America Bonds were an overwhelming success in the Recovery Act,” Wyden, chairman of the Senate Finance Committee, told CNBC on Wednesday. “I’m incredibly proud of that program, and a similar financing structure will be part of the conversation as we move forward.”

Leading Republicans, on the other hand, had grown sick of the costs associated with BABs by 2011. GOP lawmakers said the federal government’s commitment to subsidize 35% of the interest payments on local bonds was too high.

Former Sen. Orrin Hatch, then the ranking Republican on the Senate Banking Committee, said in February 2011 that the bonds were “simply a disguised state bailout” that disproportionately helped New York and California.

“These bonds rightly expired at the end of 2010 and it is my hope the Obama administration does not try to resurrect such a nonsensical provision in their upcoming budget,” he said at the time.

Sen. Pat Toomey, R-Penn., a member of the Senate Finance Committee, is a “no” on resurrecting the bonds.

“State and local governments have never been more flush with cash. In addition to record tax collections last year, Congress sent them $500 billion. Despite all that, two weeks ago, Congress sent them an additional $350 billion they didn’t need,” he told CNBC on Friday. “So no, I do not support misallocating billions of dollars more to incentivize potentially unworthy projects and to encourage insolvent or irresponsible state and local governments to take on even more debt.”

Rai conceded that appetite for BABs could vary based on each state’s creditworthiness, with states like New York with stronger balance sheets perhaps a more appealing bet than Illinois.

He countered, however, that even cities in Illinois could see significant revenue generation via BABs if the state works to backstop local municipal bonds. The federal government’s commitment to subsidize interest costs could be lowered from 35% to 30% or even 28%, as Democrats proposed in 2011, Rai said.

But with the nation’s infrastructure in dire straits, some Republicans may view BABs as a compelling option to fund infrastructure projects that, in time, eventually pay for themselves through job creation and tax revenues.

Mississippi Sen. Roger Wicker, the GOP’s ranking member on the Commerce Committee, co-sponsored a bill with Sen. Michael Bennet, D-Colo., in 2020 that called for a revival of BABs with certain improvements.

Like BABs, their so-called American Infrastructure Bonds program would create a class of “direct-pay” taxable municipal bonds to help struggling governments finance critical public projects.

Wicker and Bennet’s bonds would be exempt from sequestration, the process by which Congress has gradually eroded the size of its payments toward financing the original class of BABs.

“Empowering our local leaders to start important infrastructure projects is a proven, cost-effective way to help our communities emerge from severe financial hardship with assets that provide value to the area for years to come,” Wicker said in a July press release.

by Thomas Franck

MAR 26 2021

President Biden Touts Outline for $2.2 Trillion Dollar Infrastructure Plan.

Yesterday, President Biden spoke on his Administrations’s initial outline of a $2.2 trillion dollar infrastructure plan, laying the groundwork for the second major initiative of the Administrations Build Back Better plan following the recent passage of a $1.9 trillion dollar COVID relief package. While the plan did not discuss financing in great detail, including bond financing, the outline provides many opportunities for bonds to be included as Congress begins to work on the plan in earnest.

The fact sheet can be viewed here.

The MBFA statement can be viewed here.

Some additional funding details provided in the outline include:

The BDA and MBFA continue to advocate for key muni priorities to be included in this robust infrastructure package.
These priorities include:

We will continue to provide updates as they become available.

Bond Dealers of America

April 1, 2021

Ways and Means Chair Neal Reiterates Support for Bond Financing in Infrastructure Package.

Following the announcement of the Biden infrastructure plan, House Ways and Means Chairman Richard Neal (D-MA) signaled that he plans legislative changes to the original draft, including ensuring that bond financing plays a role in the final package. His statements this week reiterate what the Chairman discussed during the BDA’sEngage Capitol Hill 2021 event last week.

The Chair stated,

“The Congress will offer some suggestions — we will accept some of what he is proposing. If we can improve upon the president’s proposal, we want to do that. I intend to guard them in the committee.”

These comments were in reference to:

The BDA and MBFA continue to work with our partners on Capitol Hill and the Administration to ensure all muni priorities are addressed and included in the Committee’s first draft.

The Chairman has placed a July 4th timeline on the release of the draft.

Bond Dealers of America

April 2, 2021

Illinois Owes Georgia Voters a Debt of Gratitude.

The state is no longer at risk of Moody’s cutting its credit rating to junk soon, and bond traders like the prospect of federal support.

Before the U.S. elections in November, I wrote that the fate of Illinois’s investment-grade credit rating was on the ballot. I got that right — but I wrongly assumed that the state’s voters would make or break its fortunes.

Instead, it turned out to be Georgians who pulled Illinois back from the brink of junk. The state owes them a huge debt of gratitude, given just how much Illinois taxpayers are poised to save in the municipal-bond market because of the January runoff victories for Democratic Senators Jon Ossoff and Raphael Warnock.

The yield spread between 10-year Illinois bonds and top-rated tax-exempt debt shrunk last week to 111 basis points, the smallest since the start of the Covid-19 pandemic. It’s a narrower gap than at any time between mid-2014 through 2019, a feat all the more impressive when considering that muni bonds held their ground in the first three months of the year as interest rates increased around the world, outperforming U.S. Treasuries by the most since 2009. Illinois already saved millions of dollars when it borrowed $1.26 billion in mid-March. That sale included bonds due in 2024 that yielded 1.09%, a sharply lower rate than the 3.42% coupon on $2 billion of similar-dated debt that the state placed with the Federal Reserve’s Municipal Liquidity Facility in December.

The origins of this muni market windfall for the lowest-rated U.S. state may seem to begin in November, but clearly the Jan. 5 runoff elections in Georgia marked a turning point. The extra yield on Illinois 10-year bonds plunged 34 basis points the next day, when it became clear that Democrats would win both races and divide the Senate 50-50. That was a bigger drop than any day in the previous two months except for Nov. 6, when results indicated that there would in fact be two runoffs in Georgia and a chance for an evenly split Senate. Illinois debt outperformed again in February after Vice President Kamala Harris broke a tie to clear the path for a sweeping fiscal stimulus package to become law without Republican support. That included sending hundreds of billions of dollars in aid to state and local governments.

By March 9, about a week before Illinois’s bond sale, S&P Global Ratings had seen enough to raise its outlook on the state’s general obligation bonds to stable from negative, removing the risk of an imminent downgrade. Any borrower would welcome such a move, but it’s especially beneficial for Illinois, which is rated BBB-, just one step above junk.

Then came arguably the biggest vote of confidence: Moody’s Investors Service on March 26 also improved the state’s outlook to stable from negative, which it says effectively removes the possibility of a downgrade in the next year or two. Moody’s has historically taken a harsher view on Illinois and Chicago than S&P and Fitch Ratings. For instance, in June 2016, when political deadlock left the state headed toward a second consecutive year without a budget, Moody’s swiftly cut its rating to Baa2, one step lower than the BBB+ grade assigned by S&P and Fitch. Moody’s also shocked the muni market in 2015 when it dropped Chicago’s credit by two levels to junk. At that time, S&P had the city at A+, the fifth-highest rank.

Moody’s is forthcoming that its change of heart comes down to fiscal stimulus. “State and local government funds expected under the latest federal aid package may help the state repay deficit financing loans, support its financially pressured local governments and spur employment, income and tax revenue growth,” lead analyst Ted Hampton wrote. He cautioned, however, that “the longer-term challenges associated with the state’s very large unfunded post-employment liabilities remain.”

Of course, Illinois isn’t out of the woods entirely. Fitch still has a negative outlook and could always pull a shock downgrade, though it seems unlikely to do so now given that it held steady even after state voters rejected a constitutional amendment that would have repealed its 50-year-old flat-rate income tax and raised levies on the wealthiest residents. That was what I was referring to when I said the state’s credit rating was on the ballot. Illinois still needs to put in the hard work to chip away at its large pension burden. But Moody’s raised Connecticut’s rating last week, its first upgrade in two decades, so a turnaround isn’t impossible.

Georgia voters made this Herculean task just a bit easier. Even if federal aid is only a stopgap for a couple of years, that’s enough time to save Illinois tens of millions of dollars in interest costs alone. Those savings, in turn, can be deployed to buoy both its post-pandemic economy and its pension funds. Contrary to some rhetoric coming out of Washington, the state isn’t being “bailed out” by any stretch — but it has another chance to remain investment grade. That’s more than enough reason for Chicagoans to send some deep dish pizza down to Atlanta.

Bloomberg Markets

By Brian Chappatta

April 5, 2021, 7:08 AM MDT

Rodney Slater on the The American Jobs Plan: Squire Patton Boggs

On March 31, 2021, President Biden officially unveiled the planned $2.25 trillion infrastructure bill, marking the beginning of what promises to be a lengthy debate over the appropriate size and scope of infrastructure investment and economic recovery in the country. Who better to guide you through it than our partner, Rodney Slater, former Secretary of Transportation in the Clinton Administration. Rodney appeared on Bloomberg TV and on Bloomberg’s SoundOn podcast to offer his insights.

By Johnny Hutchinson on April 1, 2021

Squire Patton Boggs

Barclays Bond Deal Shows Limits to Vow on Financing Prison Firms.

Two years ago, Barclays Plc joined a chorus of major banks announcing that they would no longer provide new financing to private prison companies, whose model of profiting from incarceration has drawn controversy for years.

But the bank is now poised to raise $634 million for Alabama lockups to be built and owned by carceral giant CoreCivic Inc.

Barclays is the lead underwriter for a bond issue scheduled to be sold through the Public Finance Authority, an agency in Wisconsin set up to rent its access to the municipal-debt market. In this case, the debt is being sold on behalf of an entity fully owned by Tennessee-based CoreCivic. The proceeds will be used to build two new prisons to be leased and staffed by the Alabama Department of Corrections.

While Barclays isn’t directly lending to CoreCivic, the bond deal illustrates just how entangled private prison companies remain in the financial system and the limits to banks’ pledges to avoid them.

“At the direction of the State of Alabama, Barclays has worked alongside the state’s representatives and advisors to finance the procurement of two new correction facilities that will be leased and operated by the Alabama Department of Corrections for the entire term of the financing,” the bank said in an emailed statement to Bloomberg News. “The commitment we made in 2019 not to finance private prison companies remains in place.”

After facing pressure from Democrats in Washington and prison reform activists to sever ties with the industry amid heightened use of immigrant detention centers under former President Donald Trump, Barclays in 2019 joined Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. in saying that it would stop providing new financing to private prison companies. The London-based bank said in 2019 it would allow a then-existent credit facility to expire.​

​Alabama officials have said the deal with CoreCivic will help it improve conditions within its prison system after the state and its corrections department was sued by the U.S. Department of Justice in December 2020 for failing to protect male prisoners from violence and unsanitary conditions. Alabama Attorney General Steve Marshall said in an emailed statement that the lawsuit disregarded the “immense progress” that the state has made in improving its prisons.

“Leasing and operating new, modern correctional facilities without raising taxes or incurring debt is without question the most fiscally responsible decision for our state,” Alabama Governor Kay Ivey said in a February statement on the lease agreements with CoreCivic. “We are improving public safety, providing better living and working conditions, and accommodating inmate rehabilitation all while protecting the immediate and long-term interests of the taxpayers.”

The $634 million of bonds, for which Barclays is serving as the lead underwriter, won’t be considered CoreCivic debt. They’re being issued for Government Real Estate Solutions of Alabama Holdings LLC, which is 100%-owned by CoreCivic, which is listed in the prospectus as the project’s sponsor. The new prisons will be leased and staffed by Alabama’s corrections department.

A spokesperson for the Alabama governor’s office declined to comment on Barclays’ involvement in the deal, and a representative for CoreCivic directed a request for comment to the bank.

Another $215.6 million in debt may also be sold through a private placement, according to offering documents. The deal was outlined to investors in a March 31-dated roadshow presentation by CoreCivic executives, including Chief Executive Officer Damon Hininger, and Barclays bankers.

Lease payments made by Alabama will be used to pay off the debt. The corrections department has agreed to prioritize the lease payments above all other obligations to the extent allowed by law, according to the investor roadshow. Through state appropriations, the Alabama corrections department has committed to make payments that will cover outstanding debt service obligations in the case of an instance like a lessor default.

Because of the state’s commitments under the lease agreement, the bonds are expected to receive an investment-grade credit rating, according to a person familiar with the matter. The bond sale is scheduled to price later this month.

Alabama Department of Corrections Commissioner Jeff Dunn said in a statement in February that the facilities would provide a safer environment to deliver “effective, evidence-based rehabilitative programming” to people who are incarcerated.

“Leasing, staffing, and operating modernized prison infrastructure that is owned and strictly maintained by the private sector minimizes our short- and long-term risk for an initiative of this necessary magnitude,” he said.

Bloomberg Markets

By Amanda Albright and Danielle Moran

April 2, 2021, 5:24 PM MDT

— With assistance by Davide Scigliuzzo

Grading State Budget Practices at a Turbulent Time.

The Volcker Alliance’s latest state budget report cards come as the pandemic has tested public finances and as historic sums of federal aid flow toward states and localities.

It’s been a rollercoaster for state budgets over the past year. When the coronavirus outbreak hit the U.S. last March, it led to a round of dire revenue forecasts, in many cases revised upwards as tax revenues turned out better than expected. Still, states faced significant unplanned costs tied to the pandemic response and some, especially those with economies linked tightly to sectors like tourism and oil and gas production, have struggled with serious shortfalls.

Then, the largely mixed picture for state budgets brightened early last month when President Biden signed a massive coronavirus relief bill into law that included about $360 billion in state and local recovery funds, including nearly $200 billion earmarked for states and the District of Columbia. And now, the White House and Democrats in Congress are backing a $2 trillion infrastructure bill that could send even more federal money gushing to the state and local level.

It’s in this context that the Volcker Alliance, a good government group, this week released its latest edition of Truth and Integrity in State Budgeting, a 162-page report that includes in-depth report cards grading how each state manages its finances. The Alliance has been scrutinizing state budgeting practices with reports like this since 2015 and this year’s report, like the one issued last February, just before the U.S. covid outbreak, catalogs many overall improvements.

Some of the strides states made during the years leading up to the pandemic—during the longest economic growth cycle dating back to the 1850s—left them better equipped to deal with the Covid-19 crisis. This is especially true when it comes to budget reserves.

In the decade after the Great Recession, states beefed up their so-called rainy day funds, and some established new policies to guide how they are used. The accounts held a record $79 billion by 2019, according to the Volcker report. The report notes that in fiscal years 2020 and 2021, as the virus battered the economy, at least 21 states tapped the funds to close budget gaps.

“While no one could have foreseen the immense economic and fiscal stresses caused by Covid-19, actions taken by many states during recent boom times left them better prepared than they would have been only a few years earlier,” William Glasgall, the alliance’s senior vice president and director of state and local initiatives, said in a statement.

“The report analyzes the budgetary foundation states laid in the five years prior to the pandemic, which directly impacted how well-equipped states were to deal with the fiscal crisis,” he added.

Volcker grades states in different areas on a A to D-minus scale. In the reserve funds category, its latest report notes that 17 states received A averages for fiscal years 2015 through 2019 and just two states, Illinois, known for its chronic budget problems, and Kansas averaged Ds.

In addition to evaluating savings, Volcker grades states in four other areas.

One is budget forecasting, which looks at how states estimate revenues and spending. Another is budget maneuvers, or one-time moves to cover recurring costs. Then there’s a “legacy costs” category that looks at how well states are meeting pension and retiree health care obligations. And, lastly, budget transparency, which digs into issues around the disclosure of budget information, including debt, tax breaks and deferred infrastructure maintenance.

When looking at the grades for fiscal 2015 to 2019, for each of the five areas that the report evaluates, all five categories saw improvement and three had B averages. In two areas—budget forecasting and legacy costs—the average grade was a C.

With budget forecasting, the report says that grades were held back by a lack of estimates prepared jointly by governors and legislators, and also by a limited number of states issuing longer-term projections. “A one-­year estimate does little to reveal structural deficits that may burden subsequent bud­gets,” the report cautions. Only 10 states averaged A grades in this category, while eight scored Ds and three—Alabama, Missouri and North Dakota—checked in with D-­minuses.

Legacy costs, both pensions and retiree health care, hang heavy over some state budgets. One major contributor to this problem over the years has been state lawmakers approving pension benefits for public employees, but then failing to set aside adequate funding to cover the costs. Another issue is states using unrealistic estimates for what the returns will be on pension fund investments—those investment earnings help to cover benefit payments.

The Volcker report highlights $1.3 trillion in unfunded pension liabilities states have stacked up. The figure is a projection of how short states will be on what they owe to retirees in future years, based on current pension funding levels. In addition, the report notes over $600 billion in obligations for “other postemployment benefits,” which mainly consist of retiree health care.

On the upside, the research finds that the number of states making their full recommended contributions to public pensions rose to 39 states, from 33 between fiscal 2015 and 2019. Even so, 33 states had an average mark of C or below in this category.

The report points to a number of other issues as well.

For instance, how states failing to disclose deferred maintenance costs for infrastructure can be a transparency issue. Deferred maintenance on public infrastructure is around $1 trillion, according to a figure cited in the report. Only five states, Alaska, California, Hawaii, Illinois and Tennessee provided data on these costs as of 2019, the report says.

Volcker also takes the position that it would be easier for states to balance their budgets transparently if they adopted what’s known as “modified accrual” accounting, instead of a “cash-based” method.

The cash option doesn’t count budget expenses until a bill is paid, instead of at the time when expenses are incurred. Cash accounting opens the door for lawmakers to balance budgets by simply pushing off the timeframe when costs will be paid, while committing the state to spending in the meantime.

Route Fifty

By Bill Lucia,

APRIL 1, 2021

Century Housing Municipal Bond Awarded Sustainability Bond of the Year.

Century’s First Municipal Bond Helped Investors Respond to the Global Pandemic

CULVER CITY, Calif., March 31, 2021 /PRNewswire/ — Century Housing’s 2020 Sustainability Bond, which raised $85 million to directly support quality affordable housing throughout California, today received the Sustainability Bond of the Year Award from Environmental Finance in the US muni bond category. These Awards seek to recognize those bonds that excel, innovate in and contribute to the successful development of the market for environmental bonds.

With its June 2020 bond offering, which was twelve times over-subscribed receiving more than $1 billion in orders, Century Housing became the first Community Development Financial Institution (CDFI) to come to market with a municipal bond CUSIP. Century was also the first CDFI to be rated by two leading public credit rating agencies, Fitch and S&P (rated AA and AA-, respectively). The bond carried a second-party opinion by Sustainalytics attesting to both the environmental and social benefits of the housing created and preserved by this bond. Underwritten and marketed by Wells Fargo Securities as sole manager and offered through the California Municipal Finance Authority, the bond was California tax exempt and federally taxable.

Alan Hoffman, Senior Vice President and CFO of Century Housing, said, “It is heartening to see the overwhelming investor interest in affordable housing, especially at a time when the COVID pandemic exposes how vulnerable our low-income families, seniors, and veterans really are to the lack of safe, secure, quality housing. We are honored that the Environmental Finance Bond Awards’ judges have recognized Century for its ability to innovate and execute with this bond and hope that the award also reflects our commitment to sustainable, energy-efficient affordable housing in a time of tremendous need.”

Century provides financing for all stages in the development of affordable housing including acquisition, bridge, construction and permanent loans. For more than 25 years, Century’s expertise and quick, reliable execution have allowed affordable housing developers to secure the financing they need, including all-important early stage financing, allowing them to take advantage of programs including Low Income Housing Tax Credits and current COVID-related federal aid like Project Homekey.

About Century Housing

Century Housing Corporation is a mission-driven CDFI that finances quality, affordable housing throughout California to provide dignified homes, healthy and hopeful futures, and economic independence to the people we serve. From our start as a state agency and through our past 25 years as a nonprofit public benefit corporation, Century has invested more than $2 billion to create and preserve close to 50,000 homes while creating thousands of construction jobs. Century-financed developments showcase a unique legacy of serving our triple bottom line: positive financial, social, and environmental outcomes supporting a more just and sustainable future in the places where help is needed most. Century Housing has offices in both northern and southern California. For more, visit

SOURCE Century Housing

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Retirees and Bond-Market Volatility: 3 Tips for Navigating Rising Rates

If you’re a retiree who bought bonds to stabilize your portfolio, the recent surge in rates has been unsettling. You likely already have been hit with losses, and more are coming if interest rates keep rising as prices and yield move oppositely.

The easiest way to protect yourself is to put your money in short-term bonds less affected by swings in interest rates. Cash is even safer. The problem is that such investments pay little or no interest currently and will drag down the performance of your portfolio over time.

Figuring out which bonds to own is particularly important for retirees who have already started spending their savings. If they suffer a big loss and have to sell depleted assets, their portfolio may never fully recover. While bonds are less volatile than stocks, the Vanguard Long-Term Treasury Index Fund (VLGSX) is down more than 12% to date. That’s a big loss for the supposedly safe part of their portfolio.

So where to turn? Barron’s talked to bond fund managers, market researchers, and financial advisors about when it makes sense to go long for your bond investments and when it makes sense to stay short. The rise in rates has steepened the yield curve. That makes intermediate-term bonds a more attractive investment without all the risks of long-term bonds, our experts told us. In addition, people with brokerage accounts may want to consider higher-yielding bond alternatives like fixed-rate annuities from insurers or savings accounts from online banks, which tend to yield more than brick-and-mortar banks.

Despite the recent surge in interest rates—the yield on the 10-year Treasury bond has shot up more than a point since August—nobody can say where they’re heading now. Some fear that the economy will overheat with all fiscal stimulus from the federal government, and that rates are likely to climb a lot more. Others say any uptick in inflation or interest rates is likely to be brief as the Federal Reserve remains committed to keeping rates low to ensure the economy has recovered from the pandemic.

Mark Kiesel, chief investment officer global credit for bond giant Pimco, is among those who believe that inflation isn’t going to take off and that the rise in interest rates is mostly over. He adds: “You’re looking at a longer-term environment where inflation will be contained around 2%. In that environment, bonds could look interesting.”

If you own bonds or are pondering buying them, here are key takeaways:

Measuring interest-rate risk: When you buy a bond fund, bond ETF, or individual bond, pay attention to its duration. That reflects how sensitive it is to interest rates changes. If interest rates rise by 1%, the value of a bond should drop by 1% for each year of duration.

Longer bonds, because more of their cash flow is far out in the future, are more affected by interest rate drops. The Vanguard Long-Term Treasury Index fund has dropped sharply this year because it has an average duration of 18 years. This fund has a yield of 2.22%, meaning it could take years for it to recover its losses this year.

On the other extreme, the Vanguard Short-Term Treasury Index Fund (VSBSX) has a duration of two years. It has barely been affected by the rate run-up; it is down 0.09% year to date. But it’s not making any money either. Its current SEC yield is a mere 0.10%.

Many investors are best served staying between the two extremes, buying bonds or bond ETFs with an average duration of four to five years, says Larry Swedroe, chief research officer for Buckingham Wealth Partners. The Vanguard Intermediate-Term Treasury Index (VSIGX) has a duration of 5.4 years and yields 0.85%. It’s down just 2.76% this year despite a rapid rise in rates.

“Four to five years has traditionally been the sweet spot on the curve,” says Swedroe, who wrote the book The Only Guide to a Winning Bond Strategy You’ll Ever Need.

Rolling down the yield curve: As a bond owner, it’s important to look not just at the level of rates but also their relationship to each other. A year ago, the yield curve was flat, meaning that longer-term bonds didn’t pay much more than shorter-term instruments. But over the past year, yields on longer- and intermediate-term bonds have climbed sharply while those on shorter instruments have barely budged.

This steeper curve makes it more attractive to hold bonds because of something called rate rolldown. In an upward yield curve like today, bonds naturally pick up value as they age. Currently, five-year Treasuries yield 0.97% and three-year Treasuries yield 0.39%. If you buy that five-year Treasury and sell it two years hence, and rates stay the same, you’ll get a hefty premium on top of the interest you’ll collect. That’s because it is now a three-year Treasury but pays more interest than newly minted three-year Treasuries. The market equalizes this by increasing the price of your bond until the yields are equivalent.

The reality is that interest rates will change during the next two years. But with a steep yield curve, as long as they don’t rise as high as the yield curve is signaling, you’ll be better off buying longer bonds.

“When the curve is flat, you want to be on the shorter side,” says David Plecha, global head of fixed income at investment firm Dimensional Fund Advisors. “When the curve is steep, you want to be on the longer side.”

Dimensional Fund Advisors, which uses techniques pioneered by economist Eugene Fama, analyzes yield curves around the world and buys bonds in the steepest portions to enhance its returns.

Ordinary investors aren’t going to do that sort of analysis. But they will still see their bond returns improved by steeper yield curves if interest rates don’t shoot up.

Don’t forget why you bought bonds in the first place: In an era when rates are low, the temptation is to venture into riskier investments like high-yield bonds to get better returns. If you own bonds to stabilize your portfolio, resist it.

“We view fixed-income in the portfolio as ballast before anything else,” says Scott Keller, director of investment management at Truepoint Wealth Counsel, a Cincinnati financial advisor. “It’s not about maximizing income.”

Lower-quality corporate bonds perform more like equity, rising and falling sharply with the economy, or with the prospects of particular companies. That means when your stocks get hammered, these issues are likely to tumble instead of stabilizing your portfolio.

Bond managers study credit curves just as they study yield curves. When there’s a premium for investing in riskier bonds, they go out further on the credit curve, taking on riskier issues

That’s not happening now. Credit spreads have tightened since last summer as the economy improved. Rob Galusza, who manages short- to intermediate-term diversified bond funds for Fidelity Investments, says he has become more selective in which corporate issues he buys.

“We generally become more defensive when spreads are tight,” he says.


By Neal Templin

April 3, 2021 8:00 am ET

Unconstrained Bond Funds Struggled in Good Times. But They Might Just Be the Answer as Yields Rise.

Be careful what you wish for. Bond investors, who have spent the past decade bemoaning the difficulty of finding yield, are now contending with losses caused by rising yields in their bond funds. The solution may come from an unloved sector—unconstrained bond funds.

Like liquid alternatives, unconstrained bond funds emerged in the wake of the financial crisis, as fund managers anticipated that the economic recovery would cause the Federal Reserve to raise interest rates, driving up Treasury yields and pushing down prices of long-term bonds.

The idea was that star bond fund managers—once freed from the constraints of traditional style boxes—would be able to go further afield than traditional core bond funds, which usually limit themselves to high-quality government and corporate bonds. Instead, unconstrained (also called nontraditional) funds were designed to protect investors against losses that come with rising yields by making unconventional calls, such as betting on Treasury-market losses and delving into riskier and more esoteric corners of debt markets, sometimes even owning stocks.

It didn’t work out that way. While the category saw assets grow more than tenfold between 2008 and 2015, according to S&P Global, it was soon beset by concerns about high fees, risks introduced by the unusual level of manager autonomy, and the inherent difficulty of evaluating a diverse category without a clear benchmark or theme. The category’s assets now total $148 billion, according to Morningstar, only about 6% more than they had in 2015, when Josh Brown of Ritholtz Wealth Management wrote that investing in the category was “the biggest mistake” investors were making.

“The next time the [stock] market goes offsides, I want Treasuries,” says Michael Batnick, director of research with Ritholtz Wealth Management. “If rates do continue to rise and we get a regime change, this would be a better opportunity for non-traditional bond funds, because the past five years have been pretty tough.”

In other words, if there were ever a time for unconstrained bond fund managers to prove their worth, this is the year. Bond markets have been hammered by rising Treasury yields. Safer corporate and government bond markets have near-record levels of duration, or sensitivity to increases in benchmark yields. In fact, the non-traditional bond fund category is up 0.7% so far this year, compared to a loss of 3.2% for corporate bond funds, according to Morningstar.

“Unconstrained bond funds can be a lot more tactical, can dial down the duration, and opportunistically go into markets like emerging-market debt or high yield when those sectors make sense,” says Bob Michele, chief investment officer for fixed income at J.P. Morgan Asset Management.

Nontraditional funds’ flexibility is important today because investors don’t have many good options in fixed income. “Safe” bonds, which investors typically use for capital preservation, have experienced significant losses as Treasury yields rise. For example, the $1 billion JPMorgan Unconstrained Debt fund (ticker: JSIAX), which Michele manages, had investment-grade corporate bonds and mortgages as its biggest allocations earlier this year, which are relatively sensitive to yields. The fund has posted a 0.2% loss so far this year, according to Morningstar. While that lagged behind the category, it still easily beat the 2.6% loss posted by core intermediate bond funds.

High-yield bonds remain fairly attractive, Michele says, as riskier companies should keep benefiting from the recovery. His fund has 28% of assets in high-yield or unrated bonds.

“Nothing is cheap,” says Gene Tannuzzo, head of global fixed income at Columbia Threadneedle Investments. “In many rising-rate environments, you can substitute credit risk for interest-rate risk and perform better. There’s some truth to that still, but you have to be careful when your starting point is that credit spreads are already tight.” He compared today’s markets to the first nine months of 2018—while there was no pandemic overhang, there was plenty of concern about the economy overheating, which drove up long-term bond yields.

Tannuzzo helps manage the $6 billion Columbia Strategic Income fund (COSIX), which has been buying residential mortgages that aren’t guaranteed by agencies, since they offer better valuations than the high-yield bond market more broadly.

Treasury yields are expected to keep rising—for a while, at least—as the government’s $1.9 trillion in Covid-19 aid boosts the U.S. recovery. Losses in the iShares 20+ Year Treasury Bond exchange-traded fund (TLT) have added up to nearly 13% this year.

“That’s equity-like returns, but in the wrong way,” says Rick Rieder, chief investment officer of global fixed income at BlackRock, who manages the $39 billion BlackRock Strategic Income Opportunities fund (BASIX). “People don’t expect AAA-rated assets to be down [that much] in three months.”

The near-term outlook isn’t much better for other highly rated bonds. Corporate debt valuations are near, and in some cases richer than, levels from before the pandemic. And the investment-grade bond market’s duration, or its sensitivity to changes in Treasury yields, reached an all-time high last year. It is still higher than it has been at any time before 2020, after companies issued record amounts of debt with low coupons and long maturities to refinance debt sold to weather the pandemic.

Even with the recent rise, bond yields remain very low relative to inflation: The ICE BofA Corporate Bond Index yields 2.2%, while market gauges reflect inflation expectations around 2.6% over the next five years.

Yields are so low that Rieder is buying stocks; they make up more than 5% of assets. He says stocks provide a free-cash-flow yield that easily beat yields on Treasuries—and stocks aren’t going to keep posting quarterly losses if yields rise further. Rieder is also bullish on floating-rate loans, bank debt, floating-rate preferred shares, and plays on the recovery.

Rieder isn’t alone venturing into equities, which creates questions about the role of unconstrained funds in a portfolio; fixed income is often seen as a portfolio hedge to offset stock market declines. But as the market’s interest-rate sensitivity has climbed in recent years, the performance of more staid sectors have seemed unusually volatile. Corporate bond funds, for example, lost 2.5% in 2018, and then returned 13% and 9.2% in 2019 and 2020, respectively.

Unconstrained managers say they can help diversify and offset losses investors might experience in years like this one, because the funds are meant to provide exposure that isn’t strongly correlated with the broader bond market.

“We wouldn’t be pounding the table for people to get out of traditional [bond] funds, but to look for diversifiers, or enhanced flexibility in an overall portfolio,” says Marc Seidner, manager of the $3.7 billion Pimco Dynamic Bond fund (PUBAX).

One larger reason for caution is that unconstrained managers are able to make larger, more concentrated bets that can go wrong. The $13.8 billion Templeton Global Bond fund (TPINX) saw a 4.4% loss last year after betting that the Treasury market would fall, before yields dove during the pandemic. The firm closed the bet in the first quarter of 2020, but still experienced the most outflows of any fixed-income fund last year, according to Morningstar.

While it is difficult to anticipate a pandemic, the losses do highlight a risk of active management that’s ever-present in unconstrained funds: Managers have the ability to make large bets that can go wrong. And broadly, investors need to do extra research before buying nontraditional funds, which don’t fit neatly into style boxes or invest in a single market.

For example, some invest primarily in international debt, such as the $4.3 billion T. Rowe Price Dynamic Global Bond fund (RPIEX). Others, such as the MetWest Unconstrained Bond fund (MWCRX), are invested in investment-grade residential mortgage-backed securities—some sectors offer higher carry because of technical quirks, says manager Steve Kane.

Some of the funds in the category are focusing on securitized markets, which can provide extra yield because of their complexity and difficulty of access. The $370 million FPA Flexible Income fund (FPFIX) was launched in 2019 as a slightly riskier companion to the $10.5 billion FPA New Income (FPNIX) profiled by Barron’s last year; it is also invested in auto loans and collateralized loan obligations with low durations.

It is important to note that investors can now find more protection from an economic slowdown—if not inflation-adjusted yield—in higher-quality bonds than they could at the beginning of this year. Pimco’s Seidner has been tiptoeing back into longer-term debt after this year’s selloff.

“It’s not inconceivable to see a 10-year yield above 2%, but we’re starting to enter the zone where longer-term value is being created in the bond market,” he says, in areas like higher-quality debt and Treasuries. Yields are also likely to top out at lower levels than in the past, he says, thanks to longer-term trends like demographics and technology changes.

Broadly, investors should keep in mind that any higher-yielding funds they buy—no matter which category they’re in—are getting their yield from some type of risk. And this year’s selloff in long-term debt should remind investors that defaults aren’t the only problem bonds can face: Interest-rate risk can be a problem too. When managed well, unconstrained funds may help contain it.


By Alexandra Scaggs

April 2, 2021 6:57 pm ET

Bond-Market Penalties Fade for States Seeing a Federal Windfall.

As far as Wall Street bond traders are concerned, President Joe Biden’s rescue has effectively erased the fiscal problems of America’s states.

The nearly $200 billion of direct aid coming to states from Washington is promising to make up for the fiscal hit of the pandemic, with the amount for some poised to be more than enough to close their budget shortfalls.

The coming influx of cash has eased some of the credit concerns for states that were looking for ways to cover revenue losses and right their finances at the height of the pandemic. That means investors aren’t pricing in a lot of risk when it comes to states, leaving the yields on most of the state bonds tracked by Bloomberg hovering within basis points of each other.

“The stimulus is a game changer” said Cooper Howard, director of fixed income strategy at the Schwab Center for Financial Research, noting that most state and local governments suffered a less substantial financial hit from the pandemic than they were initially expecting. “Essentially, they’re getting a lot of money on what was already an OK starting point.”

The yield on New York’s 10-year general-obligation bonds has dropped to 4 points less than the AAA benchmark, according to Bloomberg BVAL indexes, even though the state doesn’t have the highest rating. Minnesota’s yields are also below the benchmark, while Ohio and Washington state bonds are paying just 5 basis points above it.

Overall, general-obligation bond spreads for 16 of the 20 states tracked by Bloomberg are within 15 basis points of each other. Even for an outlier like near-junk rated Illinois, the yield penalty it’s facing has dropped to 1.2 percentage points from as much as 4.4 percentage points in May.

Those narrow credit spreads, which shows that investors see little difference in the risks, are likely to persist, said Jeff Lipton, a managing director and municipal debt analyst for Oppenheimer & Co. He attributed those low yield differences to the federal aid, an improving economy, and a steady tide of cash flowing into municipal bond funds.

“The multiple rounds of fiscal relief has certainly contributed to renewed credit stability and preservation of currently tight spreads,” Lipton said. “Market technicals will remain a driving force for muni performance.”

Bloomberg Markets

By Fola Akinnibi and Anastasia Bergeron

March 25, 2021, 11:04 AM PDT

— With assistance by Danielle Moran

Municipal Markets and the Municipal Liquidity Facility.

Municipal bond markets experienced a significant amount of strain in response to the COVID-19 crisis, creating liquidity and credit concerns among market participants. During the economic shutdown resulting from the pandemic, income tax revenues were deferred and sales tax revenues decreased beginning in spring 2020, while the cost of borrowing significantly increased for municipal issuers. To aid municipal borrowing needs, the Federal Reserve implemented the Municipal Liquidity Facility (MLF) on April 9, 2020. In this analysis we describe the municipal market conditions as they evolved during 2020, we document the response by the Federal Reserve to municipal market distress with a focus on the MLF, and we conduct an event study to examine MLF-related impacts on market index yield spreads. We detail two case studies that compare yield spreads for two issuers that had sold debt to the MLF and find that yield spreads in secondary market transactions for these two issuers were notably reduced after a public announcement of intent to sell debt to the MLF. Our results present additional evidence that the MLF had a positive impact on municipal market functioning during the pandemic period.

Read the paper.

Federal Reserve Bank of Cleveland.


S&P COVID-19 Activity In U.S. Public Finance.

Here are links to coronavirus-related activity in U.S. public finance. This file will be updated regularly.


Fitch: U.S. State Employment Growth Largely Flat to Start 2021

Fitch Ratings-New York-25 March 2021: State employment began the year essentially stagnant, though Fitch Ratings’ latest U.S. States Labor Markets Tracker points to a more promising second half of 2021.

States seeing marginal employment declines in January were California, Hawaii, Arkansas, Nebraska, North and South Carolina, Louisiana and Tennessee. The January official unemployment rate improved overall, though the Fitch-adjusted rate weakened for six states (Connecticut, Louisiana, Minnesota, Missouri, Texas, and Vermont), given declines in those states’ labor force.

“Economic activity is expected to pick up in the second half of the year with additional fiscal support and greater vaccination rates allowing for lifting restrictions, supporting a stronger jobs recovery,” said Senior Director Olu Sonola. However, severe delays or setbacks in immunization strategies remain a key risk and will weigh on the pace of economic and labor market recovery well into 2021.

Minnesota, New York, New Jersey, Louisiana, Wyoming, Washington, Alaska, Oregon, Illinois, California, New Mexico, North Dakota and Hawaii have recovered less than 50% of the jobs lost at the peak of the pandemic. Employment losses are still largely dominated by the leisure and hospitality industries, representing 40% of all state job losses since February 2020, despite making up only about 11% of total employment before the onset of the pandemic. These sectors continue to show significant signs of weakness, given government travel restrictions and consumer reluctance to travel.

Fitch’s latest “U.S. States 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

Arthur Tildesley
Associate Director
+1 646 582 4749

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

Additional information is available on

Fitch: Healthcare Expansion Under ARP Positive for NFP Hospitals

Fitch Ratings-New York/Austin-24 March 2021: The American Rescue Plan (ARP) contains a number of measures that would subtly improve the revenue profile and reduce cost pressures for not-for-profit (NFP) hospitals, Fitch Ratings says. In contrast to the Coronavirus Aid, Relief and Economic Security (CARES) Act, which allocated funds directly to hospitals based on size and coronavirus caseload numbers, the ARP only provides direct aid to rural providers. However, the ARP will help support hospital patient revenues by reducing the number of those who are uninsured, which is a credit positive for hospitals.

The most significant measures temporarily subsidize healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), subsidizing the premium at 100% through the end of September; provide additional funding/incentives to expand Medicaid coverage in those states that have not yet done so; and expand Affordable Care Act (ACA) premium subsidies.

Medicaid expansion would have a materially positive effect on providers in states that choose to expand, as it will reduce exposure to uninsured patient revenue risk with a commensurate increase in Medicaid volume. The law increases the Federal Medical Assistance Percentage (FMAP) by 5pp for two years for states that have not already expanded Medicaid. States that expanded during the public health emergency may also receive the coronavirus 6.2pp FMAP increase. When Medicaid expanded in 2014–2015, upgrades of Fitch’s rated credits outpaced downgrades by 3:1.

The ARP reduces insurance premium costs for plans offered through the ACA by increasing tax credits along with capping premium contributions at 8.5% of income for mid-level health plans. Those who earn 100% to 150% of the federal poverty level will not pay any premiums. Congress could potentially make some of these measures permanent, supporting the Biden administration’s goal of improving access to healthcare.

In line with greater Medicaid coverage, the law increases Medicaid coverage for coronavirus testing and treatment and clarifies that the federal matching rate for vaccinations is 100% for those covered by Medicaid. The ARP also allocates $50 billion for the Disaster Relief Fund, which could be used to help hospitals with personal protective equipment and other supplies.

The recent confirmation of Xavier Becerra as Secretary of the U.S. Department of Health and Human Services, who is considered a strong supporter of ACA expansion, is seen as further confirmation of the expected direction of healthcare policy. The Centers for Medicare and Medicaid Services (CMS) announced earlier this year that it plans to rescind approvals granted by the Trump administration that allowed states to implement work requirements in order to qualify for Medicaid.

S&P: State, Local Government, School District, And Charter School Sector Views Revised Back To Stable

Key Takeaways

Continue reading.

Citigroup, Baird Diverge Over Risk in Student-Loan Muni Debt.

Citigroup Inc., one of the biggest Wall Street underwriters, on Monday advised investors to avoid bonds sold by state student loan agencies, citing the risk that more graduates will need to get temporary reprieves from their debts.

A big buyer of the bonds disagrees.

Baird Advisors, which by the end of last year owned almost $200 million of municipal bonds sold by student-loan agencies, disputed Citigroup’s view that a “lack of transparency makes it impossible” for an investor to judge the risks if growing numbers of borrowers default.

Student-lending agencies in New Jersey, Missouri and Pennsylvania are among those that post quarterly loan updates and servicing reports for bondholders, said Joe Czechowicz, a portfolio manager at Baird. In addition, investors are protected from temporary cash-flow interruptions because, in most cases, the collateral for muni student-loan bonds exceeds the amount issued.

“The forbearance rates are not that high and there’s enough overcollateralization that if there was an extension of one year it shouldn’t be a credit issue for any of these borrowers,” said Czechowicz, citing bonds sold by New Hampshire in February that would still be able to provide full payments if almost 40% of the loans defaulted. “If 50% of the portfolio goes into forbearance, yes, we’re going to have a completely different discussion in terms of what these student loan authorities can handle. But we’re nowhere near that.”

Lighter Regulations

The debate highlights how the loose disclosure rules that govern the $3.9 trillion municipal market can pose challenges to even the most astute professionals, given lighter regulations that apply to state and local debt issues.

Vikram Rai, Citigroup’s lead muni analyst, declined to comment.

State agencies have about $18 billion of bonds backed by student loans outstanding, about $380 million of which will mature in the next 12 months, according to data compiled by Bloomberg. Since 2010, state student loan agencies haven’t issued federally guaranteed loans, though some state agency bonds that packaged such securities remain outstanding. Currently, states issue bonds to make private loans that aren’t federally backed.

When the coronavirus shuttered the economy last March, throwing tens of millions out of work, the U.S. Department of Education suspended loan payments, stopped collection on defaulted loans and adopted a 0% interest rate on its loans. The government extended the forbearance multiple times and President Joe Biden’s administration recently extended the period to Sept. 30. Some private lenders also offered forbearances for as much as 90 days.

Baird primarily invests in private student loans, which have lower forbearance and default rates and tend to be offered to graduate or medical students with high credit scores and better earnings potential, said Czechowicz.

“You’re not looking at the nineteen year old or twenty year old kid going to undergrad; you’re looking at the 35 year-old in that last couple years of residency of a medical program,” he said.

Balance Sheet

Citigroup’s analysts in their note Monday said there’s a risk that bonds maturing in the coming year will default. The analysts didn’t say how many bonds were at risk.

Jeff Wagner, an investment banker at the Royal Bank of Canada who specializes in student loan bonds, said he wasn’t aware of any impending defaults.

“It’s true that the Biden Administration extended the payment moratorium on federal student loans, but we see no looming crisis ahead because of legal final maturity issues on nonprofit or state agency transactions secured by them,” Wagner said.

RBC managed almost $7 billion of muni student loan bond sales between 2016 and 2020, according to a spokesman. The firm underwrote more than 60% of new deals during the period, according to data compiled by Bloomberg.

When student loans are in forbearance, state student loan agencies can use their balance sheet to ensure bondholders are paid on time, said Czechowicz. State student loan agencies also have the power to intercept tax refunds if students become delinquent and New Jersey’s agency even has the power to garnish wages and even withhold tuition aid grants.

“Those types of levers provide an extreme incentive to continue to pay and or work with the issuer itself,” he said.

Bloomberg Markets

By Martin Z Braun

March 23, 2021, 10:29 AM PDT Updated on March 23, 2021, 11:54 AM PDT

Inviting Danger: How Federal Disaster, Insurance and Infrastructure Policies are Magnifying the Harm of Climate Change


Many government policies create incentives for people to make economically detrimental decisions, including settling and building on land exposed to hurricanes, floods, and wildfires. These policies already cost taxpayers tens of billions of dollars annually and may cost a lot more by distorting the allocation of trillions of dollars of capital into danger-prone areas. Market forces that are normally powerful arbiters of risk are blunted by the assumption that losses, if they happen, will be repaid by government. Worse, where these policies amplify dangers that effect is likely to become more severe due to the impacts of global warming.

We introduce a framework for analyzing how federal spending patterns under current and possible future policies may shield or remove individuals, firms and local governments from some of the financial harm created by decisions they take—what economists often call “moral hazard.” Whereas these actors are often in a good position to make decisions that reduce exposure and damage from natural perils, in the presence of moral hazard they could make different decisions that, in effect, shift the cost of their choices.

What’s new in this paper is a framework for looking at individual policies and government programs according to how they affect the damages associated with natural disasters. We focus on the subset of those disasters that could be affected by climate change and thus exclude earthquakes, tsunamis and others whose incidence is unlikely to change in a warmer world. We distinguish between those that merely aim for simple recovery after peril hits—thus prone to create moral hazard if they discourage efforts to reduce dangers—and policy programs that aim to improve resilience against future perils. While there are many diverse domains of federal policy, we focus on policy programs in three areas: a) disaster response, b) building and maintenance of infrastructure; and c) subsidization of insurance for perils such as flood and crop losses.

Such a framework is essential because these policies are often highly complex, with varied goals that implicate agency action that are diffused across the whole of the federal government. For example, even within a single agency implementing a common core set of statutes—the Federal Energy Management Agency (FEMA)—some programs aim at resilience while most focus only on recovery. In FEMA’s case, we find that just 14 percent of the 81 billion dollars in total disaster grant funding spent since 2005 have gone to programs that aim to advance resilience to climate related disasters—smart building and rebuilding. Outside that tiny fraction, most of FEMA spending has gone into activities, such as rebuilding, that have the unintended effect of encouraging risky siting decisions and other behaviors that may discourage those best prepared to address these risks from being fully responsible for adverse outcomes. Loans and grants managed by Housing and Urban Development (HUD) also exhibit funding differences that can propagate behavior that could invite risk rather than build resilience. Flood and crop insurance programs can create similar incentives that insulate homeowners, farmers, and businesses from the consequences of risky behavior. Federal infrastructure investments also, for the most part, focus on recovery and response to today’s patterns of disasters rather than planning for the changing climate of the future.

The value of a framework is the ability to look across the entirety of the federal government. Quantifying the exact impact of the misallocation of risk costs, or moral hazard aspects of these programs is very difficult not just because they are diffused across government but also because the programs that create these adverse incentives co-mingle worthy policy goals (e.g., protecting vulnerable populations that are living on the edge already) with unintended consequences that can create moral hazard and shift the costs of that hazard to the federal government. Assessing how spending affects behavior—ultimately by individual homeowners and others—is outside the scope of this paper. Our purpose is to take the first step in such a full blown analysis, understanding the allocation of policy effort, that can create the conditions for moral hazard.

A central finding from applying this framework is that there is currently a 7:1 ratio of disaster recovery to resilience funding across the federal government. While there is substantial evidence that resilience funding generates large social returns, in practice federal spending on climate-related disasters appears to be heavily weighted away from resilience. We find this ratio can be as high as 40:1 depending on the accounting system used. The exact size of this cost differential is hard to pin down, but a central estimate today suggests that the federal government currently spends at least about $46 billion per year responding to and recovering from large natural disasters, and only $6 to 7 billion on resilience towards future perils. However, that number does not account for the full federal backstop—the implicit promises of assistance that are widely assumed to exist when massive losses, such as extreme hurricane seasons, arrive. That backstop has been tested periodically—for example, by superstorm Sandy—and found robust (and thus valuable and costly but hard to measure).

The practice of focusing federal disaster policy on recovery reflects many political forces, including support for important humanitarian goals. However, there are three reasons to expect that the cost will grow and, plausibly, become unsustainable politically and also more distortionary economically. First, population migration already trends toward dangerous areas—such as hurricane-beset Florida and Texas. Second, property values rise as these more crowded populations get wealthier. These two factors alone explain the majority of the rise in extreme storm losses over the last 3 decades, and that trend is likely to continue. The third factor—climate change—is newer and will magnify these effects. By mid-century, it is plausible that the flow of annual federal expenditures on climate related disasters will need to rise significantly, and by later in the century the increases due to climate change will exceed the effects from population and economic growth. We compare current average annual payments for FEMA declared disasters over the last decade against the expected economic loss in 2012 if the climate conditions projected for last decades of the century existed in 2012 and find the latter to be 1000 times greater on average, with lots of variation across the country. The Congressional Budget Office (CBO), Government Accountability Office (GAO) and other agencies, along with some academics and many state policy makers and experts in the corporate sector, have begun to look closely at this because it is so fundamental to public finance and to expectations for the size and character of future natural hazard policies.

Policy reform will be challenging. At present, federal policies are shrouded in deep layers of political defense, which is why these widely known problems with the current arrangements have not led to much durable reform. There are many encouraging pilot efforts to re-align incentives and reduce moral hazard—for example, FEMA’s efforts to buy out properties that suffer repeated losses rather than simply funding rebuilding that leads to repeated cycles of loss. Such efforts, overall, have only small effects on overall expenditure and many come unglued politically when they operate as intended. Reforms to raise flood insurance premiums in 2012, a good idea, came unglued politically when homeowners and the real estate industry balked; Congress rolled the premiums back just two years later.

Mindful of the political challenges, it is essential to pursue policy reforms in advance of accelerating impacts of climate change. We explore scenarios that could open a window of opportunity for reform. A massive event is one such scenario, for such shocks allow for a reordering of political forces. This happened briefly after superstorm Sandy when special Congressional appropriations allocated between one-third and one half of funding for smart rebuilding—a share much larger than normal disaster recovery programs. The probability of such an event is rising, and the country needs to recalibrate and plan for how it might respond not just immediately but in terms of larger disaster policy reforms. When Hurricane Andrew hit Florida in 1992 it caused $26.5 billion in total economic damages; the same event today, with more people and value at risk, would be $80-100 billion. And it’s not just large events that can create a crisis. Other scenarios see multiple small and medium size events over a short period of time that ripple through the insurance markets and create cascading financial stress. Florida, even with one of the most sophisticated private-public frameworks for funding disasters in the U.S., is primed for such an unravelling. With its $2.6 trillion of exposed insured residential values through public and private insurers, the Florida economy would be dependent on the viability of post event financing and assessments of policyholders and taxpayers to recover financially from an unusually severe hurricane season.

We outline reforms, with an emphasis on the value of tracking the difference of recovery vs. resilience spending so that the full picture (and its potential imbalances) can be understood. Such improved situational awareness will require more action in Congress to account for spending along with more analysis of how moral hazard may be amplifying the nation’s exposure to natural disasters. No regular government accounting activity tabulates the full extent of programs that may create moral hazard through federal policy. We also see a role for the US National Climate Assessment, a regular analysis of the possible impacts of climate change on the country, as one of the places where better understanding of how federal and state policies are affecting behavior could alter the actual damages the country suffers from climate change and the response strategies that might reduce those damages. In addition to better awareness of the effects of these federal policies, we identify ways for the whole of the federal government to operate more strategically in this domain. Finally, we suggest that major reforms of disaster assistance, while politically challenging, would benefit from more explicit political design so they contain interlocking elements that are likely to be more durable. A policy commission, similar to the commissions that help design policies for closure of military bases (a politically fraught topic with many of the zero sum dynamics that make disaster reform difficult) could be helpful. We also suggest that reforms are most likely in the context of crisis, and thus there is a need for realism about when reforms can be accomplished—laying the foundation of more situational awareness and more politically savvy reform packages will lay the groundwork for change when the opportunity arises.

Over the last few cycles of executive control, it has become apparent that neither political party has a strategy for realigning disaster assistance in ways that make it more financially sustainable nor create the right incentives to make society more resilient in the face of climate change. Most policies have focused on “building back the same,” and the public for the most part has been supportive. While that might have been tolerable in an era of modest impacts from natural disasters, that era is ending. An urgent national priority is creating the right incentives so that private and public sector investments reduce the future damages from climate change and make the country more resilient.

Download the full report

The Brookings Institution

by Sadie Frank, Eric Gesick, and David G. Victor

Wednesday, March 24, 2021

S&P: U.S. Not-For-Profit Transportation Infrastructure Sector View Is Now Stable For Airports, Mass Transit, And Toll Roads

Key Takeaways

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24 Mar, 2021

Build America Bonds May Be Key To Financing Biden’s Infrastructure Plans.


Continue reading.


by Thomas Franck

FRI, MAR 26 202

$3T Biden Infrastructure Plan a 'Catalyst' for Munis: Invesco's Paris

In this week’s “Muni Moment,” Mark Paris, head of municipals at Invesco, discusses the impact of U.S. President Joe Biden’s infrastructure spending plan on the municipal bond market. He speaks with Bloomberg’s Taylor Riggs on “Bloomberg Markets: The Close.”

Watch video.

March 24th, 2021

White House Infrastructure Details Slowly Emerge.

BDA and MBFA Continue to Engage with Hill and Administration Promoting Bonds

While nothing has been officially released, details continue to trickle out of the White House on the parameters of a likely $3 trillion spending plan on infrastructure. As part of the Biden Administrations Build Back Better plan, following the passage of COVIDstimulus, infrastructure is next on the docket. More on this belowThe BDA and MBFA continue to engage senior staff on both Capitol Hill and the Administration on the inclusion of muni infrastructure priorities in the package.

This week, the BDA Board is hosting House Ways and Means Chairman Richard Neal (D-MA) to discuss the Committee agenda for bonds and timing for passage. Later in the week, the MBFA Steering Committee is hosting the legislative staff of Senator Roger Wicker (R-MS), the sponsor of the LOCAL Infrastructure Act that would fully reinstate tax-exempt advance refundings in recent weeks.

Initial WH Plan Details

While bonds are expected to play a significant role in the formalized plan, initial leaked details lay out a massive spending plan aimed at a significant investment in a broad range of infrastructure.

These details include:

We will continue to provide updates as they become available, including read-outs of both Hill-related events this week.

Bond Dealers of America

March 22, 2021

Fully Funded U.S. Public Pensions Not Necessary to Ensure Benefits.

March 24 (Reuters) – Most U.S. state and local government pension systems are not facing imminent crisis and do not need to achieve full funding to ensure benefits are paid to retired workers, according to a paper released on Wednesday by the nonprofit public policy Brookings Institution.

Retirement plans for state and local government workers have nearly $5 trillion in assets, but would need an additional $4 trillion to meet all of their obligations to current and future retirees, according to the paper.

Concerns over unfunded liabilities have weighed on credit ratings for some governments and sparked fears that certain systems could run out of money.

The study found that cash-flow pressures should start to ease in 20 years due to pension reforms that lowered or eliminated annual cost-of-living adjustments to pension payments and reduced retirement benefits for new hires.

“We find that pension benefits payments in the U.S., as a share of the economy, are currently near their peak and will remain there for the next two decades,” the paper said. “Thereafter, the reforms instituted by many pension funds will gradually cause benefit cash flows to decline significantly.”

Instead of striving for full funding, the paper suggested that under conservative discounting of liabilities and modest asset investment return assumptions, many systems can achieve financial stability with “relatively moderate” adjustments to their pension contributions.

“Plans can be sustainable in the sense that benefits are payable for the foreseeable future, while pension contributions are stable without being fully funded,” said Louise Sheiner, a Brookings policy director and co-author of the paper.

The study, which examined 40 state and local retirement systems to determine if or when they would become insolvent under their current benefit and funding policies, said reduced pension spending would allow governments to increase funding in areas like education and infrastructure.

(Reporting By Karen Pierog Editing by Marguerita Choy)

Wed, March 24, 2021

The Sustainability of State and Local Government Pensions: A Public Finance Approach

What must state and local governments do to make their public employee pension plans sustainable? Less than many analyses conclude, according to a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on March 25.

The paper—by Jamie Lenney of the Bank of England, Byron Lutz of the Federal Reserve Board, Finn Schüle of Brown University, and Louise Sheiner of the Brookings Institution—suggests that, for the United States as a whole, state and local pension debt can be stabilized with relatively moderate fiscal adjustments. (They offer an important caveat: Plans vary significantly, and some do require very large funding increases.)

Their findings, however, imply that many state and local governments may be able to spend more than assumed on improving their educational systems and economically important infrastructure.

Continue reading.

The Brookings Institution

by Jamie Lenney, Byron Lutz, Finn Schüle, and Louise Sheiner

Wednesday, March 24, 2021

TD to Buy Headlands for Push Into Quantitative Bond Trading.

Toronto-Dominion Bank agreed to buy Headlands Tech Global Markets LLC, a quantitative fixed-income trading company, to help expand in the municipal and corporate bond markets.

Headlands, with 15 employees and offices in Chicago and San Francisco, was founded in 2013 and has proprietary software that offers fully automated market-making services, Toronto-Dominion said in a statement Tuesday. Financial details of the purchase weren’t disclosed, but the bank said it will have a “minimal impact” on capital.

“This acquisition further strengthens our electronic bond-trading infrastructure and underscores our commitment to delivering data-driven innovation and growing our global platform,” TD Securities Chief Executive Officer Bob Dorrance said in the statement.

Toronto-Dominion said in January it was open to acquisitions that take advantage of the economic downturn, and much of the speculation was that the bank might look to add to its U.S. retail footprint. The bank has about C$12 billion in capital beyond what it would need to maintain the 11% common equity tier 1 ratio that banks generally target, meaning it has capacity for a large acquisition.

So far though, the bank has announced only relatively small takeovers this year. In addition to the Headlands deal, Toronto-Dominion in January said it was buying Wells Fargo & Co.’s Canadian direct equipment finance business, which has about C$1.5 billion in assets and 120 employees across the country. Financial terms of that deal weren’t disclosed either.

Toronto-Dominion was little changed at C$82.10 at 9:50 a.m. in Toronto. The shares have risen 14% this year, matching the gain for the S&P/TSX Commercial Banks Index.

Banks have benefited from a surge in trading volume as the pandemic roiled markets, boosting results in their capital markets divisions. In the fiscal first quarter, Toronto-Dominion reported wholesale-banking revenue of C$1.31 billion, up 25% from a year earlier, on higher trading-related revenue and loan, underwriting and advisory fees.

Toronto-Dominion gets a relatively small portion of its revenue from capital-markets activities. The lender generated only about 11% of its fiscal 2020 revenue from wholesale banking, while rival Royal Bank of Canada got 21% of revenue from its capital-markets division.

Bloomberg Markets

By Kevin Orland

March 23, 2021, 4:31 AM PDT Updated on March 23, 2021, 6:52 AM PDT

— With assistance by Steve Dickson

S&P: Across U.S. Public Finance, All Sectors Stand To Benefit From The American Rescue Plan

Key Takeaways

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March 18, 2021

S&P: COVID-19 Activity In U.S. Public Finance

Read the S&P Report.

March 18, 2021

When State and Local Governments Can Expect to Receive Stimulus Funds.

The Treasury Department is still working on guidance that will better inform states of how they can use the money. But aid for cities and counties must be distributed within 60 days of the law’s passage.

It could be weeks before state and local jurisdictions begin receiving payments from the federal government as part of a $350 billion direct aid program included in the massive coronavirus relief bill passed this month.

Local governments are likely to begin receiving money before states, due to stipulations in the American Rescue Plan Act. The Treasury Department has 60 days from the law’s enactment to release the first tranche of funding to cities and counties—in this case a mid-May deadline.

“We have not heard major concerns about that timeline and how those funds will be administered,” said Eryn Hurley, associate legislative director at the National Association of Counties.

Once counties receive the money, Hurley expects they “will be able to use that very quickly and effectively.”

The process for states could take longer as the Treasury Department is still working on guidance that will help administer the payments. States are required to sign certification documents attesting they will spend the money only in certain ways prescribed by the law. Those documents have yet to be published, but after states certify, the department has 60 days to release initial aid payments to them.

Some state officials have already expressed concern over a last-minute addition to the law that restricts states from using the money to pay for tax cuts. Republican attorneys general have asked the Treasury Department for more clarity on how that mandate will be enforced.

The Treasury Department did not respond to repeated requests for comment on the timeline for distribution to state and local governments or progress on drafting guidance on the law for states.

“The real concern is when the guidance from the Treasury Department will come out. That is a total unknown,” said Anna Horevay, an attorney at McGuire Woods who advises local governments on the relief bill.

It took weeks for the department to issue guidance for state and local governments on CARES Act money, Horevay said. Even then, guidance on how that funding could be spent kept changing, leaving officials unsure whether they could use the money for expenses like payroll costs for public safety workers.

“That created confusion,” Horevay said.

States are going to be cautious about how they use American Rescue Plan funds because the law allows the Treasury Department to claw back the money if it is not used in the ways required, she added.

The certification that state and local governments were required to sign for the CARES Act was a simple, one-page document. If the Treasury Department relies on a similar certification process, it would help streamline the process, Horevay said.

“Hopefully the certification is short and doesn’t take a lot of effort from the states’ side to sign it and then they can start the 60-day clock ticking,” she said.

Local governments will receive $130 billion in direct aid, with the funding divided evenly between cities and counties. States and the District of Columbia will receive $195 billion.

The law divides the payments to local governments into two tranches of money. Cities and counties will receive 50% of the money initially and the other half of the money 12 months after the first payment. The Treasury Department can choose to withhold up to 50% of funding from states from its initial distribution, so with further guidance outstanding, it remains unclear whether states will receive payments in one or two tranches of money.

Route Fifty

By Andrea Noble,
Staff Correspondent

MARCH 19, 2021

Brian Chappatta on State and Local Aid (Podcast)

Bloomberg Opinion columnist Brian Chappatta presents a column explaining that the most straightforward sign that federal assistance for states and municipalities was necessary is the level of state and local government employment, which remains near its lowest level in almost two decades.

Listen to audio.

March 16, 2021

Federal Covid-19 Aid Aims to Help Cities, States Avoid Cutting Jobs and Services.

Biden administration seeks to avoid prolonged budgetary strain; Republicans say $350 billion is too much

WASHINGTON — The Biden administration has pitched its $1.9 trillion Covid-19 aid package as a way to forestall what it saw as a major risk to the economic recovery: a prolonged budget squeeze for state and local governments. Republicans say much of the aid isn’t needed, and at least one GOP lawmaker is urging mayors and governors to give some of it back.

As part of the package enacted last week, cities, counties and states will get $350 billion to distribute vaccines and cover other pandemic-related costs and to invest in infrastructure, such as expanded broadband access.

Administration officials have said the money will help avoid the same outcome as the previous recession, when years of budget shortfalls forced local governments to cut spending, curtail services and lay off workers, all of which weighed on the recovery.

Continue reading.

The Wall Street Journal

By Kate Davidson

March 18, 2021 5:30 am ET

What Does the COVID-19 Exodus Mean for Large Cities and Counties?

For decades, many large U.S. metropolitan cities have seen their rental markets reach new heights with sky-high rents and shortage of living spaces – however, all of which came to a screeching halt during 2020.

Initially thought to be short term, work-from-home directives became the new norm. With this new reality, increasingly more large cities are seeing young professionals leaving for mid-to-small sized cities throughout the U.S. – creating vacancies and driving down the rent prices in larger metropolises like NYC and San Francisco . On the contrary, the flight of population from large cities can be a worrying sign for local and regional governments, as much of their finances depend on the flourishing real estate markets and consumer spending.

In this article, we will take a closer look at a few of the large metropolitan cities and how the COVID-19-related migration may impact their fiscal positions.

Continue reading.

Mar 17, 2021

S&P Health Care Credit Beat: $1.9 Trillion Stimulus Package Provides Temporary Boost To The Sector

On March 11, President Joe Biden signed the $1.9 trillion stimulus package known as the American Rescue Plan (ARP) into law. The massive package includes direct payments to households, aid to state and local government, and aid to small businesses that are intended to catalyze the nation’s economic recovery and pandemic efforts.

At the same time, the ARP is also an important piece of U.S. health care legislation because it creates funding for health coverage expansion and financial assistance at a time when it is greatly needed. Overall, S&P Global Ratings views the ARP as a modestly positive credit event for the health care sector. However, we expect no direct rating actions due to the temporary nature of many of the health care provisions.

Key Takeaways

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17 Mar, 2021

Fitch Ratings Updates U.S. Public Finance Tender Option Bond Criteria.

Fitch Ratings-New York-16 March 2021: Fitch Ratings has published the following updated report: “U.S. Public Finance Tender Option Bond Rating Criteria.” This report updates the prior report published on March 25,2020. The key elements of Fitch’s tender option bond rating criteria remain consistent with those of its prior criteria report.


Joseph Staffa
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004

Dennis Pidherny
Managing Director

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

Additional information is available on

Moody’s Launches Comprehensive Suite of Climate Solutions.

Moody’s launches its new Climate Solutions Suite incorporating physical and transition climate risk data into Moody’s best-in-class risk management solutions and economic models. Read the press release from Moodys:

LONDON- (BUSINESS WIRE) – Moody’s ESG Solutions Group today announced the launch of Climate Solutions, a comprehensive product suite that provides market participants with enhanced risk measurement and evaluation tools to better understand, quantify and manage climate risks and opportunities. Climate Solutions incorporates physical and transition risk into Moody’s best-in-class risk management solutions and economic models to enable banks, insurers and investors to better assess climate risks and comply with the emerging regulatory requirements for stress testing and disclosures.

“Climate change has a profound impact on the world’s economies and societies,” said Mark Kaye, Chief Financial Officer and Executive Sponsor of Moody’s ESG Solutions Group. “Moody’s is committed to offering science-driven, objective analytics to advance strategic resilience and to help market participants navigate the transformation to a low-carbon, climate-resilient future.”

Powered by Moody’s affiliates Four Twenty Seven, a leader in climate risk data, and V.E, a leading global provider of ESG research, data and assessments, Moody’s Climate Solutions includes:

“Combining advanced climate know-how with proven models for credit risk and economic forecasts has enabled us to create a sophisticated set of climate risk analytics to support the systematic integration of climate change into investment and risk management decisions,” said Emilie Mazzacurati, Global Head of Moody’s Climate Solutions. “Our solutions support growing market needs for robust modeling of climate risks and their financial impacts.”

Why Social Bonds are Key to Driving More Investment in Education.

Investing in social causes is on the rise. Investors are increasingly wondering how to use their capital to improve society in the wake of the COVID-19 pandemic and ongoing social unrest.

The trend of investing for both financial gains and social or environmental impacts has been growing in popularity, with the latest estimate from the Global Impact Investing Network (GIIN) putting the size of the market at $715 billion.

However, just $1.26 billion of this total was focused on the education sector, which ranked 12th out of the 14 investment categories tracked by the GIIN. While most impact investors said they planned to either increase (48%) or maintain (41%) their allocations to education over the next five years, some structural or market barriers certainly stand in the way of getting more impact investors interested in education.

The education sector has always been financed in part by outside investors, although these investors may not have thought of themselves as impact investors. General obligation bonds issued by governments are a common way to fund public education. These bonds are typically secured by raising taxes on the residents of a community.

In 2020, the concept of a social bond issued by nonprofits (like a green bond but focused on social benefits rather than environmental benefits) has emerged and taken root in the education sector. Social bonds represent a new milestone in the education space and a key to unlocking the door to impact investments.

There were three social bonds issued in 2020 that focused on education. The first two, by a school district in Massachusetts and a charter school in Los Angeles, were self-designated as social bonds by the issuers.

The third came in August 2020, when the Equitable Facilities Fund (EFF) announced the closing of $204 million in verified social bonds, with the proceeds helping to finance public charter schools that are providing transformative educational opportunities for students, especially in low-income and under-resourced communities. The “A” rated Social Bonds, which were 8x oversubscribed, offered investors a 2.18% return on a 30-year maturity, a similar risk-return profile to muni bonds but with the added impact component.

Impact investors have generally shied away from the education sector, in part because of a lack of investable products that meet their risk-return objectives while also offering the potential to generate positive social outcomes.

Several investment products help meet this double-bottom-line goal for investors in the social sector. Local Initiative Support Corp (LISC) issued a $100 million tax-exempt bond in 2017 with the proceeds used to support a variety of social benefits, including education. Other nonprofit Community Development Finance Institutions (CDFIs) have also issued investment notes for similar purposes, including Capital Impact Partners, Reinvestment Fund and Low Income Investment Fund.

A social bond may represent the next big tool in the impact investor playbook, with a record $154 billion in Social Bonds issued in 2020, easily dwarfing the $17.9 billion issued in all of 2019. But what may differentiate the social bond, making it especially attractive to impact investors, is the fact that it is a marketable security easily traded through traditional investment channels.

The advent of qualified external reviews should also help. Kestrel Verifiers, which verifies bonds for conformance with the Green Bond Principles, the Social Bond Principles, Sustainability Bond Guidelines and the Climate Bonds Standard, provided a detailed Second Party Opinion to certify that the Social Bonds, issued by the Equitable School Revolving Fund (ESRF), were aligned with the Social Bond Principles developed by the International Capital Markets Association (ICMA).

In the official bond offering, the proceeds of the ESRF social bond are defined as “social projects” designed to produce social benefits that “address socioeconomic advancement and empowerment of students from underserved communities,” including families with students living below the poverty line, students with parents that are undereducated, and homeless students.

This independent verification of the bona fide social benefits derived from the bond-financed activities should alleviate concerns about impact-washing and assure impact investors that their capital is generating a positive social impact.

Impact investors should be cheering at the opportunity to earn a financial return while also providing much-needed financing to help reform and improve our education system. Social bonds can play an important role in that transformation.

Ultimately, impact investors will need a range of products to choose from with different risk-return profiles and a variety of potential social impacts. Some impact investors may prefer to focus on a particular community or region (i.e., place-based investing), while other impact investors may want to invest in the education sector more broadly. Some may want to invest in real estate, which tends to be the biggest line item for schools, while others may want to invest in schools directly.

This kind of robust investment marketplace is likely still a few years away. It will take time and energy to standardize products and create efficient investment platforms for all the impact investment products that support schools and education.

But for those who care about education, social bonds represent an innovative investment opportunity that will help catalyze the flow of impact capital into the education sector for the foreseeable future.


By Mark Medema

Mark Medema is managing director at the National Alliance for Public Charter Schools.

Can Fiscal Alchemy Bolster Public Pension Funds?

Some government employers are exploiting the peculiar rules of public finance to transfer public assets or cash from clever deals to their pension funds. But there’s risk to taxpayers when it’s magic beans and shell games.

The way state and local governments keep their books is uniquely different from the way the private sector operates. Public-sector organizations are expected to be “perpetuities” — to never go out of business — and to provide for a common good. So they record assets and liabilities in unique ways. The same is true for their pension funds.

Precisely because governments are viewed as perpetuities, public pensions use an “expected” rate of return on their invested assets rather than a more conservative, risk-free rate as is required of private companies. When the public plans’ investment returns fall short of the expectations, as they have in many plans over the past decades, an unfunded actuarial accrued liability is the result. Public employers are expected (and in some states, obliged) to pay an annual contribution for unfunded liability on top of their normal actuarial costs.

Needless to say, the public finance community is constantly looking for clever ways to reduce these annual burdens and improve the pension funds’ actuarial balance sheets. If they can find a way to pump up the assets held by the pension fund that requires lower annual costs for the employer, the hired financial professionals who collect fees for their ingenuity are rewarded for that fiscal alchemy.

Continue reading.



The Washington Weekly: House Committee Considers Munis

Read the Washington Weekly.

Bond Dealers of America

March 19, 2021

'There’s Been Low Issuance and Very Strong Demand,' in Municipal Bonds: Head of BlackRock's Municipal Bonds Group

Head of BlackRock’s Municipal Bonds Group, Peter Hayes joined Yahoo Finance Live to break down his thoughts on the municipal bonds market for the remainder of 2021.

Watch video

Yahoo Finance Video

Thu, March 18, 2021, 1:25 PM

Why Taxable Munis' Time In The Sun Has Faded: Kazatsky (Radio)

Eric Kazatsky, Senior U.S. Municipals Strategist for Bloomberg Intelligence: higher taxes/inflation impacts on munis. Hosted by Paul Sweeney and Matt Miller.

Listen to audio.

Bloomberg Radio

March 19, 2021

Munis Join Selloff, Closing a Refuge From Mounting Bond Losses.

The state and local government bond market is losing its status as a temporary refuge for fixed-income investors.

Municipal bond yields surged along with Treasuries Thursday after Federal Reserve Chair Jerome Powell said the central bank will keep interest rates low until the economic recovery is evident, stoking concerns about rising inflation.

That marks a shift for the $3.9 trillion market, a slow-moving province of buy-and-hold investors who have continued to pour a steady stream of cash into mutual funds. Before Thursday, the securities had delivered positive returns this month — a contrast to the losses piling up in the corporate debt and Treasuries markets.

“Over the past two days, municipal yields have begun to react to sizable year-to-date increases in yields in the broader U.S. fixed-income markets,” Peter DeGroot, head of municipal research and strategy for JPMorgan Chase & Co., said in an interview. “The outlook for fundamentals is good. But the muni asset class is expected to under-perform given the selloff in the broader U.S. fixed income market.”

Yields on benchmark 30-year tax-exempt bonds rose 7 basis points to 1.8%, the steepest jump in three weeks, according to Bloomberg’s BVAL indexes. Those on 10-year debt rose about 7 basis points to 1.1%.

The rising yields could jeopardize the influx of cash that had helped to prop up prices this year as investors added an average of $2.3 billion to municipal debt funds each week, according to Investment Company Institute data compiled by Bloomberg.

That influx had come as states and cities were poised to receive some $350 billion in federal aid to contend with the financial impacts of the pandemic, significantly easing the risk of deep credit rating cuts or mounting distress. The market also stood to gain from President Joe Biden’s push to raise taxes on the highest earners, which would likely increase demand for federally tax-free bonds.

Analysts have been watching closely for signs that investors are starting to pull back. The individual investors who are the biggest owners of municipal bonds tend to act in concert during down markets, leaving mutual funds typically facing long periods of cash withdraws known as an outflow cycle.

Until Thursday, the muni-market had been little changed in 2021, with gains earlier this month paring their losses for the year to 0.35%, compared with the 4% drop for Treasuries, according to Bloomberg Barclays indexes.

Despite the improving financial fundamentals of state and local borrowers, such a retreat could exert a drag on the market’s performance, DeGroot said. “Municipal funds are susceptible to outflows in periods of rising muni rates and negative fund performance,” he said.

Bloomberg Markets

By Shruti Singh

March 18, 2021, 10:38 AM PDT

Tax Hikes an 'Extremely Strong' Munis Tailwind, Foley Says.

In this week’s “Muni Moment,” Nick Foley, Segall Bryant & Hamill senior portfolio manager, discusses the impact of U.S. President Joe Biden’s proposed tax plan on the municipal bond market on “Bloomberg Markets: The Close.”

Watch video.

Bloomberg Markets: The Close

March 16th, 2021

Munis Become Refuge From Bond Market Losses With Yields Falling.

America’s municipal bonds are proving to be a haven for fixed-income investors.

Even as speculation about resurgent economic growth drove up yields on corporate bonds and Treasuries this month — saddling investors with losses — tax-exempt debt moved in the opposite direction. Benchmark municipal-bond yields have dropped so far in March, delivering investors a return of 0.72%, according to the Bloomberg Barclays index.

The disconnect is coming as investors plow back into the municipal market following a selloff late last month, with both mutual funds and exchange-traded funds seeing an influx of cash.

President Joe Biden’s rescue plan is poised to provide a massive infusion of aid to states, cities, school districts and public transportation systems to make up for the financial toll of the pandemic, promising to remove any stress from a wide swath of the market. At the same time, the pace of new debt sales has slowed and potential moves to raise taxes on the highest earners at the state and federal levels may further fuel demand.

“We have too little tax-exempt supply for every dollar of investor demand. There are just far more muni bond investors than there are issuers now,” said Matt Fabian, managing director of Municipal Market Analytics. “That’s a condition that will only get worse if taxes rise.”

The demand is driving a closely watched gauge — the ratio of municipal yields to those on Treasuries — back toward the record lows hit last month, indicating that state and local government bonds have gotten more pricey in comparison. Ten-year municipal bonds yielded about 62% of Treasuries by the end of last week, not far from a low of 54% in mid-February.

Citigroup Inc. analysts led by Vikram Rai on Monday said they expect the municipal market’s outperformance to continue given the positive effect the stimulus will have on government agencies that have issued bonds.

“While we still fear fund flow related volatility ahead, our moderately bullish outlook on tax-exempt paper remains in effect,” the report said.

Bloomberg Markets

By Fola Akinnibi

March 15, 2021, 10:31 AM PDT

— With assistance by Danielle Moran

Successful Female Leaders Abound, But Women In Public Finance Are Rare.

Ellen Johnson Sirleaf. Michelle Bachelet. Christine Lagarde. Jacinda Ardern. You have heard the stories about their effective leadership. So why are there so few women leaders out there? Why in particular do we have such a strong predilection to denying women the highest seats in office that hold the national purse strings?

If women are still, in 2021, vastly underrepresented in country leadership around the world, then the representation gap is especially acute in public finance bodies, such as finance ministries and national audit offices that report on the use of public funds. According to new data from UN Women and the International Organization of Supreme Audit Institutions Development Initiative respectively, only 11 percent of countries have finance portfolios held by women and less than a third of all heads of national audit offices are women.

Yet, women are overrepresented in leading countries that are well governed. Examples abound of women-led countries that fared better in the initial handling of the COVID pandemic: New Zealand, Germany and Taiwan are just a few. Indeed, women often face a glass cliff — they are more likely to be handed over the reins as “the fixer” in a crisis. Why? A Harvard Business Review study found that women were ranked higher in interpersonal skills — such as communicating effectively, inspiring others, and displaying empathy — leadership competencies that are ranked most important when times are tough.

Women leaders are also attuned to the intersectional challenges their fellow women face and these considerations inform their decision-making and design of more gender-responsive policies and budgets.

For instance, Indonesia’s finance minister Sri Mulyani Indrawati has been a vocal champion for addressing the disproportionate impacts that women face under COVID. The Indonesian government is working with the Indonesian People’s Struggle to address registration gaps that were preventing women in low-income settlements from receiving COVID assistance. Women heads of national audit offices, such as those in Jamaica and Costa Rica, are also leading the way in monitoring the use of COVID relief funds.

If we know that women are good or arguably better leaders at this critical time, then what is holding us back from choosing more of them, especially in institutions that are critical for an accountable and inclusive recovery — such as finance ministries and audit institutions?

There are no easy answers, but we can start by dismantling entrenched stereotypes. We must challenge outdated and tokenistic approaches to representation that pigeonhole women into specific leadership roles. In a workshop series that our organizations held with women representatives in finance ministries, auditors and public finance nonprofit leaders, we heard examples of women being looked upon to fulfill public-facing roles and relied upon less so for their technical expertise.

Relatedly, we must tackle norms that perpetuate biases that women do not excel in science, technology, engineering, and mathematics. There is mounting evidence that gender discrimination is rife in the economics field. This has a direct impact on the leadership pipeline. Women feel less supported to stay in economics and other mathematics related fields early on in their studies and profession and as a result there is less retention of female talent that can be groomed for leadership.

The brave women who do stick it out face many hurdles that delimit their advancement. Yet, data gaps limit our understanding of these impediments. To course correct in public finance institutions, we must collect more data on recruitment and promotion policies, offer capacity development opportunities and create mentoring and coaching opportunities for women. Importantly, the tone needs to be set at the top — the leaders of these institutions need to make clear these issues are a priority.

We also know that all organizations, including public finance institutions, must look at measures that support the redistribution of unpaid care work. We need to stop taking women’s double duties for granted if we are to truly level the playing field for women to advance in the workplace.

As we seek a more durable and inclusive post-COVID recovery, we know we are better served when we make space for women’s leadership, especially in public finance roles where there is a gaping need. This is about equity and fairness. But it is also about undoing the structures, norms and stereotypes that stand in the way of getting the best leaders we deserve.




Malado Kaba is a board member of the International Budget Partnership and former minister of Economy and Finance of Guinea. Einar Gørrissen is director general of the International Organization of Supreme Audit Institutions (INTOSAI) development initiative.

As the Muni Market Takes Off, Check Out This Pair of Invesco ETFs.

Last year’s bond bonanza amid a flight to safety saw a large increase in capital inflows from banks and funds into municipal bonds. Investors looking for bond alternatives now can opt for a pair of muni-focused bond funds from Invesco with the Invesco National AMT-Free Municipal Bond ETF (PZA) and the Invesco VRDO Tax-Free Weekly ETF (PVI).

On one hand, PZA seeks to track the investment results of the ICE BofAML National Long-Term Core Plus Municipal Securities Index. The fund generally will invest at least 80% of its total assets in the components of the index.

The index is composed of U.S. dollar-denominated, tax-exempt municipal debt publicly issued by U.S. states and territories and their political subdivisions in the U.S. domestic market. PZA’s expense ratio comes in at 0.28%.

Continue reading.



MARCH 18, 2021

BlackRock Debuts Active Muni ETF.

Today, BlackRock rolled out another active ETF under its main brand rather than the iShares name. The BlackRock High Yield Muni Income Bond ETF (HYMU) can invest in a range of municipal bond debt, and its portfolio is designed to hold at least 65% of its weight in low or medium quality securities.

HYMU comes with an expense ratio of 0.35% and lists on Cboe Global Markets.

The fund’s managers select bonds for the portfolio based on their expectations that the securities potentially offer high returns relative to their risk. The prospectus notes that HYMU can invest up to 100% of its assets in junk bonds and up to 20% in securities deemed “distressed,” meaning that they have defaulted or are involved in bankruptcy proceedings or have exceptionally low credit ratings.

Continue reading.

by Heather Bell

March 18, 2021

HYD: There Is Still Some Value In High Yield Munis


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Seeking Alpha

Mar. 18, 202

Short-Duration HY Munis Remain Attractive Options For Rising Rates.


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Seeking Alpha

Mar. 19, 2021

The 'New Normal' Requires Enhanced Municipal Finance Tools.

The Great Pandemic has entered its second year with hints that its U.S. spread may finally be on the decline.

The new normal for the U.S. economy, and its impact on state and local governments, has yet to fully emerge, but is likely to be more challenging than current sanguine governmental revenue reports suggest.

Prudent behavior combined with an expanded vaccination effort offers some hope of living without fear of infection later in the year. However, this once-in-a-century calamity is likely to leave a meaningful scar.

While acknowledging the critical assistance in the federal relief bill, yet in anticipation of the uncertainty ahead, further Congressional action is essential to provide state and local governments with additional tools to manage debt programs to meet the needs of their constituents.

Just one example relates to commercial and retail real estate, its current valuation, and the previously anticipated taxes related thereto. The New York Times reports the observation of Moody’s commercial and real estate group head Victor Calanog: “companies were dragged kicking and screaming to the world of letting people work remotely,” adding “the genie is out of the proverbial bottle.”

While that may be good news for millions of commuting employees, it suggests a very different level of need for commercial real estate with decreased valuations likely throwing into question assumptions related to property tax-supported bonds.

Moreover, the increasingly pronounced prospects of the messy and sometimes dangerous consequences of a changing climate compounds the case to give state and local government additional means to access capital to respond to demands associated with aging infrastructure and climate related stress.

Extreme cold weather in Texas left millions without electricity for days and, for a longer period, water service. The 2018 Camp Fire displaced 50,000 people and burned 19,000 structures in Paradise, California. Both resulted in scores of deaths and billions of dollars in property damage.

Within this decade there is an urgent need for infrastructure programs that both retool an economy away from carbon dependence and adapt communities to the portion of climate change consequence that may be too late to forestall.

Three proven and familiar instruments would assist state and local government to finance these imperatives:

Reauthorize advanced refundings
Altered economic circumstances often make necessary the restructuring of existing municipal debt programs. Congress should reauthorize this-type financing to enable states, cities, and other local governments to retool their debt programs for current realities with the option of using tax-exempt debt.

Create a new Build America Bond-styled taxable debt program
A subsidized taxable municipal bond program was an important innovation of the last significant US financial crisis—the Great Recession. The program broadened the access to capital, while also enhancing liquidity to investors. The limit to the investor universe inherent to tax-exempt securities was meaningfully addressed and municipalities gained access to capital worldwide. Note that any new iteration of this tool should include an assurance the federal provision for making the taxable rate equivalent to that of tax-exempt issuance will not be altered after issuance.

Expand private activity bonds for climate essential infrastructure
The transition to a net zero carbon economy by 2050 is the consensus target for government and business. The heavy lift toward that goal begins this decade. For example, most major car manufacturers are converting their products over the next few years to being powered 100% by electricity. To support this change, an expansive national system of charging stations needs to be created. Making eligible private activity bonds for this purpose will encourage this system’s rapid development.

The municipal market in any given year is responsible for about 75% of the new-money spend on U.S. infrastructure. To meet this obligation, enhanced financing solutions are needed to address outsized problems related to recovery from the unanticipated pandemic and the unprecedented challenge of global warming.

The Bond Buyer

By Chris Hamel

March 11, 2021, 9:59 a.m. EST

Chris Hamel is an Advisory Board member of Municipal Bonds for America and a Senior Fellow with Municipal Market Analytics, Inc.

BofA Widens Lead in Muni Business With Almost 20% Market Share.

So far this year, Bank of America Corp. is expanding its dominance in the business of underwriting bonds for America’s states and cities.

The bank has led the sale of $13.2 billion of municipal bonds in 2021, nearly three times as many as its nearest rival, Citigroup Inc., according to data compiled by Bloomberg. That’s 19% of all the long-term state and local government debt that’s been issued — a bigger market share than Bank of America has had in any full year since at least 2013.

BofA Dominates

Bank of America reigns over new issue muni market with most sales

Source: Bloomberg US Municipal Long Term League Table

With new debt sales slower at the start of the year, the rankings may reflect the advantages of winning a few of the biggest deals, such as the $1.5 billion issue that Bank of America handled for the Port Authority of New York & New Jersey. And as the year wears on, its market share may fall as the volume of new deals rises and competitors potentially catch up.

But the scale of its lead since January underscores how much the bank has come to dominate the $3.9 trillion municipal-bond market, leaving other Wall Street rivals reduced to competing for second place. Bank of America has been the top municipal underwriter since at least 2013 and last year handled $62 billion of such securities offerings, 14% of the market and about $16 billion more than No. 2 ranked Citigroup, data compiled by Bloomberg shows.

With the volume of sales slowing from last year’s pace, Bank of America has been bidding aggressively against competitors to secure debt issued in auctions, instead of relying on so-called negotiated deals in which the bank is hired in advance. It has won about 27% of all municipal bond issues sold by competitive bidding in 2021, up from 16% last year.

“It’s particularly impressive here that it’s the same number one ranked manager for competitive and negotiated” sales, said Patrick Luby, a municipal debt strategist with CreditSights. “That suggests a strong commitment to our marketplace.”

Bloomberg Markets

By Danielle Moran

March 9, 2021, 10:35 AM PST

$350 Billion Slated for State, Local Governments as President Signs American Rescue Plan: McGuireWoods

On March 11, 2021, President Joe Biden signed into law H.R. 1319, the American Rescue Plan Act of 2021. The $1.9 trillion stimulus plan passed in the U.S. House of Representatives by a 220-211 vote on March 10, 2021, and in the Senate by a narrow 50-49 vote on March 6, 2021.

The American Rescue Plan marks the Biden administration’s first major legislative achievement working with the narrow Democratic majority in the U.S. House and Senate. President Biden requested that lawmakers prepare legislation with the goals of developing a national vaccination program; increasing COVID-19 testing, tracing and treatment; changing employment regulations; and providing financial assistance for state and local governments impacted by the COVID-19 pandemic.

The American Rescue Plan will provide $350 billion in payments to U.S. territories, states, and local and tribal governments as crucial assistance for budgets depleted by COVID-19. Of the amounts to be provided to states and local governments, states will receive 60 percent and local governments will receive 40 percent of the distributions. Below is a breakdown of how payments will be directed.

Fiscal Recovery Funds. The American Rescue Plan establishes two fiscal recovery funds to distribute money to states, local governments, tribal governments and U.S. territories.

Coronavirus State Fiscal Recovery Fund – $219.8 billion. States, the District of Columbia, tribal governments and U.S. territories will receive $219.8 billion in aid to be distributed, as follows:

Coronavirus Local Fiscal Recovery Fund – $130.2 billion. Local governments will receive $130.2 billion in aid to be split among counties, metropolitan cities and nonentitlement units of local government, as follows:

Despite requests from states, counties and cities for flexibility in use of funds, the American Rescue Plan contains restrictions on use of monies distributed from either of the fiscal recovery funds. Funds may be used only to cover costs incurred by each applicable jurisdiction by Dec. 31, 2024, for the following purposes:

Each state and territory will be required to certify to the U.S. Treasury that it will use any payment in compliance with the use of fund restrictions before any distribution is made. Once the U.S. Treasury receives this certification, the department must make payment to the certifying entity within 60 days. While further details from the U.S. Treasury are expected in the near future, the American Rescue Plan authorizes the department to withhold up to 50 percent of the amount allocated to each state and territory for a period of up to 12 months from the date on which the state or territory provided its certification. A second certification will be required before the withheld amount is paid.

Counties, metropolitan cities and states as agents for nonentitlement units of local government will not be required to complete certifications, and will instead receive funds in tranches, with the first tranche to be paid within 60 days of the American Rescue Plan becoming law, and the second tranche to be paid at least 12 months after the date on which the county, metropolitan city or state as an agent for nonentitlement unit of local government received its first payment.

The District of Columbia will receive its first payment within 15 days of enactment of the American Rescue Plan. The remainder of the payments to the District of Columbia will be subject to the same 50 percent withholding that is authorized for states and territories. Tribal governments will be paid in full within 60 days of enactment of the law.

Coronavirus Capital Projects Fund. In addition to the recovery funds, out of any money in the U.S. Treasury not otherwise appropriated, $10 billion will be available for making payments to states, territories and tribal governments for critical capital projects directly enabling work, education and health monitoring in response to COVID-19. Each state will receive $100 million, the U.S. territories will receive $100 million to be split among them, and tribal governments and the state of Hawaii as agent for native Hawaiian programs will receive $100 million to be split among them. The remainder of the funds will be allocated to the states based on population. To provide access to these funds, the U.S. Treasury will establish an application process for grants from the fund within 60 days of enactment of the law.

Local Assistance and Tribal Consistency Fund. The U.S. Treasury will be directed to set aside $2 billion for making payments to eligible revenue-sharing counties and eligible tribal governments. For each of fiscal years 2022 and 2023, eligible revenue-sharing counties will receive $750 million to be allocated to each eligible revenue-sharing county based on the economic conditions of each such county. Eligible tribal governments will receive $250 million for each of fiscal years 2022 and 2023, which will be allocated based on the economic conditions of each eligible tribe. Any payments received from this fund may be used for any governmental purpose other than a lobbying activity.

The U.S. Treasury is expected to promulgate guidance related to the distribution of funds under the American Rescue Plan.

March 12, 2021

The American Rescue Plan: What GFOA Members Need to Know

On March 10, the House of Representatives approved the $1.9 trillion American Rescue Plan largely along party lines. The relief package provides funding in several areas such as state and local aid, education, rental assistance, and transit. The President is expected to sign the bill shortly.

Despite having a number of notable differences with the original House bill, such as a slight decrease in the federal supplement to unemployment assistance, other areas in the final package remained generally the same. Regarding the additional state and local aid, the top line remained at $350 billion but the Senate adopted a few modifications to the funding.

Below are some highlights of state and local aid included in the bill:

Payments to local governments will be made in two tranches – first half 60 days after enactment, second half one year later.

The bill contains two restrictions on eligible uses: funds cannot be used to directly or indirectly offset tax reductions or delay a tax/tax increase; funds cannot be deposited into any pension fund.


Publication date: March 2021

Bond Buyer Interview with GASB Vice Chair Jeffrey Previdi: How the Pandemic Has Affected Public Finance

Listen to the interview.


With $350 Billion, States Won’t Hold America Back This Time.

To judge the success of this latest round of fiscal aid, watch local government employment.

Credit-rating firms typically take a gradual and measured approach when evaluating the effect of a recent development on a certain company or segment of the economy. So it was eye-catching last week when Moody’s Investors Service sent out a report that declared in no uncertain terms: “The $1.9 trillion American Rescue Plan Act will be a credit positive measure across all municipal finance sectors.”

Within hours, Moody’s formally revised its outlook on U.S. states and local governments to stable from negative, given the legislation’s provision for $350 billion in aid. “It will help stabilize state finances and, coming amid most states’ legislative budget sessions, likely allow them to avoid downstream funding cuts for local governments, colleges and universities, and other programs,” analysts led by Nicholas Samuels wrote.

This kind of infusion into state government coffers was far from a sure thing. Democrats had been arguing for such aid since the beginning of the pandemic, while Republican opposition grew stronger as revenue collections turned out to be better than initially estimated. California, for instance, is now expecting a $15 billion budget surplus this fiscal year. “The notion that our states and municipalities are in some kind of fiscal crisis just couldn’t be more wrong. It’s just factually untrue,” Senator Patrick Toomey of Pennsylvania said earlier this month.

Simply looking at the bottom lines of state budgets doesn’t tell the whole story, however. The most straightforward sign that federal assistance was necessary is the level of state and local government employment, as measured by the Labor Department. At a combined 18.58 million people, the number of jobs is down about 1.4 million from February 2020 and only slightly higher than the low set in May 2020.

It’s stunning to think back on the Great Recession and realize that state and local government employment didn’t reach its ultimate low point until July 2013, more than four years after the downturn officially ended. That’s because governors and mayors were in full-blown austerity mode: In addition to trimming payrolls, many also put off critical infrastructure projects, shortchanged their pension funds at precisely the wrong time and even found ways to borrow to cover deficits.

Toomey, who has never held state or local office, doesn’t know what it’s like to make those difficult choices because the federal government doesn’t ever really need to balance its budget because it issues the U.S. dollar. Yes, the pandemic didn’t turn out to be quite as dire for certain areas of the country, particularly those with high-wage earners who could work from home and benefit from record-high stock prices and a surge in home values. Overall, the net worth of households and nonprofits at the end of 2020 stood at $130 trillion, an increase of more than 10% from a year earlier. But everything about municipal finance is local: For every state like California that held up better than expected, there are those such as West Virginia and Mississippi, where the labor force participation rate has plunged to less than 56% compared with the national average of 61.4%.

According to Moody’s, states will be allocated funds based primarily on their share of unemployed workers, which seems as good a way as any to distribute aid. Still, as the Bloomberg Editorial Board wrote earlier this month, there’s no reason federal support couldn’t be more systematic, with money automatically flowing into a state’s coffers when its economy enters a downturn, as measured by objective figures such as the level of joblessness. The Federal Reserve acted swiftly to prop up credit markets, for example, and they responded with a V-shaped recovery. The same can’t be said about the state and municipal workforce.

Of course, it would be troubling if state and local government employment declined further in the coming months and would fly in the face of arguments for why the money was needed in the first place. The stimulus could be considered a success only after a few more rounds of monthly jobs data, which at a minimum should show steady upward growth in payrolls and ideally would reveal a sharp bounce back at least to the low point of the last economic recovery. That would require a gain of about 500,000 jobs nationwide, or about the amount added from May to August last year. Given where the country is in the vaccination process, that seems like a manageable hurdle.

Speaking of setting a low bar: No one necessarily expects public-sector employment to be the engine that propels the U.S. economy back to its pre-pandemic heights. All that’s needed for a more robust recovery than the last one is for states and municipalities to not serve as a drag on growth. The Metropolitan Transportation Authority is an obvious example — to the extent these federal funds can help it move forward on capital projects and avoid steep service cuts to New York City’s subways, that should bolster the $1.8 trillion economic output of the metropolitan area. Another troubled borrower, the Chicago Board of Education, won an upgrade from Moody’s last week thanks in part to “a very sizable infusion of federal funds.” The third-largest U.S. school district is still rated speculative grade but at least isn’t doomed to failure.

Meanwhile, municipal bonds, which I called arguably the most expensive asset class anywhere last month, remain about as rich as ever, holding their ground in the face of a sharp selloff in U.S. Treasuries. Before, analysts largely credited a supply-demand imbalance for the strength of munis. Now, on top of that, the market “reflects a substantial amount of optimism — and I think well placed optimism about the strength of credit quality,” Morgan Stanley’s Michael Zezas said.

At this point, many indicators are trending in the right direction for an economic recovery. State and local government employment hasn’t yet picked up, but $350 billion available through 2024 should be enough to avoid repeating the mistakes of the post-2008 period.

Bloomberg Opinion

By Brian Chappatta

March 15, 2021, 3:00 AM PDT

Biden Stimulus a 'Huge Number' for Munis: Neuberger Berman

In this week’s “Muni Moment.” Jamie Iselin, Neuberger Berman head of municipal fixed income, discusses the impact of the Biden administration’s stimulus plan on the municipal bonds market. He speaks on “Bloomberg Markets: The Close.”

Watch video.

Bloomberg Muni Moment

March 10th, 2021

MS' Zezas on Relief Bill: It's Enough for State, Local (Radio)

Michael Zezas, Chief US Public Policy & Municipal Strategist for Morgan Stanley, on the Biden relief bill and impact to markets. Hosted by Paul Sweeney and Matt Miller.

Listent to audio.

Bloomberg Radio

March 11, 2021 — 10:51 AM PST

‘Breathe a Sigh of Relief’: Muni Market Lauds State Rescue

President Joe Biden’s stimulus plan aims to remove the financial pressure on states and cities, promising a considerable improvement to the outlooks for governments, airports and mass-transit agencies that have seen revenue disappear because of the year-long pandemic.

That’s made it welcome in the municipal-bond market, where prices rose slightly on Tuesday. Here’s immediate reactions from analysts on the implications of the $1.9 trillion stimulus measure — about $360 billion of which would be available to states, local governments and territories as direct aid.

Rating-Company Views

Investors, Analysts Weigh In

Bloomberg Markets

By Danielle Moran and Michelle Kaske

March 11, 2021, 11:08 AM PST Updated on March 11, 2021, 11:54 AM PST

The Overshadowed Plight of City Budgets.

New federal aid offers welcome relief for many local governments, which have seen their financial difficulties upstaged at times by better-than-expected state revenues.

New federal aid offers welcome relief for many local governments, which have seen their financial difficulties upstaged at times by better-than-expected state revenues.

While the coronavirus-driven economic downturn hasn’t been as disruptive to most state budgets as initially feared, for many local governments it’s dealt a brutal financial hit.

Congress has now responded with historic levels of direct aid to thousands of cities and counties. But some experts are cautioning that the windfall shouldn’t be spent just on today’s problems. That’s because local governments are likely to still be feeling the effects of the downturn for years to come, even after the Covid-19 outbreak has subsided. And in some cases these future pressures will compound budget problems that predated the pandemic.

Houston is perhaps an extreme example. It has a more than $200 million budget deficit for the next fiscal year that starts on July 1 and officials have said they would have to cut services and lay off employees to make up the gap. While the pandemic has made matters worse, the city had already been dealing with deficits for several years, said controller Chris Brown.

Continue reading.

Route Fifty

By Liz Farmer

MARCH 12, 2021

Stimulus Solves Most - But Not All - State and Local Budget Problems.

Billions in new federal funding come with some strings attached. Nevertheless, the sheer amount will be enough to erase budget shortfalls in states and cities across the country.

Pittsburgh ran through $120 million in reserve funds last year and yet still faces a shortfall. The city has been planning to lay off 633 workers at the start of its fiscal year in July, or more than one out of six of its employees.

But suddenly, those workers no longer have to worry about their jobs. Pittsburgh stands to receive more than $300 million in direct federal aid, as part of the $1.9 trillion stimulus package President Biden signed yesterday.

“These funds will help us avoid layoffs and will also allow us to fill the revenue gaps the pandemic created last year and this year,” says Kevin Pawlos, Pittsburgh’s budget director. “It will also allow us to restore vacant positions and programs that were removed from our 2021 budget.”

Similar stories are now being told all over the country. Almost overnight, budget shortfalls accumulated over the past year are being eliminated, thanks to the federal largesse. The stimulus includes $350 billion in direct aid to states and localities — $195 billion for states and $130 billion for local governments, with the rest going to territories and tribal governments.

“It allows us to offset some of our major revenue losses in a way that the CARES Act did not,” says Jeff Aluotto, the county administrator in Hamilton County, Ohio, referring to the first major federal stimulus package enacted a year ago. “It will permit us to provide ongoing support to those areas of the community most devastated by the pandemic.”

State and local officials begged Washington most of last year for fiscal help, to little avail. By now, however, their revenues have rebounded much faster than expected, particularly at the state level, leading some to wonder whether this isn’t a case of too much, too late. For some states, the windfall will equal more than 20 percent of their 2020 operating revenues.

The “worst since the Depression” cash crisis in states that was predicted last year ultimately did not materialize. Overall, state revenues fell by less than 2 percent between April and December, compared with the same period in 2019, according to the Urban-Brookings Tax Policy Center.

Expenses shot up due to the pandemic and unemployment, so states and localities did get a real fiscal shock. But once previous rounds of federal aid are factored in, they ended up only $56 billion in the hole from fiscal 2020 to fiscal 2022, according to a recent estimate by Moody’s Analytics.

“You’re talking roughly $300 billion more than necessary to keep the lights on and not lay people off,” says Dan White, director of government consulting and public finance research at Moody’s Analytics. “It’s definitely big enough. It’s probably more than big enough.”

The intent wasn’t just to make states and localities whole, however. As with the rest of the package, the hope is that the sudden gusher of federal funds will help stimulate the broader economy. “This is going to be an injection, a shot in the arm that’s very good for states,” says David Brunori, a public finance expert at George Washington University. He thinks the amount was probably excessive. That said, he notes that “the money will be welcome and will be spent and will be a boost to the economy.”

State and local officials still have to be careful about how they spend the money. It’s more than enough to fill general fund budget holes in most cases, but lawmakers can’t get giddy and take on ongoing expenses they won’t be able to afford once the federal dollars run out. Few people would bet on another round of relief of this magnitude.

“This is not by any means a silver bullet to solve our budgetary problems long-term,” says Chris Cate, who chairs the San Diego city council’s budget committee. “The fear that I have is that if we use this money now, without addressing any structural issues that we have, next year we won’t be in the same financial position in terms of federal help, so we’re still facing deficits.”

Tourism and Energy States Hit Hard

Although state revenues have recovered pretty well in general, there are plenty of states still struggling, including major states without income taxes such as Texas and Florida. Particularly hard hit are those that rely heavily on tourism, such as Nevada and Hawaii, or on energy, such as Alaska and North Dakota. Or both, as in the case of Louisiana.

“We saw tourism fall out from under us,” says Della Au Belatti, majority leader of the Hawaii House. “We cannot have a vibrant economy here without some form of tourism.”

There are also continuing worries at the local level. “There is a chance that business districts or large sporting events may not be as well attended as before,” says Pawlos of Pittsburgh. “It will affect some of our major revenue sources moving forward if that occurs.”

Although the amount of federal money may exceed what’s necessary for a lot of states, politically it would have been impossible to target funds only where help was needed most. Biden and Congress erred on the side of being generous, says Kim Rueben of the Urban Institute, to ensure other levels of government can do whatever’s necessary to address the pandemic and the economy.

There’s also an emphasis on speed. As vice president in 2009, Biden oversaw state and local spending included in that year’s package. Transparency and watching out for wasted funds were public commitments from the Obama administration, with Biden acting as “sheriff,” as President Barack Obama called him.

The current stimulus will certainly require reporting, but given that most of the funding is undirected, the feds shouldn’t be looking over state and local shoulders as much. They want states, cities and counties to avoid cuts and keep spending. Those with long memories will recall that state and local spending and job cuts slowed the nation’s overall recovery following the Great Recession.

“I think President Biden is aware of some of the lessons we learned in the last recession,” Rueben says. “For example, having too many restrictions on how the money could be spent and having to report back in ways that led to delays in spending the money.”

In addition to the $350 billion in direct aid, the new stimulus includes lots of other money that should help take pressure off state and local budgets. There’s $40 billion more for higher education, $30 billion for mass transit and more than $30 billion for housing and rental assistance programs.

States and localities will have until the end of 2024 to spend the direct aid. In the case of local funds, half the funding will be made available within 60 days, with the second half provided 12 months later. “Given the 2024 end date, it will give us the opportunity to be more strategic in using these dollars to promote the long-term recovery and resiliency of our community,” says Hamilton County’s Aluotto.

Terms and Conditions Do Apply

There are some restrictions on how direct aid can be spent. Most notably, federal money can’t be used to shore up pension funds and can’t go toward tax cuts.

That’s going to cause some problems for states. The stimulus law itself exempts the first $10,200 worth of unemployment benefits from income taxes, retroactive to last year. States that want to change their laws to match that relief may not be able to do so, without facing a potential clawback of federal funds. “There have been a lot of proposals to provide relief for unemployment benefits,” says Belatti, the Hawaii legislator. “That is now off the table.”

Other tax cuts may come under question. In Hawaii, the state’s earned-income tax credit will sunset this year. It would almost certainly have been extended, but now its fate is uncertain. “The way we’re reading it, the states cannot pass anything that provides a tax cut or tax relief,” Belatti says.

There are bound to be some unexpected pitfalls as well. The bigger question facing state and local officials, however, is how they’ll choose to spend all the money now coming their way. They shouldn’t bake too much additional spending into their budgets, warns White, the Moody’s Analytics director. Since they’re getting what amounts to a one-time influx of funds, it might make sense to pay for one-time expenses, he suggests, such as infrastructure projects, including broadband.

But with shortfalls suddenly erased, there will be a lot of demand to spend money for ongoing expenses, notably salaries. “We’re in the middle of negotiations with our six employee unions,” says Cate, the San Diego council member. “We have to be very careful and tread lightly.”

The stimulus package includes hefty incentives to try to convince the 12 states that haven’t expanded Medicaid under the Obama-era Affordable Care Act that it’s finally time to do so. Leaders of those states have long argued that expanding Medicaid will expose them to increased costs. The new law makes that argument harder to sustain. “If all 12 non-expansion states accept the incentives, each will net an estimated nearly $10 billion, after their new Medicaid costs,” according to Moody’s Investors Service.

No congressional Republican supported the stimulus package. A good number of state-level Republicans were opposed also, finding its price tag excessive. Still, it’s unlikely that any GOP governors will turn down the federal money, as some talked about doing after the 2009 stimulus passed. Even some legislators who opposed the stimulus recognize that it will make their jobs easier.

“Today, our reserve funds are full and we’ve got a projected ending balance of $433 million for fiscal year 2021,” says Tim Kraayenbrink, who chairs the Iowa Senate Appropriations Committee.

That doesn’t mean Iowa will reject federal aid.

“While I’m not sure we need the additional federal money being sent to us by Congress,” Kraayenbrink says, “we will certainly put it to good use helping Iowa families as we all work to recover from this global pandemic.”



S&P: COVID-19 Activity In U.S. Public Finance

Here are links to coronavirus-related activity in U.S. public finance. This file will be updated regularly.


S&P U.S. State Ratings And Outlooks: Current List

View the current list.

9 Mar, 2021

Fitch: American Rescue Plan Boosts State and Local Government Budgets

Fitch Ratings-New York-11 March 2021: The $1.9 trillion US federal stimulus package passed by Congress and expected to be signed into law by President Biden would significantly boost near-term revenues for states, local governments, transit systems and education providers through both direct aid and economic stimulus, according to Fitch Ratings. House Resolution (H.R.) 1319, or the American Rescue Plan (ARP), is not expected to alter the long-term credit fundamentals of state and local governments but it should bridge near-term fiscal gaps. Thus, positive credit implications are likely limited to credits on Negative Outlook where funding of near-term deficits is a concern. The impact on credit quality for any government will be affected by the entity’s level of fiscal stress, plans for using its allocation and the flexibility in applying the funds under the law.

Our ratings do not assume receipt of any additional direct aid for public finance entities until enacted. The ARP would provide a significant one-time infusion into these entities’ budgets and a significant short-term lift to the tax revenues that support states and local governments, given the strong economic boost. Actions to unwind measures taken to address the pandemic-driven uncertainty, such as deficit financing, deferring capital needs or drawing on reserves, could be positive for credit quality. Conversely, enhancements to programs requiring ongoing spending could create long-term budget pressures.

The ARP is more than twice the size of the $900 billion package passed in December and, unlike the December package, the new proposal provides substantial direct aid to state and local governments. The $350 billion in direct aid more than doubles the $150 billion in Coronavirus Relief Fund (CRF) aid provided in the Coronavirus Aid, Relief and Economic Security (CARES) Act. ARP aid can be used to cover costs or replace revenue lost due to the pandemic, giving governments wide latitude in the application of the funds, and the use of funds would not be subject to an expiration date.

As approved by the US Senate and the US House, $195.3 billion will be allocated among the 50 states and the District of Columbia, with $25.5 billion split evenly, and most of the remainder allocated based on each state’s proportion of seasonally-adjusted unemployed individuals for the three-month period ending in December 2020. California (AA/Stable), Texas (AAA/Stable), New York (AA+/Negative) and Florida (AAA/Stable) are all in line for more than $10 billion each. Fitch’s lowest-rated states, Illinois (BBB-/Negative) and New Jersey (A-/Negative), are estimated to receive $7.5 billion and $6.4 billion, respectively. Territories and tribal governments will also receive allocations.

Local government funding totals $130.2 billion, with $45.6 billion going to cities based on a formula including population, growth, poverty and housing overcrowding. Large cities with ratings on Negative Outlook, including New York, NY (AA-); Philadelphia, PA (A-); Chicago, IL (BBB-); and Los Angeles, CA (AA), will also get significant funding relative to their budgets. The bill provides $19.5 billion to states to allocate among other municipalities or (non-entitlement units of government) and the remaining $65.1 billion to counties through a population-based formula.

Proposed direct aid to governments also includes $30 billion for transit compared with $14 billion in the December bill and $25 billion in the CARES Act, almost $130 billion for K-12 schools, significantly above the $54.3 billion in the December package and the $13.5 billion in the CARES Act, and $10 billion for a Coronavirus Capital Projects Fund aimed at broadband expansion with a minimum $100 million distribution to each state, the District of Columbia and Puerto Rico.

Allocations for K-12 schools will prioritize districts with high percentages of students from low-income families. This aid would ease the financial burden on both states, which fund the bulk of K-12 education, and local districts, which have incurred additional expenses to implement safety measures at schools.


Amy Laskey
Managing Director, US Public Finance
+1 212 908-0568
Fitch Ratings, Inc.
Hearst Tower
300 W. 57th Street
New York, NY 10019

Eric Kim
Senior Director, US Public Finance
+1 212 908-0241

Michael Rinaldi
Senior Director, US Public Finance
+1 212 908-0833

Sarah Repucci
Senior Director, Fitch Wire
+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: Pandemic Exacerbates K-Shaped Economy, Government Transfers Buffer Near-Term Impact

Fitch Ratings-New York-11 March 2021: Pandemic-driven shifts to the U.S. labor market have intensified the long-entrenched K-shaped economy, and may ultimately lead to more permanent, deleterious consequences despite the near-term relief provided by government stimulus, according to a new Fitch Ratings report.

Long-term upside risk has emerged to employment in many high-wage industries, particularly information technology and health care, while many low-wage industries, particularly retail trade, leisure and hospitality, face downside risk.

“The significant divergence in wealth and income in the U.S. gives low-income households a reduced stake in the recovery, compounding the well understood challenge that long-term unemployment leads to permanent wage losses,” said Olu Sonola, Senior Director at Fitch. “This widening split undermines the sustainability of economic growth, and with it, puts additional strain on the U.S.’ social and political consensus.”

U.S. job losses have disproportionately hit lower-income households, with knock-on effects to consumption thus far limited by stimulus aid in excess of lost income. However, protracted unemployment among these workers, and a secular decline in many of the key industries that employ them, are likely to constrain wage gains over the medium term. This in turn will inhibit poorer households’ consumption and participation in the economic recovery, increasing existing income inequality and potentially undermining social cohesion.

The recently passed $1.9 Trillion American Rescue Plan Act will provide a boost to consumer spending and saving. Government transfers have exceeded wage and income loss by approximately $800 billion between April and January 2021. Aggregate income had recovered nearly fully by October 2020.

A material increase in vaccination rates by second-half 2021 will likely lead to a significant increase in consumer confidence and spending. Substantial pent-up demand from high-income households, which typically consume a much higher share of services constrained by the pandemic and also hold most of the excess savings, will likely result in more robust consumer spending once movement restrictions ease more fully.

For more information, a special report titled “U.S. Consumer Health and Spending” is available on the Fitch Ratings web site at


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

Katie Falconi
Regional Credit Officer
+1 212 612-7881

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

Additional information is available on

Stress Testing of Public Pensions Can Help States Navigate the COVID-19 Economy.

Pew’s updated analysis framework accounts for reduced revenue, long-term investment outlooks


The COVID-19 pandemic has upended life in the U.S. and disrupted the economy. Real gross domestic product (GDP) fell sharply in the second quarter of 2020 while job losses soared and state and local government finances weakened. Public pension systems, funded by those same governments, only narrowly averted large losses in the spring after a historic stock market rally boosted investment earnings.

Economic data released in January and February 2021 by the federal government, including the Congressional

Budget Office (CBO), showed signs of improvement. According to advance estimates from the Bureau of Economic Analysis (BEA),1 the economy held ground in the fourth quarter of 2020 following a sharp rebound in the summer. And with vaccine distribution now underway, the outlook for recovery has improved. By 2025, CBO expects real GDP and labor force participation rates to recover close to their pre-pandemic trajectories— significant upgrades over its July 2020 forecast.2

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The Pew Charitable Trusts

March 8, 2021

S&P: A Tumultuous Year Presents A Major Test For U.S. Privatized Student Housing

Key Takeaways

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8 Mar, 2021

Fitch: Airport Car Rental Bonds Holding Firm Amid COVID-19

Fitch Ratings-New York-08 March 2021: Passenger traffic remains very weak for U.S. airports due to the coronavirus pandemic, though a new Fitch Ratings report says the outlook for consolidated rental car facilities (CONRACs) is not as severe as initially projected.

COVID-19 has disrupted the U.S. aviation sector for nearly a year with most on-airport car rental facilities utilized at half or less their usual performance prior to the pandemic. However, monthly shifts in rental car transaction days are performing slightly better than enplanements thus far. “The increased priority in preserving one’s health amid the pandemic is leading to customers opting for rental cars in place of transportation network companies, cabs, or public transit,” said Senior Director Seth Lehman.

Available reserves and targeted refinancings have also contained the degree of credit risk for airport rental car facilities. Since the pandemic’s start, Fitch has not downgraded any of its CONRAC ratings and five of the projects retain Stable Rating Outlooks.

Passenger traffic at airports will remain low through at least the first half of 2021. Fitch believes even a modest recovery in rental car transactions should enable nearly all CONRAC projects to benefit from a marked improvement to their respective coverage ratios and further boost liquidity reserves. A recovery to 80% of pre-pandemic levels would raise cashflow coverage levels on many of these recent financings.

The wildcard is the timing and trajectory of recovery. Risks will increase for airport rental car facilities adverse conditions linger. “Some rental car projects will need to draw on reserves if airport recovery continues to stall,” said Lehman.

‘Airport Car Rental COVID-19 Performance’ is available at ‘’.


Seth Lehman
Senior Director
+1 212 908-0755
Fitch Ratings, Inc.
300 W. 57th St.
New York, NY 10019

Jeffrey Lack
+1 312 368-3171

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

Additional information is available on

Fitch: Travel Rebound to Boost US, Canadian Airport and Airline Recovery

Fitch Ratings-New York-11 March 2021: Air traffic recovery in the US and Canada was slower at the beginning of the year than previously forecast but is expected to accelerate heading into the summer months with greater vaccination rates and the release of pent-up travel demand, Fitch Ratings says. The recovery will be led by leisure travel, with domestic leisure and origination and destination airports expected to rebound more quickly than international gateways or those with a high reliance on business travelers. Similarly, domestic-focused leisure carriers are better positioned to benefit from the early stages of the recovery, although competition will pressure airline yields into 2022.

We are forecasting a prolonged recovery for the air travel industry, with full recovery in the US not expected until 2024 at the earliest. As such, credit ratings in the sector remain under pressure. US airports and airlines have benefited from substantial federal aid through multiple recovery stimulus bills, unlike their Canadian counterparts. US airports and airlines were more active in issuing debt to achieve cost savings or bolster liquidity.

US traffic levels remained down 60% or more yoy as of YE 2020 and into the early weeks of 2021. Canadian airport traffic continues to be more severely impaired by the pandemic relative to the US, remaining down by 80%-90% of pre-pandemic levels, and a sustained recovery may take more time. Canadian airports, operating under long-term leases with the federal government, are more sensitive to volume fluctuations and lack the protection of cost recovery agreements, which are common for US airports.

Our new report, North American Airport and Airline Pressures to Ease, Accelerating Recovery Later This Year, indicates air carriers and airports remain exposed to pandemic-related volatility, and key uncertainties such as vaccine rollouts, more contagious variants and travel restrictions may impede a rapid rebound in the near term.


Seth Lehman
Senior Director, Infrastructure and Project Finance
+1 212 908-0755
Fitch Ratings, Inc.
Hearst Tower
300 W. 57th Street
New York, NY 10019

Joseph Rohlena
Senior Director, Corporates
+1 312 368-3112
One North Wacker Drive
Chicago, IL 60606

Jeffrey Lack
Director, Infrastructure and Project Finance
+1 312 368-3171

Sarah Repucci
Senior Director, Fitch Wire
+1 212 908-0726

Media Relations: Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email: [email protected]
Sandro Scenga, New York, Tel: +1 212 908 0278, Email: [email protected]

Additional information is available on

Interest Rates Are Rising: Time To Run From Muni Bonds?

Does a rising 10-year Treasury yield mean we should move on from municipal (muni) bonds? We’ll talk muni strategy in a moment. First, let’s pay homage to these tax-efficient payers.

Munis are superior to Treasuries two ways. First, they pay more. Even with the 10-year rate up to 1.6% as I write, we can double or triple our dividends with munis.

The iShares National Muni Bond ETF (MUB), for example, yields 2.1%, which is 31% better than the still-chintzy T-Bill. And that is before we consider its tax advantages. MUB is an easy-to-buy muni vehicle for investors who don’t know any better. (Many ETFs tend to be convenient tickers that underperform smarter alternatives in the income world.)

We careful contrarians prefer to purchase Nuveen’s AMT-Free Municipal Credit Income Fund (NVG), which pays 4.9%—over three times the skinflint Treasury. NVG is a closed-end fund (CEF), which means it is actively managed. Financial talking heads have turned “active management” into a dirty word in recent years, but in the muni world, “active” is a big advantage.

The muni bond market is a throwback to a simpler time. Many deals are still brokered on good old-fashioned landlines. Nuveen gets the first phone call when muni bonds are issued, and NVG’s superior returns and yield reflect this advantage.

Both MUB and NVG are exempt from federal taxes. For top income bracket ballers, this elevates a 4.9% yield to 7.8%. Who wants a Treasury now?

NVG pays us a neat, tax-efficient $0.068 on the second week of the month. Every month. But we don’t want the value of the fund’s bonds to decline as it’s dishing us this monthly dividend. Heck, we don’t want its price to decline at all.

Fortunately, NVG says “no problem.” Over the last six months, NVG’s net asset value (NAV)—the market price of the muni bonds it owns net of debt—has appreciated by 1%. Remember, this is also net of dividends paid, so this modest appreciation is perfect. All we ask from NVG (and its NAV) is that it stays steady over time while it pays us monthly.

True, the path taken to the 1% is a bit concerning. We do see that NVG has shed some NAV in recent weeks as the 10-year rate has spiked. This muni portfolio was calm and collected until a 1.2% 10-year rate ballooned past 1.5%.

The good news for us muni investors is that the 10-year rate is due for a breather. As we discussed last week, we shouldn’t be surprised to see this yield revisit 1.1% or 1.2% in the near-term. That’s bullish for munis.

Looking ahead, however, we should prepare for a scenario where the 10-year rate rallies towards 2%. While that would not be the end of the world, it would pressure muni bond prices. Generally speaking, they rally when rates are falling, and they slide as rates rise.

So, let’s consider this careful approach:

  1. We should not be in a hurry to unload munis right now. If the 10-year rate takes the breather we are expecting, muni bonds (and funds) will benefit.
  2. However, we do need to keep an eye on 10-year yields. We may be adjusting our bond strategy in the months ahead.


by Brett Owens

Mar 11, 2021

Brett Owens is chief investment strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: Your Early Retirement Portfolio: 7% Dividends Every Month Forever.

Munis Have Room To Move Higher.


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Seeking Alpha

Mar. 10, 2021

Munis Become Refuge From Bond Market Losses With Yields Falling.

America’s municipal bonds are proving to be a haven for fixed-income investors.

Even as speculation about resurgent economic growth drove up yields on corporate bonds and Treasuries this month — saddling investors with losses — tax-exempt debt moved in the opposite direction. Benchmark municipal-bond yields have dropped so far in March, delivering investors a return of 0.72%, according to the Bloomberg Barclays index.

Munis break from Treasuries, delivering gains as yields fall
The disconnect is coming as investors plow back into the municipal market following a selloff late last month, with both mutual funds and exchange-traded funds seeing an influx of cash.

President Joe Biden’s rescue plan is poised to provide a massive infusion of aid to states, cities, school districts and public transportation systems to make up for the financial toll of the pandemic, promising to remove any stress from a wide swath of the market. At the same time, the pace of new debt sales has slowed and potential moves to raise taxes on the highest earners at the state and federal levels may further fuel demand.

“We have too little tax-exempt supply for every dollar of investor demand. There are just far more muni bond investors than there are issuers now,” said Matt Fabian, managing director of Municipal Market Analytics. “That’s a condition that will only get worse if taxes rise.”

The demand is driving a closely watched gauge — the ratio of municipal yields to those on Treasuries — back toward the record lows hit last month, indicating that state and local government bonds have gotten more pricey in comparison. Ten-year municipal bonds yielded about 62% of Treasuries by the end of last week, not far from a low of 54% in mid-February.

Citigroup Inc. analysts led by Vikram Rai on Monday said they expect the municipal market’s outperformance to continue given the positive effect the stimulus will have on government agencies that have issued bonds.

“While we still fear fund flow related volatility ahead, our moderately bullish outlook on tax-exempt paper remains in effect,” the report said.

Bloomberg Markets

By Fola Akinnibi

March 15, 2021, 10:31 AM PDT

— With assistance by Danielle Moran

Why a Pullback Could Still Prove Inviting for Municipal Bonds.

Municipal bonds are languishing amid the recent spike in Treasury yields, but that selling pressure could bring opportunities with exchange traded funds like the iShares National Muni Bond ETF (NYSEArca: MUB).

MUB seeks to track the investment results of the S&P National AMT-Free Municipal Bond IndexTM. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash, and cash equivalents. The index measures the performance of the investment-grade segment of the U.S. municipal bond market. Municipal bonds give debt market investors an extra layer of safety given that local government debt typically has a lower rate of default compared to corporate bonds.

“Municipals struggled throughout the month of February, posting their worst month of performance since the pandemic-induced selloff in March 2020,” according to BlackRock research. “The S&P Municipal Bond Index returned -1.36%, driven by rising interest rates resulting from improved COVID metrics, expectations for additional fiscal stimulus and continued easy monetary policy, and optimism for the U.S. economy. Municipals underperformed Treasuries as historically rich valuations recalibrated and municipal-to-Treasury ratios re-set from their recent all-time tight levels.”

A Good Time to Revisit MUB?

Municipal bonds have long been considered some of the most reliable fixed income options. Enter Covid-19 and a once untouchable space could now be in jeopardy with defaults. Nevertheless, MUB and friends are proving steady amid a spate of new issuance.

“Issuance was modestly elevated in February at $33 billion, 22% above the 5-year average. Initial primary market strength faded mid-month as the emergence of risk-off sentiment and elevated secondary trading weighed on new issues, causing underwriters to show more flexibility in both structure and pricing. The average rate of oversubscriptions fell dramatically from 8.0x during the first half of the month to just 2.4x in the second half,” notes BlackRock.

Higher issuance isn’t always a drag on assets such as MUB. In fact, there some sound fundamental factors in the ETF’s favor.

“We maintain a cautious but constructive view on the asset class,” adds BlackRock. “While the month of March has been a historically weak seasonal period for muni bonds and we expect rate volatility to continue, the considerable re-set of valuations has created a better backdrop for the municipal market, assuming recent performance weakness does not drive a prolonged outflow cycle. Additionally, given our view that markets tend to overcorrect, a continued selloff could create an attractive buying opportunity.”



MARCH 9, 2021

Fitch Ratings Updates State Revolving Fund and Muni Finance Pool Program Criteria.

Fitch Ratings-Austin-03 March 2021: Fitch Ratings has published an update to its “State Revolving Fund and Municipal Finance Pool Program Criteria.” This report replaces the previous report of the same title published on Sept. 18, 2019.

The fundamentals of these criteria remain unchanged. However, with this release, Fitch has updated its Portfolio Stress Model (PSM). The latest version follows the same logic and underlying benchmarking assumptions as the previous, but the multiple-based approach used to create the prior PSM’s liability rating stress hurdles using the pool’s weighted-average default rate has been replaced with a Gaussian copula approximation function. Fitch believes the updated PSM is a more robust model overall and should more closely match the framework laid out in the “CLOs and Corporate CDOs Rating Criteria,” thus providing even greater consistency in approaches given the similarities of the two sectors.

As a result of the PSM update, programs with less than 30 obligors may demonstrate somewhat higher stress hurdles than what were previously produced. Further, programs with higher weighted-average maturities may demonstrate lower stress hurdles. On average, Fitch is expecting less than a +/-4% net change in stress hurdles.

Additionally, these criteria now allow for the assignment of credit scores in lieu of credit opinions for USPF utility sector obligors.

No ratings changes are expected as a result of these updates.


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

S&P U.S. Not-For-Profit Health Care Rating Actions, 2020 Year-End Review.

S&P Global Ratings’ U.S. not-for-profit health care outlook and rating actions in 2020 were heavily influenced by the pandemic with a higher than typical amount of unfavorable outlook revisions (mostly to negative from stable), particularly in the spring when we simultaneously revised outlooks on 42 health care organizations in anticipation of upcoming financial and operating pressures. In addition, in 2020 we downgraded four times more organizations than we upgraded. Four of the nine upgrades occurred in January before the pandemic with all but one of the remaining upgrades due to affiliation or merger with a higher rated organization.

Nevertheless, we maintained a majority of our ratings, reflecting financial flexibility from strong balance sheets, enterprise profile strengths, and governmental support through stimulus funds. There have also been some favorable outlook actions including credits that were revised back to stable after having outlooks revised to negative as part of our multi-credit rating action in April 2020 when we believed those credits with weaker reserves and credit characteristics could face relatively more pandemic related challenges.

The health care portfolio is composed largely of stand-alone hospitals (59%) and health care systems (35%) with the remaining ratings on long-term care, human service providers and a physician group practice. Relative to their percentage of the total portfolio, the stand-alone providers had a higher number of downgrades and unfavorable outlook revisions in 2020. However, stand-alone hospitals also accounted for over three-quarters of the favorable outlook revisions. We believe this reflects the continued bifurcation of credit quality for stand-alone providers and the larger portfolio of stand-alone ratings. Health care systems were not immune to credit actions either as they experienced upgrades, downgrades, and both unfavorable and favorable outlook actions, although in each category at a rate lower than their percentage representation in the overall portfolio. We believe this reflects system benefits, including size, scale, and for many, centralized control, all of which provided benefits in managing through the pandemic.

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25 Feb, 2021

U.S. Public Finance: Public Pension Funds - S&P Guidance


1. This document provides additional information and guidance related to our criteria “Public Pension Funds,” published June 27, 2007. It is intended to be read in conjunction with those criteria. For a further explanation of guidance documents, please see the description at the end of this article.

2. This guidance discusses additional information that S&P Global Ratings may consider when exercising analytical judgement in assessing pension fund independence, management, and operating and financial performance, as well as when assessing a credit enhancement program issue.

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26 Feb, 2021

Empty Office Buildings Squeeze City Budgets as Property Values Fall.

A looming hit to tax revenues puts pressure on Congress to deliver relief.

WASHINGTON — At a meeting with Treasury Secretary Janet L. Yellen last month, Jeff Williams, the mayor of Arlington, Texas, laid out his grim economic predicament: Heavy spending on coronavirus testing and vaccine distribution had dwarfed dwindling tax revenue, forcing the city to consider painful cuts to services and jobs. While sluggish sales and tourism were partly to blame, the big worry, Mr. Williams said, is the empty buildings.

Those dormant offices, malls and restaurants that have turned cities around the country into ghost towns foreshadow a fiscal time bomb for municipal budgets, which are heavily reliant on property taxes and are facing real estate revenue losses of as much as 10 percent in 2021, according to government finance officials.

While many states had stronger-than-expected revenue in 2020, a sharp decline in the value of commercial properties is expected to take a big bite out of city budgets when those empty buildings are assessed in the coming months. For states, property taxes account for just about 1 percent of tax revenue, but they can make up 30 percent or more of the taxes that cities and towns take in and use to fund local schools, police and other public services.

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The New York Times

By Alan Rappeport

March 3, 2021

Fitch: Job Recovery Stagnates for U.S. Metros

Fitch Ratings-New York-02 March 2021: Fitch Ratings’ latest U.S. Metro Labor Markets Tracker shows jobs recovery among major MSAs up slightly.

The median jobs recovery rate among major metros inched up to 59% from 58% during November and December 2020. However, month-over-month employment for major metros — those with populations of one million or more — fell slightly for the same period. Fitch projects jobs recovery to remain slow and uneven at least through 1Q21.

“Employment trends will likely remain weak across MSAs in the next few months until vaccination rates materially increase and support a more robust return in economic activity,’ said Senior Director Olu Sonola.

Job recovery in the Northeast, Midwest and Western parts of the country either stayed flat or fell with a median recovery rate of 53% in December. The South was the only outlier to experience a pick-up in its recovery rate with a median recovery rate of 65% as of December 2020.

Leisure and hospitality continues to be the hardest hit sector. Since the onset of the pandemic, the median share of jobs lost linked to the sector is 50% for major metros. The median major metro recovery among these jobs was 55% as of December, while the median was 59% for all U.S. metros.

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


Olu Sonola, CFA
Senior Director
Fitch Ratings, Inc.
300 W. 57th St.
New York, NY 10019

Dylan Szeto

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

Biden’s $1.9 Trillion Pandemic Bill Includes Aid for Hard-Hit Cities. Is It Too Little, Too Late?

The Biden administration’s $1.9 trillion pandemic relief package is on the fast track, but Washington is still trying to find the right fix for an overlooked aspect of the crisis: a massive tax shortfall experienced by cities hit by the collapse in commercial property values.

Local governments rely on property tax revenue to fund an array of vital programs and services, and those ghostly rows of empty commercial buildings are not just eyesores, but a growing policy problem.

At a meeting with Treasury Secretary Janet L. Yellen last month, Jeff Williams, the Republican mayor of Arlington, Texas, laid out his grim predicament: While pandemic relief costs and sluggish tax revenue and tourism were partly to blame for budget shortfalls, the big worry, Mr. Williams said, was all those the empty buildings.

Continue reading.

The New York Times

By Alan Rappeport and Glenn Thrush

March 3, 2021

Stimulus Clears Senate – Legislation Includes State and Local Aid but No Muni Provisions.

This weekend, the $1.9 trillion dollars American Recovery Act took a huge step forward bypassing the Senate on a party-line vote. While the package does not include any muni provisions, of note is $350 billion in direct aid to state and local governments.

All indications are the bill will face little resistance in the House, and be signed into law by week’s end.

Infrastructure Talks Progress

As Washington begins to turn its attention beyond stimulus, infrastructure talks continue to heat up. Last week, the Biden Administration met with House leaders to discuss the next steps and parameters. While on the Senate side, legislation to reinstate tax-exempt advance refundings was introduced with strong bipartisan support.

The BDA continues to work with our partners to ensure legislation to restore advance refundings, as well other muni market priorities are included in any infrastructure bill. We will continue to provide updates as they become available on possible infrastructure legislation and as other muni legislation is introduced.

Bond Dealers of America

March 8, 2021

BDA Washington Weekly: A Turn to Munis and Infrastructure

Read the Washington Weekly.

Bond Dealers of America

March 5, 2021

ASCE 2021 Infrastructure Report Card.

Read the ASCE Report.

CDFI Bond Guarantee Program.

CDFI Bond Guarantee Program Benefits

Through the CDFI Bond Guarantee Program, the Secretary of the Treasury makes debt available to CDFIs from the Federal Financing Bank. The loans provide long-term capital not previously available to CDFIs, and inject new and substantial investment into our nation’s most distressed communities. The CDFI Bond Guarantee Program has guaranteed nearly $1.7 billion in bonds to date.


Enacted through the Small Business Jobs Act of 2010, the CDFI Bond Guarantee Program responds to a critical market need—long-term, low-cost capital that can be used to spur economic growth and jump start community revitalization. Through the CDFI Bond Guarantee Program, Qualified Issuers (CDFIs or their designees) apply to the CDFI Fund for authorization to issue bonds worth a minimum of $100 million in total. The bonds provide CDFIs with access to substantial capital that is then used to reignite the economies of some of our nation’s most distressed communities.

Unlike other CDFI Fund programs, the CDFI Bond Guarantee Program does not offer grants, but is instead a federal credit subsidy program, designed to function at no cost to taxpayers. The bond proceeds are debt instruments that must be repaid.

The Secretary of the Treasury provides a 100 percent guarantee on these loans, with a maximum maturity of 30 years. The Qualified Issuer sells the government-backed bonds to the Federal Financing Bank (FFB)—a government corporation that ensures the efficient use of federal financing—and bond proceeds are used to extend credit to CDFIs for community development purposes. The Qualified Issuer thus acts as a “go between” financier to the broader CDFI community.

CDFIs benefit from the potential scale of the CDFI Bond Guarantee Program, which offers long-term credit at below-market interest rates. This unique program incentivizes and empowers CDFIs to execute large-scale projects, including the development of commercial real estate, housing units, charter schools, daycare or healthcare centers, and municipal infrastructure. In addition to these projects, eligible CDFIs may use the capital to extend credit to other community development borrowers—or Secondary Borrowers—or refinance existing loans at low interest rates, freeing up capital for additional investments. By promoting large-scale, long-term investment, the CDFI Bond Guarantee program helps breathe new life into economically underserved areas.

Download CDFI Bond Guarantee Program Fact Sheet.

U.S. DOT Announces Latest Round of INFRA Grants: Nossaman

The U.S. Department of Transportation (“DOT”) has announced it is making $889 million available through its latest round of Infrastructure For Rebuilding America (INFRA) grants. In its February 17 announcement, the DOT noted that the INFRA grants “will fund transportation projects of national and regional significance that are in line with the Biden Administration’s priorities, including creating good-paying jobs, improving safety, and applying transformative technology, and explicitly addressing climate change and racial equity.”

For the selection process, the DOT has made clear that it will be evaluating INFRA projects on whether they aim to address climate change and environmental justice. According to the DOT, “projects should include components that reduce emissions, promote energy efficiency, incorporate electrification or zero-emission vehicle infrastructure, increase resilience, and recycle or redevelop existing infrastructure.”

Racial equity will also be considered as a selection criterion, looking at the extent to which the project sponsors have completed equity-focused community outreach, and whether projects are designed to improve connections to underserved communities in order to reduce barriers to opportunity. The DOT will also consider whether projects are located in federally-designated community development zones, such as Opportunity Zones. The DOT defines Opportunity Zones as “economically distressed” communities designated by the state’s governor and certified by the U.S. Secretary of the Treasury.

Secretary of Transportation Pete Buttigieg emphasized, “We are committed to not just rebuilding our crumbling infrastructure, but building back in a way that positions American communities for success in the future — creating good-paying jobs, boosting the economy, ensuring equity and tackling our climate crisis.”

INFRA projects will also be rated on the extent that they use innovative technology, delivery, and financing methods to deliver projects in a cost-effective manner.

DOT will make awards under the INFRA program in amounts of at least $25 million for large projects and at least $5 million for small projects. The authorizing statute, the Fixing America’s Surface Transportation Act, requires 10 percent of available funds to be reserved for small projects and 25 percent of funding allocated to rural projects.

INFRA grants may be used to fund a variety of components of an infrastructure project; however, the DOT is specifically focused on projects in which the project owner is significantly invested and positioned to proceed rapidly to construction. Eligible INFRA project costs may include: costs for reconstruction, rehabilitation, acquisition of property (including land related to the project and improvements to the land), environmental mitigation, construction contingencies, equipment acquisition, and operational improvements directly related to system performance.

The DOT’s Notice of Funding Opportunity also announces the creation of the INFRA Extra initiative, which will identify competitive applicants who do not receive an INFRA grant and authorize them to seek a loan through the Transportation Infrastructure Finance and Innovation Act.

Applicants will have to move swiftly: the DOT has set a deadline of March 19 to submit proposals. Applications are available here.

Nossaman LLP

By Alexander Bulkin on 03.04.2021

Municipal Bonds Finally Succumb To The Rise In Treasury Yields.


Continue reading.

Seeking Alpha

Mar. 03, 2021

Muni Recovery Trade Wins Big as Covid-Battered Bonds Rally Back.

The best bet in America’s municipal-bond market is on life returning to normal.

The Bloomberg Barclays index of the riskiest municipal securities backed by lease payments — which includes those issued by the owner of Chicago’s McCormick Place convention center, the American Dream shopping mall in New Jersey and Hartford, Connecticut’s baseball stadium — has returned more than 5% so far this year even after the recent selloff in the bond market. That’s five times more than the overall return on municipal junk bonds and stands in contrast to the losses investors have suffered on investment-grade debt.

The returns reflect optimism that the end of the pandemic will herald the return of spectator sports, industry conventions and office life — all of which have been in virtual hibernation since last March. That promises to revive the streams of revenue — like hotel taxes — that back local government bonds sold for civic projects.

“The reopening bias is pervasive through the bond market,” said Gabe Diederich, a portfolio manager for Robert W. Baird, which holds Chicago convention center debt as part of $8 billion in muni assets under management. “It’s something investors are already shifting money toward in expectation it takes place — very similar to the inflation trade.”

The riskiest revenue bonds were among the hardest hit during the selloff that erupted in the wake of the pandemic a year ago, when investors dumped the securities in droves on speculation the projects would be roiled by the shutdown of the nation’s economy.

The securities have since rebounded as the spread of the virus slows and millions of Americans get vaccinated.

A 2050-maturing bond issued by the Metropolitan Pier and Exposition Authority — which oversees Chicago’s convention center, the nation’s largest — tumbled to as little as 90.5 cents on the dollar last year. It last traded for about 119 cents. Debt backed by the American Dream shopping mall, one of the biggest issues of unrated municipal bonds, has jumped to 112 cents from 92 cents in April.

The gains come amid broader speculation that the nation’s economy will gain steam, with Congress moving toward enacting President Joe Biden’s $1.9 trillion recovery package. While that has triggered a rise in interest rates that has weighed on the broader debt market, municipal junk bonds have been relatively insulated since the higher yields make them less sensitive to rising rates.

Yet even with the rise in yields, those on the highest-rated bonds are still low by historical measures. That has also helped to buoy demand for lower-rated bonds issued by borrowers that stand to benefit financially from the recovery.

“They are anticipating continuing progress toward normalcy,” Diederich said.

Bloomberg Markets

By Shruti Singh

March 4, 2021, 11:23 AM PST

What Does the Recent Hike in Treasury Yields Indicate?

The recent unexpected hike in treasury yields has many investors worried about the future of their investments in all asset classes.

As the 10-year and 30-year treasuries hit 1.60% & 2.29%, respectively, investors are concerned whether these changes are due to inflation expectations under the assumption that rapid economic recovery is imminent in the near future – even though all the leading economic recovery indices are still skeptical. In addition, Federal Reserve chair Jerome Powell also showed his skepticism in the recent senate hearing about the inflation expectations, saying, “We could have a surge in spending as the economy reopens. We don’t expect that to be a persistent longer-term force, so while you could see prices move up that’s a different thing from persistent high inflation, which we do not expect.”

In this article, we will take a closer look at the recent surge in treasury yields and how the Fed is likely to mitigate inflation fears.

Continue reading.

by Jayden Sangha

Mar 03, 2021

Muni Bonds Prove a Refuge for Investors Hiding From Rising Rates.

For now at least, America’s state and local government bonds are a refuge from the losses piling up in other corners of the debt markets.

Yields on 10-year benchmark tax-exempt bonds edged lower Friday by about one basis point to 1.07%, a 4 basis-point drop since the end of last week, according to Bloomberg’s BVAL indexes. Yet those on comparable Treasuries have jumped about 14 basis points to 1.55% over that time.

The result: municipal bonds have eked out a small gain this month while Treasuries and corporate debt have lost 0.81% and 1.26%, respectively, according to Bloomberg Barclays indexes.

The disconnect shows that the municipal market’s usual ties to Treasuries have weakened somewhat amid speculation that the nation’s recovery from the pandemic will drive interest rates higher. That conviction was reinforced by Friday’s report from the Labor Department that employers added nearly twice as many jobs to payrolls in February than had been expected.

The municipal market’s status as a haven may prove short lived. As Treasury yields started trending higher late last year, those on state and local government bonds continued to fall, opening a record gulf between the two. Then that swiftly changed during the last two weeks of February, when yields surged steeply.

That jump in yields could be helping the municipal market by drawing in investors who may have balked at buying when valuations were at record highs. Yet the market may face pressure in the weeks ahead if investors continue to pull cash out of mutual funds or sell debt to pay tax bills, as they often due around this time of year.

“Munis were able to withstand the Treasury selloff much better, as more attractive valuations brought in buyers, helping tax-exempts outperform,” Barclays municipal analysts Mikhail Foux, Clare Pickering and Mayur Patel wrote in a note Friday. “However, if rates keep rising, coupled with fund outflows and heavier tax-exempt supply, munis will likely follow, and investors should still stay defensive.”

Bloomberg Markets

By Fola Akinnibi

March 5, 2021, 10:34 AM PST

Muni Bond Managers Beaten by Index Funds Eye a 2021 Comeback.

This may be the year that money managers in the municipal-bond market show up the index funds that have been raking in record amounts of cash.

The bond pickers, who pride themselves on deep research and skill at profiting from pricing inefficiencies and swings in a market with 50,000 issuers, largely lost out during the chaos that erupted early in the pandemic, when prices lurched from an unprecedented freefall to a record-setting rally. The returns of more than 70% of national municipal funds lagged their benchmarks — the third time in five years a majority have underperformed, according to data compiled by Bloomberg.

Yet there are signs they may be bouncing back. With the freedom to hold more lower-rated bonds, they have been more insulated from the recent surge in yields and stand to gain as the nation’s rebound reduces the economic pressure on public transit systems, hospitals, nursing homes and others that have struggled during the slowdown.

“Given the outlook for credit with fiscal stimulus being supportive and the vaccine being given to more and more people, there is a good chance that the outperformance of lower quality will hold up with the economy improving,” said Dan Solender, head of municipal debt at Lord, Abbett & Co. “With rates rising a little, many portfolios are more defensive than the benchmarks, with higher average coupons.”

The stakes are high for money managers who have seen low-cost ETFs steadily lure in customers. Such funds, including the dominant ones run by Vanguard Group and BlackRock Inc., had record inflows of $13.6 billion in 2020, a 37% increase over the prior year, according to UBS Global Wealth Management. At the same time, the pace of investment flows into mutual funds — which hold 14 times as much in assets — slowed: they took in $39.1 billion, a 60% decline from a year before, according to Investment Company Institute data.

This year, the ETFs winning streak has snapped. BlackRock’s iShares National Muni Bond ETF and Vanguard’s Tax-Exempt Bond ETF, which hold about half of the $62 billion in muni ETF assets, have lost 1.05% and 1.06%, respectively. The median intermediate muni mutual fund has lost 0.67%, according to data compiled by Bloomberg. And about six in 10 active managers are beating their benchmarks.

Last year, less than a third of active municipal-bond managers beat their benchmarks. All nine of Fidelity’s national mutual funds missed their bogeys. Adam Banker, a spokesperson for Fidelity, declined to comment.

This year bets on riskier bonds are paying off, a shift from 2020, when they were pummeled during a panic-driven crash at the onset of the pandemic.

Active managers were particularly hard hit in that rout because a larger share of their holdings were in A, BBB and lower quality bonds than their respective benchmarks, said Beth Foos, senior analyst at Morningstar. Those with more transportation or hospital bonds relative to the benchmark also suffered.

“The riskier, low-quality bonds that drove solid returns in the strong muni markets of 2019 underperformed in early 2020 and funds that loaded up on some of the market’s riskier names and leveraged structures followed in that bumpy ride,” she said.

Vanguard, the low-cost fund behemoth, was able to capitalize on the pandemic dislocation because its funds were more heavily weighted to higher-rated bonds at the beginning of 2020, said Paul Malloy, head of municipals. All six of of Vanguard’s actively managed national muni funds beat their benchmark last year. Over the five-year period, three funds outperformed and three others missed their benchmark by 0.04% or less.

“We came in light on credit risk with dry powder to deploy,” Malloy said in an interview.

Amid the selloff, Vanguard, which oversees about $230 billion in municipal assets, swooped in to buy the safest tax-exempt bonds at unusually low prices then added lower-rated bonds from issuers like Illinois and the Metropolitan Transportation Authority that would benefit from stimulus.

Baird Advisors also had a good year. Three of its four national funds outperformed, including its new Strategic Municipal Bond fund, which returned 8.4%, beating its Bloomberg Barclays 1-10 Year Municipal Blend Index by 4.4 percentage points.

Baird’s managers knew all the investors in the fund, which opened in November 2019, and felt they’d stick with their bets. That gave bond pickers the confidence to be more aggressive amid the selloff. The small size of the funds also made it easier to find cheap bonds when smaller retail investors were selling, said Lyle Fitterer, co-head of municipal investments at Baird.

Only one of T. Rowe Price Group’s six national muni funds beat its benchmark last year, while all six fell short during the three and five year periods.

Hugh McGuirk, managing director of municipal investments at T. Rowe, said the firm is more focused on beating its peers than fund benchmarks. T. Rowe’s muni funds tended to have lower rated bonds than their index, he said. Some positions, particularly senior living were particularly hard hit and haven’t recovered as much as other sectors.

McGuirk said T. Rowe’s under-performance in 2020 dragged down returns over the three and five year period. The firm’s tax-free short fund has performed better than the Morningstar average over the 1, 3 and 5 year period, he said.

“We are active managers and we are taking greater positions in credit and typically running them a little bit longer against the benchmark,” McGuirk said. “The way we are positioned reflects a winning position in the long run. It didn’t pay off in 2020. But we expect over a long run period of time it will.”

Bloomberg Markets

By Martin Z Braun

March 1, 2021, 7:00 AM PST

— With assistance by Bert Louis

A High-Yield Muni Fund Finds Bond Bets for the Long Haul.

A little more than a year ago, before the global pandemic reared its head, high-yield municipal bonds were very expensive.

At that time, “U.S. investors did better after tax in high-yield corporates than in high-yield munis,” recalls David Hammer, an executive vice president at asset manager Pimco who oversees the firm’s stable of muni-bond funds. “That doesn’t happen very often.”

Keenly assessing the municipal-bond market, whether it’s scooping up a beaten-down security or sizing up how risky a portfolio should be, has been the singular focus of Hammer, 42, since he was a novice trader in 2004. Nowadays, he oversees about $53 billion of assets dedicated to muni bonds at Pimco.

Continue reading.


By Lawrence C. Strauss

March 3, 2021 7:00 am ET

SIFMA US Fixed Income Securities Statistics.

Monthly, quarterly, or annual issuance, trading and outstanding volumes for the U.S. fixed income markets.

A quarterly report containing brief commentary and statistics on total U.S. fixed income markets.

View the quarterly report.

February 26, 2021

Despite Improved State Fiscal Conditions, Serious Challenges Remain, Including for Localities, Tribal Nations, and Territories.

State fiscal conditions have improved since last fall but states still face unprecedented costs to address the immediate crisis, limit the long-term harm caused by the pandemic, and address longstanding inequities that greatly worsened the pandemic’s impact. Further, many cities and counties continue to face especially serious fiscal challenges, with revenues down even as costs have soared, and most localities have received no federal aid to date. Tribal nations and U.S. territories also face particularly difficult fiscal conditions. Hence, even though state revenues have improved, additional federal aid for states, localities, tribal nations, and territories is needed.

Over the last few weeks, governors have begun releasing their budget proposals for fiscal year 2022, which include updated revenue forecasts for the current, 2021 fiscal year. In many cases these are the first official forecast updates for several months, giving us the first comprehensive look at how forecasts have changed since the early days of the pandemic, when the fiscal situation appeared much more dire.

Most states (34) still project lower revenues for the current fiscal year than they expected before the pandemic struck, our analysis of these data indicates. In some cases, the forecasts are much lower. In four states — Alaska, Nevada, New York, and Texas — forecasts are more than 10 percent below pre-COVID-19 projections. In 20 states they are more than 4 percent below. (See Table 1.)

Continue reading.



Virus Did Not Bring Financial Rout That Many States Feared.

Grim forecasts held up for a few states, but many took in about as much tax revenue as before the pandemic — sometimes a lot more.

Throughout the debate over stimulus, one question has produced repeated deadlock in Washington: Should the states get no-strings federal aid?

Republicans have mostly said no, casting it as a bailout for spendthrift blue states. Democrats have argued the opposite, saying that states face dire fiscal consequences without aid. State aid could well be a stumbling block for President Biden’s $1.9 trillion federal stimulus bill, which contains $350 billion in relief for state and local governments and narrowly passed the House this past weekend. It faces a much tougher fight in the Senate.

As it turns out, new data shows that a year after the pandemic wrought economic devastation around the country, forcing states to revise their revenue forecasts and prepare for the worst, for many the worst didn’t come. One big reason: $600-a-week federal supplements that allowed people to keep spending — and states to keep collecting sales tax revenue — even when they were jobless, along with the usual state unemployment benefits.

Continue reading.

The New York Times

By Mary Williams Walsh

March 1, 2021

Fitch: 21 U.S. States Saw Job Losses in December

Related Fitch Ratings Content: U.S. States Labor Markets Tracker (21 States Saw Job Losses in December

Fitch Ratings-New York-24 February 2021: State employment improved marginally for most states in December; however, Fitch Ratings’ latest U.S. States Labor Markets Tracker shows 21 states, mainly in the Northeast and West regions, saw month-over-month employment declines.

For six states, the December official unemployment rate improved while the Fitch-adjusted rate actually weakened, given further declines in those states’ labor forces (Ohio, Georgia, Hawaii, Mississippi, Minnesota, Montana, and Pennsylvania). Furthermore, states like Minnesota, Oklahoma, Massachusetts, Delaware, New York, Oregon, New Hampshire, Illinois, California, New Mexico, North Dakota and Hawaii, have recovered less than 50% of the jobs lost at the peak of the pandemic.

“States with a larger percentage of those who dropped out of the labor force may suffer greater volatility in their unemployment rates as individuals seek employment after a period of not actively seeking work,” said Senior Director Olu Sonola. Among those states are Iowa and Vermont, which have Fitch Ratings-adjusted unemployment rates more than 5 percentage points (pp) higher than their respective official unemployment rates.

Additionally, 41 states had a Fitch-adjusted unemployment rate higher than their own state official unemployment rate for December. The gap between the two measures is widest for the state of Iowa, where the labor force has declined by 7.6% since February 2020.

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


Olu Sonola, CFA
Senior Director
Fitch Ratings, Inc.
300 W. 57th Street
New York, NY 10019

Arthur Tildesley, CFA
Associate Director

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

Additional information is available on

Forget Bitcoin or Tesla. Muni Bonds Are the King of Costly.

State and local debt has become arguably the most expensive asset class anywhere.

Believe it or not, the $3.9 trillion municipal-bond market and Bitcoin have much in common.

A flood of money pouring in? Check: Muni bond funds added about $2 billion in the week ended Feb. 17, according to Refinitiv Lipper US Fund Flows data, building upon a $2.6 billion inflow in the prior period that was the fourth-largest on record. Scarce supply? You bet: Some analysts estimate that states and cities in 2021 will bring to market the smallest amount of tax-exempt bonds in 21 years. Fiscal stimulus supporting its case? Indeed: The prospect of $350 billion in aid to state and local governments should help stave off any widespread credit stress.

Perhaps most remarkably, though, muni investors appear to have fully embraced the “HODL” mentality of the crypto crowd. In typical times, February’s sharp selloff in U.S. Treasuries, which has sent the benchmark 10-year yield up almost 30 basis points to 1.35% (for a monthly loss of almost 2%), would have reverberated by now across the market for state and local bonds. Instead, tax-exempt yields have been borderline immovable; they only finally started to budge toward the end of last week.

By that time, municipal bonds became arguably the most expensive asset class anywhere. As Bloomberg News’s Danielle Moran noted, yields had fallen so low on top-rated tax-free debt that even after accounting for the exemption from federal taxes, it still made more sense for investors to purchase Treasuries instead. It’s certainly fair to argue that Bitcoin isn’t worth more than $50,000, or that shares of Tesla Inc. shouldn’t be trading at more than 1,000 times earnings. But it’s at least possible to make the case that they should. It’s not every day that a corner of the bond market rallies to such an extent that it’s objectively a bad deal.

Because most municipal bonds are exempt from federal income taxes, analysts prefer to gauge the market’s relative value using the muni-Treasury ratio, which divides the yield on triple-A rated tax-free debt by Treasuries with the same maturity. A higher ratio indicates munis are relatively cheap — if it’s above 100, investors are effectively getting the tax exemption for free. A lower ratio signals munis are getting pricier.

If you believe the likes of Delaware, Maryland, North Carolina, Texas and Virginia are roughly as creditworthy as the federal government, then it’s only natural that their yields would be lower than Treasuries. For those in the top tax bracket, a 1.35% taxable yield like that on 10-year Treasuries is equivalent to a 0.85% tax-free yield. The market usually never reaches that breaking point.

That all changed last week. The 10-year muni-Treasury ratio tumbled to a record low 54%, meaning tax-exempt bonds were barely paying half of 10-year U.S. notes. The 30-year ratio crumbled to 69% — before this year, the previous low was 86%. And for five-year securities, the muni-Treasury ratio dropped to a puny 37.3%. According to Bloomberg Valuation data that tracks bond yields for 20 different states, five-year debt from all but Illinois and New Jersey yields less than five-year Treasuries, and many state obligations would yield less even after factoring in the tax exemption.

It’s not as if this caught anyone in the muni market by surprise. Citigroup Inc. analyst Vikram Rai called it “excruciating richness.” John Flahive, head of fixed-income investments at BNY Mellon Wealth Management, said “you really gotta scratch your head” at valuations. Bank of America Corp.’s strategists called it “futile” to call a bottom to muni-Treasury ratios. Adam Stern, co-head of research at Breckinridge Capital Advisors, said, “We’re trying to find value where we can, and if you can’t, hold your nose and move along.”

The unspoken fear here is that the muni market can be particularly susceptible to painful reversals. It’s dominated by individual investors who own shares of mutual funds or specific bonds in separately managed accounts. In either case, they tend to not react well to monthly losses on their supposed safe assets. The clearest example of this was in 2013, when a combination of the “taper tantrum” and high-profile distressed situations in Detroit and Puerto Rico led individuals to pull $60.7 billion from muni mutual funds that year, the most since at least 1992, as losses mounted in six of the final eight months of that year.

It doesn’t have to be that way this time around. From a pure public policy perspective, no one should root against low borrowing costs for states and localities that are on the front lines of keeping the Covid-19 pandemic in check and distributing vaccines. In fact, part of the reason tax-free bond supply looks to be so low this year is that municipalities are opting to sell more taxable debt, which is more costly upfront but grants them greater flexibility to use the proceeds.

But it’s also fairly obvious that muni-Treasury ratios can’t permanently remain at levels that make tax-exempt bonds borderline impossible to buy. 1 One of the more troubling dynamics of this supply-demand mismatch is that fund managers are clearly reaching to purchase longer-dated debt or riskier securities. High-yield muni funds drew in $578 million in the week ended Feb. 17, after adding $832 million the week before, which was the second-biggest inflow ever. As is often the case in fixed-income investing, that strategy will work until it doesn’t.

Yes, if an investor in the top tax bracket is convinced that taxes are going to go much higher in the coming years, then it’s possible to make the case that munis still have some value relative to Treasuries. But legislation could potentially work in the opposite direction, too.

Bloomberg Markets

By Brian Chappatta

February 22, 2021, 2:30 AM PST

Brian Chappatta on Expensive Muni Bonds (Podcast).

Bloomberg Opinion columnist Brian Chappatta presents a column explaining that municipal bonds are arguably the most expensive asset class anywhere, given that the market has rallied to such an extent that even after accounting for the federally tax-exempt interest payments, investors would still be better off buying Treasuries than top-rated munis.

Listen to audio.

Bloomberg Radio

February 23, 2021 — 6:48 AM PST

March Madness Tournament Arena Tests Muni-Bond Market Appetite.

One of the Indianapolis arenas hosting the men’s college basketball championship next month is turning to the municipal-bond market to raise money for renovations, betting that fans will flock back to large venues once the pandemic is quelled.

The local government agencies that oversee the Bankers Life Fieldhouse, where some of the round 1 and 2 and Sweet 16 games of the tournament known as March Madness will play, are selling $390 million of tax-exempt bonds on Thursday.

Proceeds will be used to finance improvements to the arena that is home to the Indiana Pacers that were part of a 2019 agreement to keep the professional basketball team in Indianapolis until 2044. Some of the money also will refinance two bond anticipation notes sold in 2019 and 2020.

Renovations include combined club level seats, a larger center home scoreboard, and a public plaza that will double as a skating rink in the winter. Andy Mallon, executive director of the Capital Improvement Board of Managers of Marion County, said the work is expected to be completed by the end of 2022.

The sale comes less than a month before the start of the National Collegiate Athletic Association’s 2021 men’s basketball championship. Last year’s tournament was canceled because of the Covid-19 pandemic. Officials decided to host all of this year’s games in one geographical location, with the majority of the tournament’s 67 games taking place in Indianapolis. Attendance is limited to 25% in the stadiums.

Large public gatherings such as concerts, conventions and of course sporting events were canceled when Covid-19 spread across the U.S. one year ago. That left venues, many financed with municipal bonds, empty for much of the year. They have been slow to relaunch as public health officials urge caution while the vaccine rollout ramps up, though the Super Bowl was hosted with limited fans when it was played in Florida earlier this month.

The bond sale also comes amid a nearly two-week long selloff that has forced yields on benchmark securities up by nearly 5 basis points as investors speculate on a post-pandemic surge in economic growth.

“Even with the recent selloff we’ve seen, muni rates are still historically very low,” said Craig Brandon, co-director of municipal investments for Eaton Vance Management. “We’re at a very pivotal time in the market this week and everyone’s waiting to see what the flow data is on Thursday.”

Bloomberg Markets

By Anastasia Bergeron

February 24, 2021, 10:51 AM PST

Will You Have to Pay Twice for Better Infrastructure?

Condo owners in Florida had already paid to upgrade their power lines. Palm Beach sent them another bill anyway.

Suppose your town decides to respond to frequent power outages by requiring property improvements. Good news: You’ve already made them and paid for them. Bad news: The town asks you to pay again. Can they do that? That’s the question raised by a recent decision of the United States Court of Appeals for the Eleventh Circuit.

The underlying facts should help us think more deeply about the delivery of municipal services; and, like just about everything just now, should make us think more deeply about how we’re making our communities resilient to climate change.

Here’s how the case arose: Tired of power outages from frequent tropical storms, the town of Palm Beach, Florida, decided a few years ago that the culprit was overhead power lines. The solution was to bury them in some neighborhoods. To pay for the cost, the town imposed a special assessment — a bill — on those who would benefit. So far, nothing unusual. Much of the cost of burying lines is typically passed on to local residents.

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Bloomberg Opinion

By Stephen L. Carter

February 27, 2021, 5:00 AM PST

Infrastructure Update: BDA Discusses Potential Legislation with Federal Agencies

The BDA hosted conversations with senior-level staff, both political and career, at the U.S. Department of Treasury and the Department of Transportation regarding potential infrastructure legislation this year, and the inclusion of municipal bond provisions.

Key points include:

The BDA continues to work with our partners on the Hill to promote legislation that would:

The BDA will continue to provide updates as they come available.

Bond Dealers of America

February 24, 2021

SIFMA Welcomes Introduction of the LOCAL Infrastructure Act.

Washington, D.C., February 25, 2021 – SIFMA today issued the following statement from president and CEO Kenneth E. Bentsen, Jr. on the introduction of the LOCAL Infrastructure Act:

“SIFMA commends Senators Roger Wicker (R-MS) and Debbie Stabenow (D-MI) on their commitment to infrastructure investment, seen today with the introduction of the Lifting Our Communities through Advance Liquidity for Infrastructure (LOCAL Infrastructure) Act of 2021. Our state and local governments have a critical need, especially this deep into the Covid-19 pandemic, to fund the repair and even new construction of the bridges, roads, schools, health care facilities, water and sewer facilities, transportation facilities our communities rely on. This legislation would reinstate advance refunding, an important tool which allows state and local governments to save billions in interest costs by refinancing their outstanding debt to a lower interest rate. By reducing their debt service expenses, states and localities would free up their borrowing capacity for new investments in infrastructure and other important public projects, in turn boosting their local economies with the creation of new jobs and making public services more affordable.”

Hackers May Be Coming for Your City’s Water Supply.

More digitized and connected than ever, the nation’s infrastructure is vulnerable to cyberattack.

I first saw the inside of a water-treatment plant in 2015. I was conducting a site visit at a municipal facility in New Jersey, where I was the state’s director of cybersecurity. It wasn’t an inspection; the plant manager had asked me to visit.

Changes at the facility over the years had made him uneasy. Analog machinery had given way to digital systems, and critical water-treatment processes were now automated. The plant required little human intervention in day-to-day operations. Thanks to remote-access technologies, more maintenance and monitoring activities were being performed off-site by a third party. All this was great for efficiency, especially for his resource-limited operation, but what about the risk? Optimizing for cost and speed meant connecting more digital and networked technologies to his plant floor. Security was no longer simply a matter of gates, guards and guns. It had become a matter of bits and bytes.

In early February that plant manager’s unease became another’s reality when someone reportedly tried to poison the water supply in the Gulf Coast city of Oldsmar, Fla. According to the Pinellas County Sheriff, a hacker gained remote access to Oldsmar’s water-treatment-plant network and briefly increased the amount of sodium hydroxide in the water by 100 times—enough to cause death or serious injury to anyone who drank or touched it. Thankfully a technician noticed the anomaly and booted the hacker off the network before any damage was done.

What happened in Oldsmar fell just short of the nightmare scenario. The average person is unaware how dependent the country’s critical infrastructure has become on digital technology. At power plants, waterworks and all manner of public utilities, special-purpose computers known as human-machine interfaces connect to ruggedized-process controllers that regulate actuators to spin turbines, rotate robotic arms or, in this case, open valves to release sodium hydroxide.

In a perfect world these communications and the operations they command would be walled off from internet-connected systems. But practical demands to monitor operations in real time, glean data analytics from the plant floor and perform remote maintenance have in many cases exposed vulnerable infrastructure to the other side of the firewall. The result is more web-based hacks of operational technology systems. The bad guys get access to critical infrastructure facilities when corporate devices are inadvertently connected to the internet or a network administrator’s credentials are stolen in a spear-phishing scam.

Oldsmar wasn’t the first cyberattack against water infrastructure. In April 2020 Israel’s National Cyber Directorate urged all water-treatment companies to change their passwords on critical systems. In 2016, according to a report by Verizon’s security unit, hackers with ties to Syria gained access to a water utility in an unknown country and managed to “handicap water treatment and production capabilities.”

Despite the alarmist headlines, Oldsmar is mostly a good-news case study. The treatment center swiftly identified what was happening and took immediate action to keep the poison out of the public water supply. Even if the plant hadn’t responded as quickly as it did, there were other controls in place that would have detected a problem and maintained the system’s integrity.

But redundant controls and a bit of good luck shouldn’t diminish the severity of this cyber threat to public health. The plant operator was tipped off by a mouse arrow moving across a screen and making changes to critical water-treatment processes. But what if the operator didn’t have the benefit of a visual aide to observe the hacker in real time? What if the human-machine interface was manipulated by malware to report “all clear” as the hackers increased concentration of sodium hydroxide to lethal levels? Would the breach have been detected before someone drank or bathed with the corrosive adulterated water?

The answer and the problem are inextricably linked. Detecting toxic water en route to consumers requires sensors in the distribution network. Those sensors must be connected so they can communicate and transmit data for either humans or machines to take preventive actions. Anything that is connected can be manipulated. Should we rip the sensors out lest they be hacked? Of course not. Instead we must reduce vulnerability by extending security to all parts of the network, even those that seem beyond the reach of malicious actors.

“I just don’t trust those computers,” the New Jersey plant manager told me in 2015. We should all be untrusting when it comes to technology, but not at the expense of its embrace. The zero-trust mind-set made all the difference for the city of Oldsmar.

The Wall Street Journal Opinion

By Dave Weinstein

Feb. 26, 2021 5:53 pm ET

Mr. Weinstein is an associate partner at McKinsey & Co. and former chief technology officer of New Jersey.

S&P U.S. Not-For-Profit Health Care Rating Actions, 2020 Year-End Review.

S&P Global Ratings’ U.S. not-for-profit health care outlook and rating actions in 2020 were heavily influenced by the pandemic with a higher than typical amount of unfavorable outlook revisions (mostly to negative from stable), particularly in the spring when we simultaneously revised outlooks on 42 health care organizations in anticipation of upcoming financial and operating pressures. In addition, in 2020 we downgraded four times more organizations than we upgraded. Four of the nine upgrades occurred in January before the pandemic with all but one of the remaining upgrades due to affiliation or merger with a higher rated organization.

Nevertheless, we maintained a majority of our ratings, reflecting financial flexibility from strong balance sheets, enterprise profile strengths, and governmental support through stimulus funds. There have also been some favorable outlook actions including credits that were revised back to stable after having outlooks revised to negative as part of our multi-credit rating action in April 2020 when we believed those credits with weaker reserves and credit characteristics could face relatively more pandemic related challenges.

The health care portfolio is composed largely of stand-alone hospitals (59%) and health care systems (35%) with the remaining ratings on long-term care, human service providers and a physician group practice. Relative to their percentage of the total portfolio, the stand-alone providers had a higher number of downgrades and unfavorable outlook revisions in 2020. However, stand-alone hospitals also accounted for over three-quarters of the favorable outlook revisions. We believe this reflects the continued bifurcation of credit quality for stand-alone providers and the larger portfolio of stand-alone ratings. Health care systems were not immune to credit actions either as they experienced upgrades, downgrades, and both unfavorable and favorable outlook actions, although in each category at a rate lower than their percentage representation in the overall portfolio. We believe this reflects system benefits, including size, scale, and for many, centralized control, all of which provided benefits in managing through the pandemic.

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Fitch Ratings Updates U.S. Public Finance Charter School Rating Criteria.

Fitch Ratings-New York-25 February 2021: Fitch Ratings has updated its “U.S. Public Finance Charter School Rating Criteria.”

The primary revision to the criteria is the use of historical state per-pupil funding levels for K-12 education as the input to the Fitch Analytical Stress Test Model — State & Local Governments (FAST) to determine the impact of a typical recession on revenues assuming constant enrollment. Previously, Fitch used either school-specific revenues if the school had at least 10 years of stabilized revenues or historical state per-pupil funding levels for schools with a more limited revenue history or greater enrollment volatility.

There is no expected impact on existing ratings.

The report replaces the criteria report of the same name dated Feb. 28, 2020.


Arthur Tildesley, CFA
Associate Director
Fitch Ratings, Inc.
300 W. 57th Street
New York, NY 10019

Amy Laskey
Managing Director

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

Additional information is available on

Fitch Ratings Updates Public Sector, Revenue-Supported Entities Rating Criteria.

Related Fitch Ratings Content: Public Sector, Revenue-Supported Entities Rating Criteria

Fitch Ratings-New York/London/Moscow-23 February 2021: Fitch Ratings has updated the Public Sector, Revenue-Supported Entities Rating Criteria report (the Revenue Master 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.

The main revision is the addition of the Portfolio Analysis Model (PAM) with the Revenue Master Criteria. There is no change to the model, that was previously associated with only the U.S. Public Finance College and University Rating Criteria. The model will temporarily remain associated with both criteria through a transition period and will ultimately be maintained as part of the Revenue Master Criteria only.

Other minor and editorial revisions to the report are as follows: clarifying the scope by specifying certain types of International Public Finance entities that are or are not covered under the Revenue Master Criteria; showing an explicit ‘B’ category range for the Suggested Analytical Outcome in the Rating Positioning Table; adding information on the rating approach to distressed debt exchanges; and clarifying the application of the short-term ratings approach for issuers without Issuer Default Ratings.

This new criteria report replaces the criteria report of the same name dated 27 Mar 2020.


Tipper Austin
Fitch Ratings, Inc.
300 W. 57th Street
New York, NY 10019

Vladimir Redkin
Senior Director
+7 495 956 2405

Raj Sanghvi

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: [email protected]
Elizabeth Fogerty, New York, Tel: +1 212 908 0526, Email: [email protected]

Additional information is available on

Dislocation Offers Muni Buying Opportunities: Kazatsky (Radio)

MUNIS IN FOCUS: Eric Kazatsky, Senior U.S. Municipals Strategist for Bloomberg Intelligence, on how the world has changed for rates and munis. Hosted by Paul Sweeney and Matt Miller

Listen to audio.

Bloomberg Radio

(Lisa Abramowicz filling in for Matt Miller).

February 26, 2021

MSRB Data Show Noticeable Shift in Municipal Securities Buying Patterns.

Washington, DC – The Municipal Securities Rulemaking Board (MSRB) today published research findings that reveal a noticeable shift in market behavior and structure over the last decade, driven by customer buying patterns.

“Our research shows a significant decline in individual investor purchases and a significant increase in institutional purchases of municipal securities over the last decade,” said Marcelo Vieira, MSRB Director of Research, noting that individual investor trades are defined as trades of $100,000 or less, and institutional trades are defined as trades of over $1 million. “We believe the shift in customer buying may be driven by the increased use of separately managed accounts mutual funds and exchange traded funds.”

As the official repository of all municipal securities trade data, the MSRB conducts analysis and publishes its research findings to enhance understanding of market trends. The MSRB’s latest analysis shows a notable shift in the type and size of transactions in the municipal securities market over the past 10 years, particularly among customer purchases. Trading patterns in customer sales and interdealer trades remain relatively consistent. The trend is also significantly more pronounced when the analysis is limited to tax-exempt, fixed-rate securities, as trades of variable-rate and taxable securities are less common in the municipal market.

The analysis reveals that in the last decade, customer purchases of fixed-rate, tax-exempt municipal securities of $100,000 or less decreased 46%, from 3.8 million, or 87.2% of all customer purchases of those securities in 2010, to 2.0 million, or 77.8% of customer purchases in 2020. Meanwhile, institutional-sized purchases of over $1 million increased 46% in the same time period, from 83,787, or 1.9% of all customer purchases, in 2010 to 121,991, or 4.6% of customer purchases, in 2020. The MSRB’s analysis is based on transaction data from the MSRB’s Real-Time Transaction Reporting System (RTRS) database.

Date: February 24, 2021

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

Municipal Bonds: Back To The Basics


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Seeking Alpha

Feb. 24, 2021

Muni Credit Plays Defense When Rates Rise.


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Seeking Alpha

Feb. 22, 2021

Make Sure That Your Municipal Bonds Pay You For The Risk You Take.

Over the past decades I have written about weird fixed income market events and crazy, newly issued bonds. This one doesn’t take the cake but it’s the icing on it.

The State of Louisiana in February 2021 issued some taxable municipals. No surprise there since many other municipalities followed them. Louisiana’s specific series of revenue bonds refinances an older issue that was marketed to build Highway I-49 North and South. So far so good. Here’s the zinger: the bonds are payable by abandoned and unclaimed property revenue after refunds and fees.

The Official Statement (page 31) defines “Unclaimed Property” as:

“…cash or securities-related property. Examples of cash include bank deposits, trust distributions, annuities, certificates of deposit, traveler’s insurance policies, wages or other compensation for personal services, deposits or refunds owed to a subscriber by a utility, mineral royalty payments, property in an individual retirement account and contents of safe deposit boxes.”

California and many other states call such assets, Escheat Property. The Escheat laws grant the right of a government to take ownership of estate assets or unclaimed property. This happens most often when someone dies with no will or heirs to claim the property.

By using unclaimed property as a source of revenue, Louisiana is relying on the rightful property owners to forego their rights to these assets. The state grabs them and uses the revenue generated to repay their bonds.

But what if a major portion of this unclaimed property gets reclaimed and must be paid back by the state to the rightful owners? In the case of the I-49 bonds there could be insufficient funds to make interest payments.

The Division of Administration recognized this potential problem. So it agreed to transfer up to $15 million for possible debt service payments should a significant part of the unclaimed property suddenly be reclaimed by the owners or heirs. However, this $15 million backstop is subject to governmental appropriation. In other words, it’s not guaranteed. So bondholders could be left out in the cold.

This type of Special and Limited Obligation is not at the top of the pecking order like a General Obligation, water and sewer, or an airport revenue bond. Always ask yourself, “Am I getting paid for the risk I’m taking?”

These taxable munis backed by Unclaimed Property generate a big NO to such a question. The five-year Louisiana bonds yield 1.059%, seven years, 1.543%, and ten years, 1.879%. Compare these yields with alternative bonds such as the T-Mobile below.

Kudos to the underwriters who disclosed in the Official Statement the amount of abandoned and unclaimed property collected every year since 2011. This calculation netted out what Louisiana refunded to the rightful owners net of fees and administrative costs (of course). It left the actual amount allocated to the Unclaimed Property Fund. Analysts can then determine if the cash from this net Unclaimed Property Fund will be sufficient to service the bonded indebtedness.

The problem is that few individual investors actually read the Official Statement. So they will never know the risk they are taking and if they are being paid for that risk.

You would be far better off investing in corporate bonds where you receive quarterly earnings reports, revenue reports, and profit and loss reports, rather than hoping Louisiana’s unclaimed property coffers will grow in an amount sufficient to pay you.

Take a look at corporate bonds like T-Mobile 4.75% due February 1, 2028 (CUSIP: 87264AAV7). This is a junk bond that S&P rates BB. But this wireless carrier’s revenue growth and superior 5G coverage versus its rivals is doing quite well. There are cost synergies with its Sprint S 0.0% acquisition and it is not one of those walking dead zombie companies that rely on debt to keep them afloat. The aforementioned bonds yield around 2.04% to the Feb. 1, 2023 call and 3.54% to maturity in 2028.

Conclusion: Unclaimed property versus a 5G juggernaut? No contest.


by Marilyn Cohen

Feb 23, 2021

Municipal Bond Yields Rise, Swept Up in Treasuries Surge.

CHICAGO (Reuters) – Municipal bond yields were following U.S. Treasury yields higher after valuations between the two markets reached unsustainable levels, analysts said on Thursday.

Earlier this year, the $3.9 trillion market where states, cities, schools and other issuers sell debt had been resisting a steep sell off in Treasuries that lifted yields, putting the historically close correlation between the two markets out of whack.

Now, munis are catching up, with the 10-year yield on Municipal Market Data’s (MMD) benchmark triple-A scale, which started 2021 at 0.720%, climbing 45 basis points since Feb. 12. It closed up 5 basis points at 1.14% on Thursday.

The iShares National Municipal Bond exchange-traded fund (ETF) fell on Thursday to its lowest level since November at 115.14. The largest muni ETF, which reached an 11-month high of 117.95 on Feb. 11, was last down 0.43% at 115.30.

Flows into municipal bond funds plummeted to $37.68 million in the week ended Feb. 24 from net inflows of nearly $2 billion in the prior week, Lipper reported on Thursday.

“Munis were holding up extremely well to the rest of the bond market and the last week and a half we’ve seen a reversal in that,” said Andrew Richman, senior fixed income strategist at Sterling Capital Management. “The relative value finally got so bad (munis are) starting to move up in the yields right now.”

The ratio of top-rated 10-year, tax-exempt bonds to comparable taxable Treasury yields hit an all-time low of 54.7% on Feb. 16, according to Daniel Berger, senior market strategist at MMD Refinitiv, who said ratios that low were a key reason for the recent move higher in muni yields. The ratio was 76.2% on Thursday.

“Munis got incredibly rich to Treasuries,” Berger said, adding that “a little more supply this week” was another factor.

Low supply of new debt in January amid high demand from investors heavy with cash from coupon and principal payments helped keep muni yields from following Treasuries higher. The prospect of an income tax hike and new stimulus funding for states and local governments under a Democrat-controlled White House and Congress also held yields in check.

Improving economic data, inflation concerns, and fears of a supply surge to finance massive new fiscal stimulus, have sent the 10-year Treasury yield soaring from 0.930% on Jan. 4 to over 1.6% on Thursday.

Muni yields are typically lower than those of comparable Treasuries because interest income earned on munis is exempt from federal and sometimes state taxation.

Reporting By Karen Pierog; Editing by Alden Bentley and Marguerita Choy

High Yield Munis Benefit From Anticipated Fiscal Support.


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Seeking Alpha

Feb. 21, 2021

Local Hazards Grow as Americans Churn Out More Garbage.

Increasing waste, full landfills and shuttered recycling programs mean more cities are paying to send their trash out-of-state.

As U.S. cities struggle to rein in garbage while propping up pricey recycling efforts, more companies are profiting from America’s growing waste problem and leaving local communities to face the environmental consequences.

At 4.9 pounds of trash per person, per day, the U.S. is the most wasteful country on the planet. Of the 292.4 million tons of refuse Americans generated in 2018, half was buried in landfills while another 32% was recycled or composted, according to the U.S. Environmental Protection Agency. The rest was burned (the preferred term being “combusted”) to generate electricity.

Before 1970, the U.S. dealt with its trash by dumping it in open pits. But in 1976, waste management fundamentally changed, thanks to the Resource Conservation and Recovery Act. That law created disposal standards for solid and hazardous waste, bolstered recycling programs and mandated landfills install better protection against seepage into the surrounding environment.

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Bloomberg Green

By Jacqueline Davalos

February 26, 2021, 1:00 AM PST Updated on February 26, 2021, 3:37 PM PST

For Cities, Less Traffic Means Lost Revenue.

Cities have seen parking fee and traffic fine collections drop during the pandemic as commuters and tourists stay home and enforcement is relaxed.

Sluggish tax collections have dragged down city revenues during the coronavirus pandemic, but a decline in parking fees and fines is also posing a problem for several cities where tourism and commuting have dropped off.

In Washington, D.C., traffic tickets make up about 2% of the city’s locally generated revenue, but money collected from traffic violations has declined precipitously, according to financial estimates provided by the Chief Financial Officer. The city collected $68 million in non-automated parking fines in Fiscal 2019. That figure declined to $36 million in Fiscal 2020 and is estimated to drop to $4 million in Fiscal 2021, according to data provided by the CFO’s office.

The non-automated fines are “expected to decline significantly as there are fewer commuters and less traffic,” according to a recent CFO report. Tickets issued by the city’s network of traffic enforcement cameras have also declined, with revenue predicted to drop from $123 million in Fiscal 2019 to $100 million in Fiscal 2021, according to the CFO.

In addition to having fewer drivers to ticket, the city has also stopped issuing tickets for certain types of violations, such as for expired meters or expired license plates. A spokesman for the District’s Department of Motor Vehicles confirmed the city is currently only ticketing for 47 safety violations, including parking in front of a fire hydrant.

“The District government is currently reviewing whether parking meter enforcement should be restarted in commercial areas,” DMV spokesman James Miller said in an email. “However, since no decision has been made, all tickets remain in their current status for the duration of the public health emergency, with no additional penalties applied.”

Chicago saw a 52% decline in the number of parking tickets issued by the city last year after Mayor Lori Lightfoot similarly ordered the city to stop ticketing and booting illegally parked vehicles unless it’s for a public safety reason.

Less parking enforcement has in some cases also led to reduced workforce needs.

In Washington, D.C., a handful of the city’s parking enforcement officers have been detailed to other government programs, with some assisting at Covid-19 testing sites. Thirteen of the city’s 242 parking officers are detailed, Miller said.

Miami Beach, Florida also had to scale back the size of its parking enforcement office after garage and street meter fee collection declined by more than 90% at the outset of the pandemic.

The city is down to 15 full time parking enforcement officers from a staff of 28 full-time and 27 part-time officers, said Monica Beltran, the assistant director of the Miami Beach Parking Department. Some parking officers were able to find jobs elsewhere in city government. But the city’s parking department is self-funded through its fee collection and had little choice but to cut expenses when its revenues tanked, Beltran said.

With hotels, bars, entertainment venues and restaurants shut down at the outset of the pandemic, the tourism-dependent city had few visitors or workers paying to park at street meters or in the 12 city-run garages. To allay concern about transmission of the virus though high-touch surfaces, the city also removed 750 parking meter pay stations and transitioned to an app-based system, Beltran said.

Parking revenues have started to bounce back as businesses have been allowed to reopen—with Miami Beach now collecting about 65% of its average weekly parking fees. Even with the drop in revenue collection, the city expects to maintain a 50% cap on parking garage capacity during the spring break season to prevent the area from becoming a hot spot for virus transmission, Beltran said.

“Those measures affect our bottom line but they are necessary,” she said. “The demand is there but you have to do the right thing. If you open the doors, it could become a free for all.”

Route Fifty

By Andrea Noble,

FEBRUARY 17, 2021

To Plug a Pension Gap, This City Rented Its Streets. To Itself.

Cities and states issued at least $6.1 billion in pension bonds last year. Novel ways to do so include renting property they already own under dummy corporations.

The City of Tucson, Ariz., decided last year to pay rent on five golf courses and a zoo — to itself. In California, West Covina agreed to pay rent on its own streets. And in Flagstaff, Ariz., a new lease agreement covers libraries, fire stations and even City Hall.

They are risky financial arrangements born of desperation, adopted to fulfill ballooning pension payments that the cities can no longer afford. Starved of cash by the pandemic, cities are essentially using their own property as collateral of sorts to raise money to pay for their workers’ pensions.

It works like this: The city creates a dummy corporation to hold assets and then rents them. The corporation then issues bonds and sends the proceeds back to the city, which sends the cash to its pension fund to cover its shortfall. These bonds attract investors — who are desperate for yield in a world of near-zero interest rates — by offering a rate of return that’s slightly higher than similar financial assets. In turn, the pension fund invests the money raised by those bonds in other assets that are expected to generate a higher return over time.

If they can pull off the strategy, cities issuing these bonds can reduce their pension bills by an amount that’s the difference between what they earn and what they pay out. But as with any strategy based on long-term assumptions, there is risk.

Taxpayers can still owe the pension fund money if the investments don’t get the return they expect. And although most municipal debt is considered bulletproof because a government pledges to make its creditors whole in the event of a default, bonds like the ones West Covina issued don’t have that guarantee.

“It boggles my mind that anyone would buy these bonds,” said Jessica Shewmaker, who was a member of West Covina’s City Council when an investment banker pitched the idea last year as a way to cover a $1.2 million monthly bill from the California Public Employees’ Retirement System, or CalPERS. “These are streets that haven’t been paved in 20 years.”

Around the country, towns and cities are increasingly embracing more aggressive investment strategies as they struggle to cover funding gaps in their pension programs. The total public pension shortfall nationwide is about $4.7 trillion, according to Pension Tracker, a project of the Public Policy Program at Stanford University.

Many states have been trying to beef up their pension systems, which often means telling local governments to send in a lot more money. Few towns have cash just sitting around these days, but they can borrow it long term from investors, with maturities so far in the future that it feels like free cash. West Covina’s bonds, for instance, don’t need to be repaid for 24 years.

When a municipality borrows money for a public project, like a new road or bridge, it typically issues a general obligation bond, often after getting voter approval. These are the backbone of municipal finance, and come with robust guarantees — courts can force borrowers to pay, even if it means raising taxes.

But it’s different when a municipality borrows to cover a pension shortfall. Usually, this is done with a pension obligation bond. These also require voter approval in some states, but typically come with fewer guarantees to their buyers.

It gets murkier when municipalities use West Covina’s approach. Because the bond is issued by the dummy corporation, it’s often called something else — a “lease revenue bond,” in West Covina’s case — and doesn’t necessarily need voter approval.

The consequences of this approach became clear after Detroit declared bankruptcy in 2013 and couldn’t pay its creditors in full.

Like West Covina, Detroit had used dummy corporations to borrow money after it had been ordered to fund its pension. A few years later, in bankruptcy, Detroit tried to repudiate the $1.4 billion pension borrowing, calling it a sham transaction that used the dummy corporations to get around a legal debt limit. When the dust settled, the bondholders got about 14 cents on the dollar. The city’s retirees took haircuts, too.

The website of the 20,000-member Government Finance Officers Association, whose stated mission is to “advance excellence in public finance,” fairly screams: “State and local governments should not issue P.O.B.s.”

That hasn’t deterred governments. Nationwide, cities and states issued $6.1 billion in pension obligation bonds in 2020, more than in any year since 2008, according to data compiled by Municipal Market Analytics, a research firm. States with significant new pension borrowings last year included Arizona, Florida, Illinois, Michigan and Texas. In California, cities borrowed more than $3.7 billion to squirrel away at various public pension funds, breaking the old state record of $3.5 billion, set in 1994.

It’s a major comeback for this type of debt, said Matt Fabian, a partner at Municipal Market Analytics who has been writing about the deals for years. “They’re borrowing money and basically putting it into the market and gambling,” he said.

Mr. Fabian said his firm’s tally almost certainly missed the borrowing by municipalities that took West Covina’s approach, because those bonds used different names. Flagstaff rented its City Hall, libraries and fire stations last year to back a pension deal marketed as “certificates of participation.” In January, Tucson did the same, leasing two police helicopters, a zoo conservation center, five golf courses and the bleachers at its rodeo grounds, among other things. And a Chicago suburb, Berwyn, used “conveyed tax securitization bonds” to help fund police pensions.

The street rent that West Covina, a onetime outpost of citrus growers some 20 miles east of Los Angeles now engulfed in sprawl, pays the dummy corporation is essentially the money to service the debt. By issuing that debt, the city was able to make a lump-sum payment of about $200 million to CalPERS.

Like many city pension plans that CalPERS manages, West Covina’s is only partly funded. CalPERS treats the shortfall of roughly $200 million as a loan it has made to West Covina, charging 7 percent interest. That’s an extraordinary rate in today’s environment, but CalPERS uses it because that’s the return that the pension system projects it will, on average, earn on its investments.

By paying off most of its “loan” from CalPERS, West Covina doesn’t have to worry about the 7 percent interest, at least for now. The risk: If CalPERS misses its investment target, West Covina’s plan will be underfunded again, CalPERS will treat the shortfall as a new loan and the whole process will start over.

When West Covina considered its deal, the city’s investment banker, Brian Whitworth of Hilltop Securities, estimated that the city would pay 4 percent to borrow. Because CalPERS was shooting for 7 percent returns, he said, the city would save an estimated $45 million.

“On a bond around $200 million, it’s a pretty good savings,” he said.

No one demanded a projection of what might happen if CalPERS did not achieve 7 percent. Instead, Mayor Tony Wu grilled Mr. Whitworth on why he thought West Covina would have to pay 4 percent when El Monte, next door, was paying just 3.8 percent.

The proposal passed, 4 to 1, with Ms. Shewmaker voting against it because she considered the plan a gimmick to avoid putting the matter before voters, who she believed weren’t likely to approve a deal that would increase West Covina’s debt sixfold.

Mr. Wu, now a city councilman, said the city had to borrow, because it was locked into unsustainable pension plans and CalPERS refused to negotiate easier terms. The longtime owner of a mortgage-lending business, he said it was “crazy” for CalPERS to base everything on 7 percent when real interest rates were much lower. But he said challenging CalPERS would be a waste of time.

“It sounds very logical, but it’s not going to happen, because the ones who have power don’t want to lose it,” he said. “They’re going to fight us big time. They’re going to sue us to hell. Their attorneys will go laughing to the bank.”

The New York Times

By Mary Williams Walsh

Feb. 16, 2021

Mary Williams Walsh is a reporter covering the intersection of finance, public policy and the aging population. She previously worked for The Wall Street Journal and The Los Angeles Times, mainly in foreign bureaus.

Pension Obligation Bonds: A Prudent Investment or a Speculative Venture?

The issuance of Pension Obligation Debt has been a topic of contention amongst various local and state government officials, municipal advisors, local politicians and their constituents.

In the recent years, the Government Finance Officers Association (GFOA) came out with a stern advisory for local and state governments to NOT issue pension obligation bonds (POBs) to meet their unfunded liabilities and made a case for them being “complex instruments that carry considerable risk.” It’s also important to note that some of the large municipalities that filed for bankruptcies in the United States had some exposure to pension obligation debt – including the City of Stockton and City of San Bernardino – in the years leading up to their insolvencies.

In this article, we will take a closer look at the composition of pension obligation debt, and how it can impact the financial picture of a local or state government.

Rising Unfunded Pension Liabilities for Local Governments

As we dive deeper into the composition of pension obligation bonds, it’s important to understand the reasoning behind their issuance by local and state governments.

In the United States, almost all of the local and state governments partake in some sort of state-sponsored pension plans, i.e., CalPers (California Public Employee Retirement System) for the State of California. These pension plans work with all participants – local and state governments – to assess and analyze their pension liabilities. Primarily, these pension liabilities are based on a few factors: retirement age, mortality, projected salary increases attributed to inflation, across-the-board raises and merit raises, increases in retirement benefits, cost-of-living adjustments, valuation of current assets, investment return and other matters.

One of the biggest challenges and largest variables in the aforementioned list of factors is the investment return on the pension portfolio; this single variable is also responsible for creating the large unfunded liabilities for many of the local governments.

Let’s take a look at that in detail: when a pension fund, like CalPers, determines the annual pension liability for a local government, it makes a few assumptions in its calculations and one of them is being the pension fund’s forecasted investment return for the upcoming years. For example: a pension fund assumes an investment return of 7% for the year and bases its actuarial pension obligations for local cities and counties; however, the financial markets had a terrible year and the pension fund only generated 2% returns – this means that the 5% gets added to the unfunded liabilities portion for cities and counties – because that money, originally expected to be generated through investment returns, is still needed to fully meet the pension obligation for city and counties. Furthermore, when the pension fund decides to lower their discount rate, or the investment return projections, it adds to the pension liability for the participants. In recent years, this has been a large area of concern for many of the municipalities throughout the United States.

This is where local and state governments resort to POBs.

The Issuance of Pension Obligation Bonds

POBs are taxable forms of debt that are issued to address/meet the unfunded pension liabilities as part of the overall financial strategy for local and state governments.
The basic assumption with POBs is that a local government can access the capital markets to raise funds at a lower interest rate to meet its pension obligation, which can generate a higher investment return. This way, the pension obligations are met and investment returns are higher than the debt service required on the bonds.

“What can go wrong in this assumption?” is the key to understanding the risk with POBs:

The Bottom Line

The unique nature of POBs – and how they flow through a municipality’s financial strategy – makes it riskier than other forms of debt, and the timing of their issuance plays a huge role in the success of their intended use. Furthermore, any decline in the financial markets will certainly increase the fiscal strain for municipalities with outstanding pension obligation debt.

For investors, it’s important to understand the taxable status of these bonds and also the credit risk associated with their issuance.

by Jayden Sangha

Feb 17, 2021

S&P Outlook And Medians For U.S. Independent Schools: Pandemic Tests All, But Weaker Credits May Need a Booster

Sector View

Although many of our rated independent schools are weathering the COVID-19 pandemic reasonably well, we expect issuers with weaker demand and less financial flexibility will face greater stress in 2021. With a growing bifurcation in credit quality, we expect more negative actions at the lower end of the rating spectrum, while higher-rated issuers will see more stability, supported by healthy demand and resources.

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18 Feb, 2021

The S&P ESG Pulse: 2020 Lookback

Key Takeaways

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15 Feb, 2021

S&P 2021 Sustainable Finance Outlook: Large Growth In Green, Social, Sustainable Labels As Municipal Market Embraces ESG

Key Takeaways

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16 Feb, 2021

S&P: U.S. Electric Cooperative Utilities’ Decarbonization Initiatives Improve Some ESG Risk Attributes

Key Takeaways

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17 Feb, 2021

Regulating Troubled or Failing Monopolies: Ordering One Public Utility to Acquire Another

One of the traditional reasons for government intervention in the marketplace is market failure. A classic example of a market failure is a natural monopoly such as a public utility. Most economists agree that government should regulate such monopolies rather than allowing competition for such services as public water and sewer.

The Pennsylvania Public Utility Code (Code) gives the Pennsylvania Public Utility Commission (PUC) extensive powers to regulate public utilities, but what can it do when the monopoly becomes troubled and starts to fail; when the public utility is no longer financially and technically capable of providing reasonable and adequate service to the public? For example, how does the PUC deal with a water utility that is not providing customers with potable water and lacks the financial resources to address the deficiencies in service?

The public utility cannot be ordered — or even permitted — to liquidate its assets and go out of business because that would leave customers without vital public utility service. Additionally, some public utilities may be unable to find a willing buyer because the system requires extensive capital improvements to address service deficiencies or to comply with increasingly strict environmental or other standards.

In Pennsylvania, the problem of troubled or failing monopolies is particularly acute in the water and wastewater industries because there are many small privately owned water and wastewater systems that struggle to remain viable. To address this problem, the Code includes a provision that gives the PUC authority to order a proximate capable public utility1 to acquire a small water or sewer utility.2 66 Pa. C.S. § 529. The PUC must make six findings about the buyer and the seller before it can issue such an order. These findings are:

  1. the small water or sewer utility is in violation of statutory or regulatory standards that affect the safety, adequacy, efficiency, or reasonableness of the service provided;
  2. the small water or sewer utility failed to comply, within a reasonable period of time, with any order of the Pennsylvania Department of Environmental Protection (DEP) or the PUC concerning the safety, adequacy, efficiency, or reasonableness of service;
  3. the small water or sewer utility cannot reasonably be expected to furnish and maintain adequate, efficient, safe, and reasonable service and facilities in the future;
  4. alternatives to a forced acquisition (such as the reorganization of the utility under new management or a voluntary sale of the system to a public utility, municipality or municipal authority3) have been considered and the PUC has determined them to be impractical or not economically feasible;
  5. the acquiring capable public utility is financially, managerially, and technically capable of acquiring and operating the small water or sewer utility in compliance with applicable statutory and regulatory standards; and
  6. the rates charged by the acquiring capable public utility to its pre-acquisition customers will not increase unreasonably because of the acquisition.

If the PUC orders the small water or sewer utility to be sold to a capable public utility, the purchase price is determined by agreement between the parties (subject to a PUC determination that the purchase price is reasonable). If the parties cannot reach an agreement, or if the PUC disapproves their agreement, the acquisition price is determined through an eminent domain proceeding. 66 Pa. C.S. § 529(e).

For many years, the “typical” Section 529 proceeding began with a complaint initiated by customers, the PUC’s prosecutorial staff,4 or other public advocates5 alleging that the small utility was not providing reasonable and adequate service as required by the Code. Upon finding that the small utility was not providing reasonable and adequate service, the PUC would open an investigation to determine whether the utility should be ordered to be sold to a capable public utility pursuant to Section 529. In two relatively recent cases, however, the PUC held that a small water or sewer utility can ask the PUC to institute an investigation to determine whether that utility should be ordered to be sold to a capable public utility.6

Section 529 provides the PUC with a mechanism to deal with a troubled or failing monopoly in a limited number of situations. It gives the PUC a tool to address failing small water or sewer utilities, but does not permit the PUC to address other troubled or failing public utilities (such as small natural gas distribution companies).

These limits do not mean that the General Assembly should rush to extend Section 529 to other situations. Section 529, and its implementation, raise important legal and public policy questions. Virtually all Section 529 proceedings to date have been resolved through settlements. As a result, the appellate courts have yet to construe the provisions of Section 529 and the PUC’s application of them. Additionally, in some Section 529 cases, a receiver is appointed to operate the system pending the outcome of the Section 529 investigation. In many of these cases, the receiver is ultimately ordered to purchase the small water or sewer system. How are receivers selected, what are their duties, and how are they compensated?7 Moreover, it appears that every Section 529 case to date has resulted in the sale of a small, troubled water or sewer company to one or the other of Pennsylvania’s two largest investor-owned water and sewer utilities. Should the costs of these acquisitions (and the accompanying system remediation) be borne solely by the ratepayers of the utility that was forced to make the acquisition, or should the costs be spread more broadly? Should proximate municipalities and municipal authorities also be targeted for the forced acquisition of troubled or failing privately owned utilities? Before the General Assembly extends Section 529 to other situations, it may wish to review existing procedures and consider other approaches for addressing the problem of regulating troubled or failing monopolies.


1 A “capable public utility” is generally defined as a public utility that is not affiliated with the small water or sewer utility, provides reasonable and adequate service, and regularly provides the same type of service as the small water or sewer utility to 4,000 or more customer connections. However, a public utility that does not regularly serve 4,000 or more customer connections, and is not proximate to the small water or sewer utility, can elect to be a capable public utility. 66 Pa. C.S. § 529(m).

2 A small water utility is defined as a public utility that regularly provides water service to 1,200 or fewer customer connections. Similarly, a small wastewater utility is defined as a public utility that regularly provides wastewater service to 1,200 or fewer customer connections. 66 Pa. C.S. § 529(m).

3 The PUC generally has no authority over a utility system owned by a municipal authority. Similarly, the PUC has no authority over a utility system owned by a municipality, if the system only serves customers within the municipality’s boundaries.

4 The PUC’s Bureau of Investigation or Enforcement.

5 The Office of Consumer Advocate in the Office of Attorney General or the Office of Small Business Advocate in the Department of Community and Economic Development.

6 Petition of Delaware Sewer Company for the Opening of an Investigation into Whether the Public Utility Commission Should Order a Capable Public Utility to Acquire the Company Pursuant to 66 Pa. C.S. § 529, Docket No. P-2014-2404341 (opinion and order entered Jan. 28, 2016) and Petition of Twin Lakes Utilities, Inc. for a Commission Order Authorizing the Acquisition of Twin Lakes Utilities, Inc. by a Capable Public Utility Pursuant to 66 Pa. C.S. § 529, Docket No. P-2020-3020914 (opinion and order entered Sept. 17, 2020).

7 For a discussion of these issues, see our previous Alert Receivers of Public Utilities in Pennsylvania: The Need for Legislation or Regulations.

Cozen O’Connor – Jonathan Nase

February 19, 2021

The Washington Weekly: Biden Begins Work on Infrastructure

Read BDA’s Washington Weekly.

Bond Dealers of America

February 19, 2021

What the Deep Freeze in Texas Means for Municipal Bonds.

In this edition of “Muni Moment,” Chris Brigati, Valley Bank managing director of municipal investments, takes a look at what the deep freeze’s impact on utilities means for municipal bond investors. He speaks with Bloomberg’s Taylor Riggs on “Bloomberg Markets. The Close.”

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Bloomberg Markets

February 17th, 2021

S&P: Outages In Texas Challenge Public Power Utilities' Rate-Making Flexibility

NEW YORK (S&P Global Ratings) Feb. 17, 2021–On Feb. 15 the Electric Reliability Council of Texas (ERCOT) implemented widespread rotating outages to protect the electric grid from an uncontrolled blackout after frigid temperatures and freezing moisture across Texas caused outages to 34 GW of power generation, or roughly 42% of its planned operational generation capacity in 2021. As of now, ERCOT’s controlled outages continue to affect almost three million retail customers throughout the state as generation struggles to come online.

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Failed Poisoning Attempt Shows Vulnerability of Smaller Water Systems to Hackers.

While cybersecurity resources can be scarce at small agencies, there are some basics steps they can take to protect themselves.

A hacker’s attempt earlier this month to poison the drinking water in a small city near Tampa, Florida may have been easily thwarted, but it was still a jolt to cybersecurity experts.

“This was the worst nightmare for a lot of people,” said Meredith Ward, the director for policy and research at the National Association of State Chief Information Officers.

The incident at the Oldsmar water treatment plant underscores how there are many smaller water utilities with limited funding that need to upgrade software and facilities to better ward off cybersecurity threats. It also serves as a reminder to small utilities that there are relatively basic steps they can take to improve security without spending a lot of money.

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Route Fifty

By Daniel C. Vock

FEBRUARY 19, 2021

I Have Promoted Muni Bonds, But Investors Should Understand The Risks Going Forward.


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Seeking Alpha

Feb. 14, 2021

The ‘Quasi-Instrumentality’ Question: Chapter 9, Chapter 11, or Neither? - Arnold & Porter

The pandemic has led to both private and public entities struggling to service their debt. For entities straddling the line between private and public, it is not always clear whether they can restructure debts under Chapter 9, Chapter 11, or neither, say Arnold & Porter attorneys. They look at two court decisions for guidance for these quasi-instrumentalities.

As distribution of the Covid-19 vaccine provides optimism for a return to our pre-pandemic lives, there’s little doubt of the pandemic’s impact on individuals, businesses, as well as state and local governments. Also impacted are quasi-governmental entities—those created by local governments to serve some public purpose, such as a convention center, hotel, stadium, or parking garage.

Due to travel and gathering restrictions, revenues supporting these quasi-governmental entities have declined, leading to unscheduled draws on reserve accounts to meet debt service obligations—a potential canary in the coal mine?

If these entities are municipalities, they may have no option of reorganizing under the Bankruptcy Code in states that have not authorized municipalities to be Chapter 9 debtors. In such states, the only option is Chapter 11, provided the entity is a “person” under the Bankruptcy Code.

Relatively few cases have analyzed whether an entity formed by a local government is a “person” eligible for Chapter 11 relief or a “municipality” (which includes instrumentalities of a state) eligible for Chapter 9. The courts’ analyses in In re Las Vegas Monorail Co. and In re Lombard Pub. Facilities Corp. may provide a road map for determining whether such issuers are eligible for Chapter 11.

Las Vegas Monorail

Las Vegas Monorail (LVMC) was created as a private, nonprofit corporation to construct and operate a monorail in Las Vegas. To fund the monorail construction, Nevada issued municipal bonds and lent the proceeds to LVMC.

LVMC agreed to repay the loan and pledged its net revenues for the repayment of the loan. To obtain tax-exempt status on the bonds, LVMC certified that it was an instrumentality of the state of Nevada and controlled by the governor. Importantly, the state was not liable on the bonds.

Financial difficulty resulting from poor ridership caused LVMC to resort to Chapter 11—which was challenged by the insurer of the bonds, claiming LVMC was a municipality not eligible for Chapter 11 relief.

In considering whether LVMC was eligible to be a Chapter 11 debtor, the bankruptcy court employed a three-prong test:

The court concluded LVMC was not a municipality, finding:

Lombard Public Facilities Corporation

The Lombard Public Facilities Corporation (LPFC) is an Illinois not-for-profit, authorized as a public facilities corporation pursuant to Illinois law to finance and construct the Westin Lombard Yorktown Center in the Village of Lombard.

LPFC financed the project by issuing tax-exempt municipal bonds, which was possible because LPFC constituted an instrumentality for federal tax purposes. These bonds were limited recourse obligations of LPFC and payable solely from revenues and other assets. The village’s limited commitment to fund debt service shortfalls was subject to prior appropriation.

LPFC commenced a Chapter 11 case to implement the terms of an agreed upon restructuring necessitated by unfavorable market conditions. Like LVMC, LPFC’s eligibility for Chapter 11 was challenged by two parties claiming LPFC was an instrumentality of the village.

With a focus on the village’s actual control over the LPFC, the Illinois bankruptcy court determined that the LPFC:

The cash crunch caused by Covid-19 has caused LVMC to resort to Chapter 11 again, and LPFC skipped a portion of its debt payment in July 2020. But these are not isolated issues.

In the past few months, issuers, including the following, have provided notice of unscheduled draws on reserve accounts to meet current debt service obligations.

As reserve accounts continue to be drawn, the eligibility debate may not be hypothetical absent an increase in revenues and/or relief from Congress. Issuers and investors alike should evaluate Chapter 11 eligibility, especially where it is assumed that an issuer is not eligible for any relief under the Bankruptcy Code because applicable state law does not authorize Chapter 9 filings.

Bloomberg Law

Feb. 11, 2021

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Write for Us: Author Guidelines

Author Information

Brian Lohan is a partner in Arnold & Porter’s Bankruptcy and Restructuring practice in Chicago and New York. His work encompasses all aspects of corporate reorganizations, bankruptcy, and insolvency, and he represents Chapter 11 debtors, noteholders, bondholders, senior lenders, and other creditor constituencies.

Maja Zerjal Fink is a partner in Arnold & Porter’s Bankruptcy and Restructuring practice in New York. She represents clients in distressed situations, corporate reorganizations, distressed investment litigation, and insolvency proceedings in the U.S. and across the globe. She has been involved in some of the largest reorganization cases in the U.S., including the restructurings of Puerto Rico, Hertz, Cineworld, Caesars, and MF Global.

Jeffrey Messina is an associate in Arnold & Porter’s Bankruptcy and Restructuring practice in Chicago.

Everybody Wants Muni Paper.

If you enjoyed Detroit debt, you’ll love Chicago schools bonds.

Yield-hungry investors have been piling into riskier assets, and not only speculative stocks like GameStop. For an example of how negative real interest rates are distorting prices, behold the municipal bond market.

Last month investors snapped up $560 million in bonds issued by junk-rated Chicago Public Schools (CPS). The district’s 10-year bonds were priced at 1.94% and the 20-year at 2.24%—a mere 117 to 105 basis points above the AAA muni benchmark yields. As the district’s finances have deteriorated, its borrowing costs have plunged. Go figure.

Five years ago Chicago schools had to pay an 8.5% yield—a 580 basis-point penalty above AAA—to sell debt amid concerns that soaring labor and pension costs would drive the district into bankruptcy. Asked at the time whether the district would be able to borrow again, then CPS CEO Forrest Claypool replied: “I don’t know.”

What a difference a pandemic and Federal Reserve commitment to keep rates at near zero make. Muni bonds are thinly traded and usually held in portfolio for duration. Most buyers need fixed-income assets that produce steady returns, which explains the ravenous appetite for higher-yielding muni bonds.

“Buyers are just starved for yield and the inflows into high-yield funds have been astronomical for at least the last couple of weeks,” one muni-market analyst explained to Bond Buyer. Increased demand has made it cheaper than ever for state and local governments to borrow and has compressed price spreads between high- and low-rated bonds.

Some muni bonds are also tax exempt, which makes them attractive to investors expecting Democrats to raise taxes. Tax revenue has been surprisingly buoyant due to the housing and stock-market booms, so investors may be shrugging off worries about defaults.

Municipal tax revenue declined by a mere 1% on average in 2020, according to investment manager Nuveen, while states and cities have received hundreds of billions of dollars in federal cash. Chicago schools received twice as much money from the last $900 billion relief bill as its budget projected. Now Democrats want to pass another $350 billion in state and local government aid.

Financial advisers are urging municipalities to take advantage of the rock-bottom rates to refinance debt. Pension obligation bonds, which were popular amid low interest rates and the stock-market rally in the 2000s, are back in vogue. S&P Global Ratings says pension bonds more than doubled in 2020 and are sizzling now.

Not so long ago, investors were burned by these bonds. Then as now, municipalities issued debt at low rates and used the proceeds to backfill pension funds. The interest-rate arbitrage seemed to benefit muni borrowers and creditors. But when stocks tanked in 2008, taxpayers were on the hook for bond payments and increasing pension contributions to cover their pension shortfalls. Puerto Rico, Detroit, and Stockton and San Bernardino, Calif., reneged on their pension-bond debt in bankruptcy. Lucky for politicians, investors have a short memory.

While Illinois and California account for most pension bonds issued, municipalities in Arizona including Tucson, Flagstaff and Pinal County have recently turned to the bond market to cover their pension holes. Pension bonds aren’t tax exempt, but yields are still attractive to investors. The city of Flagstaff’s deal last summer with a 2.7% interest rate was 3.7 times oversubscribed.

Meantime, pension funds have been pouring into equities and riskier assets to cover shortfalls and make up for low yields on their fixed-income assets. “As interest rates remain low, so do bond yields, making safer investment options less attractive for pension funds needing to meet targeted returns,” S&P recently warned.

How this all ends is hard to predict, but a fair guess is that some new Stocktons and Detroits are likely. The Fed has declared that the cost of borrowing is essentially nothing, government and corporate debt are soaring as a result, and eventually a price will be paid.

The Wall Street Journal

By The Editorial Board

Feb. 7, 2021 4:56 pm ET

Fitch Rtgs Updates U.S. Public Finance Structured Finance Rating Criteria.

Fitch Ratings-New York-12 February 2021: Fitch Ratings has published an updated version of its “U.S. Public Finance Structured Finance Rating Criteria”. This report updates Fitch’s criteria of the same title published on Feb. 28, 2020. The key elements of Fitch’s public finance structured finance rating criteria remain consistent with those of its prior criteria report.


Joseph Staffa
Senior Director
Fitch Ratings, Inc.
300 West 57th Street
New York, NY 10019

Dennis Pidherny
Managing Director

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

Additional information is available on

House Budget Bill Provides Needed Fiscal Aid for States, Localities, Tribal Nations, and Territories.

The sizeable revenue shortfalls and added costs that many states, localities, tribal nations, and territories face due to COVID-19 call for added federal aid that’s temporary but significant. The bill that the House Committee on Oversight and Reform will consider this week to meet its reconciliation instructions under the House budget resolution would provide this essential aid and help ensure a strong recovery. Congress should act quickly to provide this aid or risk more public-sector layoffs and cuts in services for families and businesses as states and localities balance their budgets.

Forty-three states plus the District of Columbia and Puerto Rico are now holding their first full legislative sessions since COVID-19 struck. Lawmakers’ primary jobs will be to balance their budget for this fiscal year (which runs through June in most states) and write next year’s budget. Without more federal aid, lawmakers facing hard budget choices due to the pandemic will impose another round of cuts — the last thing the country needs right now.

States and localities have shed 1.3 million jobs since last February — far more than the 750,000 lost in the aftermath of the Great Recession — as social distancing measures have temporarily reduced the need for some jobs (like bus drivers) and as state and local spending cuts have forced layoffs. Most of these jobs were lost last spring, but states and localities lost 100,000 employees in just the last four months.

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Biden Stimulus Plan a 'Positive' for Munis, Says BlackRock's Carney.

Sean Carney, BlackRock Financial’s head of municipal strategy, discusses the impact of the proposed Biden administration’s stimulus plan on municipal bonds with Bloomberg’s Taylor Riggs on “Bloomberg Markets.”

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Bloomberg Markets

February 11th, 2021

Environmental, Social and Green (Sustainable) Bonds Come Home: Ice Miller

Social impact and green bonds are a type of municipal bond issued by a governmental entity that has a social or environmental outcome attached to the project being financed through the issuance of those bonds. Though some form of social impact and green bonds have existed in the realm of governmental and utility bonds for nearly a decade, the concept is relatively new to affordable housing and mortgage-backed bond financings. At the inception of the “green” bonds, an issuer could simply designate its own bonds as “green” based on the intended use of proceeds of those bonds needing no additional certification or on-going tracking of how those proceeds would actually be spent. The primary capital market had high hopes that one day in the future, the “green” label would provide a pricing benefit as conscious investors would prefer investing in green bonds. In fact, in the United States, the Climate Bonds Initiative in its Green Bond Pricing in the Primary Market (June 2020) (the “Report”) reported that on average green bonds experienced a higher spread to traditional municipal bonds. Nevertheless, the United States had the highest issuance of green bonds in 2019 ($32.2 billion) among countries that track such statistics. From a global perspective as cited in the Report, in the first half of 2020, 21 out of 46 primary market green bond offerings experienced a “greenium”—meaning investors paid more for the same type of traditional municipal bond that was labeled as “green.”

Juxtapose the above with Fannie Mae, Freddie Mac and Ginnie Mae’s interest rate incentives to encourage landlords to retrofit older buildings for energy efficiency together with Fannie Mae’s upcoming social impact bond offering[1] and the Colorado Housing Finance Authority’s single-family social bond offering[2], and it appears the housing capital markets are poised to experience the same “greening” seen in the governmental and utility capital markets. Just as one example, the green revolution has found its way into affordable housing in the Midwest region; last year, the Dayton-Montgomery County Port Authority issued $16.3 million of “green” bonds to refurbish the historic former Biltmore Hotel in downtown Dayton, Ohio as an affordable senior living facility. Ostensibly, the social impact and green bond boom should be seen as a “win-win-win,” as they provide opportunities for investors to participate in meaningful initiatives, diversification of investors for borrower and issuers and the hope of better interest rates. Investors can “do well by doing good.”

As the popularity of social impact and green bonds continues to grow, investors are looking for independent verification that social impact and green criteria are being met and requiring more on-going disclosure from borrowers and issuers to ensure that those green bond proceeds are spent in a manner consistent with the bond’s labeling as “green.” Ice Miller has been at the forefront of the social impact and green trend in governmental borrowing and affordable housing space and welcomes the opportunity to consult with borrowers and issuers to navigate and evaluate accessing this growing capital market, the market trends and criteria for social impact and green bonds.

[1] Such offering is backed by mortgage loans that financed, in part, energy efficient improvements.
[2] The proceeds of such single-family mortgage revenue bonds, similar to all tax-exempt single-family mortgage revenue bonds, assist low- and moderate-income first-time homebuyers.

Ice Miller LLP – Tyler J. Kalachnik, Lindsay M. Miller, Matthew J. Miller, Kristopher (“Kip”) Wahlers, Lauren E. Campbell and Christopher J. Magill

February 8 2021

Fitch: Cyber Risk Poses Increased ESG Challenges to Municipal Govts

Fitch Ratings-New York/Austin-12 February 2021: The recent cyberbreach of the Florida city of Oldsmar (not rated by Fitch Ratings) is an important moment in the evolving nature of municipal cyber risk, Fitch Ratings says. The breach was one of the first cases of the use of a municipality’s cyber infrastructure for a kinetic attack with the potential for human casualties. Though unsuccessful, the attack was evidence of the increasing frequency of cyber-attacks and the significant risks they pose to public finance entities, their constituencies and management. It also highlights the critical need for robust cyber hygiene and cyber vigilance in the municipal sphere. Recognizing this risk, Fitch includes cybersecurity in its credit analysis of the municipal sector and as part of its corporate-wide environmental, social and governance (ESG) framework. In addition, we believe cyber events pose financial risk which could impact municipal credit quality. This risk is not limited to the upfront cost of responding to a cyber-attack, but the costs of recovery and realignment of systems as well, which are many times more than the initial cost.

The Oldsmar attack consisted of a yet unknown assailant breaching the control systems of the city’s water treatment plant and adjusting the levels of sodium hydroxide to poisonous levels. This attack could have harmed thousands of residents without the city’s manual redundancies and safeguards that limit chemical levels.

Cyber breaches pose significant social and governance risks, which are reflected in our ESG framework and which we analyze when evaluating all credits, including states and local governments. Specifically, cyber risk is both a social risk in terms of safety and security, as well as a governance risk in terms of management effectiveness. A municipality’s ESG relevancy score would be elevated if cyber risk were deemed to be material to the rating. The Oldsmar incident demonstrates the critical risk that cyber intrusions pose to security in terms of public resources and trust as well as the safety of the constituency. Therefore, we believe it is important for municipal entities to have a systematic organizational approach to cyber hygiene that includes redundancies, robust policies and training that produce a cyber-conscious workforce. Without a robust cyber hygiene, governance protocols may prove inadequate in preserving the security of systems and may elevate safety risks for the community at large.

There has been a widespread proliferation of cybercrime in the municipal sphere over the past few years. Most of this crime has been in the form of large- and small-scale ransomware attacks which have dominated headlines. The potential for more frequent cyberattacks is exacerbated by the focus on remote-access systems due to the increase in remote work as a result of the coronavirus pandemic. In addition, the availability of “off the shelf” ransomware software on the dark web has allowed cybercrime to develop into a cottage industry.

The public nature of municipal entities, their limited defensive resources and direct accountability to their constituencies mark them as low-hanging fruit for cyber criminals. While the integration of operation and information technology into the daily workflow of public finance organizations has increased efficiencies and transformed the way these organizations conduct their daily business, it has also generated a new series of cyber risks and challenges. Today, local officials find themselves targets of cybercrime and cyber-attacks from an increasing list of hostile actors. Employee and management vigilance is currently the most important bulwark of any organization against cybercrime.


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

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
+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.

Senior Living Continues to be Among Riskiest Muni Investments, Due to Pandemic.

The COVID-19 pandemic has made the senior living industry one of the riskiest segments of the $3.9 trillion municipal-bond market, according to an analysis last week by Bloomberg.

Although defaults in this market are extremely rare because states and cities can raise taxes to cover their debts, it also includes many nonprofit continuing care retirement communities, which can sell debt through local government agencies. Thanks to the pandemic, these facilities are facing increased costs for labor and personal protective equipment as well as move-in restrictions from state health agencies. As a result, many are unable to repay what they have borrowed.

Last year alone, the pandemic pushed three dozen municipal-debt issues for CCRCs into default. Another five already have missed payments in 2021 thanks to ongoing occupancy troubles.

Hillside Village, a 221-unit CCRC in Keene, NH, failed to make a Jan. 1 interest payment on $73 million bonds and has hired a chief restructuring officer, according to the media outlet. Through November, the facility collected $2.3 million less revenue than projected.

Glen Arden in Goshen, NY, defaulted because of financial difficulties that preceded the pandemic. And in Schaumburg, IL, occupancy at the CCRC Friendship Village of Schaumburg fell to 78% as of Sept. 30, from 84% at the end of March. Although the community had obtained a Paycheck Protection Program loan, it still had to spend half of its cash reserve in the past nine months to make up for lost revenue.

McKnight Senior Living

by Amy Novotney

February 8, 2021

University of Washington Joins College Bond Boom in AAA Sale.

The University of Washington is selling $325 million of bonds for school projects and to refinance debt, joining a record borrowing spree by colleges seizing on the lowest interest rates in decades.

The sale, slated to be priced Wednesday, includes $244 million of taxable bonds and $81 million that are tax-exempt. The securities are rated AAA, reflecting the strong finances of the university system.

Colleges and universities sold more than $40 billion of bonds in the municipal- and corporate-securities markets last year, a record, as the Federal Reserve’s efforts to stoke the economy sent bond yields tumbling. The pace of borrowing in the municipal-bond market has since slowed slightly even as investors continue to pour cash into mutual funds, keeping new issues heavily in demand.

“If you need to sell bonds, you’re going to get phenomenal levels on those particular credits,” said Jeff Timlin, head of municipal-bond investments at Sage Advisory.

The University of Washington’s sale comes as its finances improve, despite the toll that the pandemic has taken on some other colleges. Its fall enrollment rose 2%, its hospitals’ financial performance has improved, and Moody’s Investors Service boosted the outlook on its bond rating to stable from negative, signaling no imminent risk that the bonds will be stripped of their AAA rank.

As as result, the tax-exempt portion of the securities were being offered for yields as little as 0.15% for bonds due in 2023, according to a preliminary pricing wire seen by Bloomberg. Those maturing in 2051 were offered for yields of as much as 1.64%.

Bloomberg Markets

By Anastasia Bergeron

February 10, 2021, 7:55 AM PST Updated on February 10, 2021, 8:57 AM PST

Read the February Issue of Government Finance Review Online.

This month’s issue highlights equity in budgeting. Find out why it matters, practical concerns and challenges, and how it might realistically be applied to create positive change.


GFOA: Is There Too Much Fragmentation in Local Government?

GFOA has a new research series on local government fragmentation. Each of the four papers focuses on improving coordination of resources between local governments: consolidation, networked enterprises, government as a platform, and tax base sharing.


U.S. Water Supply Has Few Protections Against Hacking.

Vulnerabilities highlighted after cyber intruder tampered with treatment plant in Florida

A Florida city whose water system was hacked last week said Friday that it completed a federally mandated security-risk assessment three months ago, but hadn’t yet integrated the findings into its emergency plans.

The hacking incident—occurring after a security review—has thrown into stark relief a vulnerability of the more than 50,000 community water systems that supply most Americans with their drinking water: they don’t have to meet any national standard for cybersecurity.

That is in contrast to electric utilities, which have had to meet increasingly stringent rules since 2008 for the physical and cybersecurity of key assets and, more recently, for parts of their supply chains. Rules for the electric industry are reinforced by monetary penalties for violations.

Continue reading.

The Wall Street Journal

By Rebecca Smith

Feb. 12, 2021 1:23 pm ET

Making Community Development Capital Work in Small and Midsize Cities.


Community development investment differs from other forms of investment because community investors use financial tools explicitly to engender social good. However, community development investment can be more challenging to deploy in small and midsize cities. This report describes the challenges small and midsize cities can face in attracting and sustaining the capital needed to develop a pipeline of community development projects. In the report, we also lift up models for sustainably and successfully expanding investment in small and midsize cities. Finally, we make recommendations to improve the flow of community development capital to small and midsize cities.

Read the full article.

The Urban Institute

by Brett Theodos, Jorge González & Ananya Hariharan

February 9, 2021

Lot of People Crowding Into Munis Right Now: Kazatsky (Radio)

MUNIS IN FOCUS: Eric Kazatsky, Senior U.S. Municipals Strategist for Bloomberg Intelligence, on muni markets. Hosted by Paul Sweeney and Vonnie Quinn.

Listen to audio.

Bloomberg Radio

February 12, 2021 — 10:48 AM PST

Municipal Bonds Look Unappealing Despite Recent Demand.

Municipal bond investors don’t seem concerned about the threat of inflation or higher rates because they are accepting rock-bottom yields and record-tight yield relationships relative to U.S. Treasuries.

Benchmark 10-year munis with Triple-A ratings traded Wednesday at just 0.68%, or roughly 60% of the 10-year Treasury yield of 1.14%. At the start of the year, the yield relationship stood at 75%. It got as high as 300% during market dislocations last March, when munis yielded much more than Treasuries. That spread has averaged about 80% in recent years.

Top-grade munis offer little or no after-tax yield benefits to investors—even those in higher tax brackets. The top federal income-tax rate is now 37%.

Several factors have driven the strength in munis this year, including record monthly inflows of $12.5 billion into muni mutual funds during January and a relatively light new issuance.

“New supply underwhelmed lofty expectations in January as issuers took a wait-and-see approach on the new administration,” said a February report by Peter Hayes, head of the municipal bond group at BlackRock, James Schwartz, head of municipal credit research, and Sean Carney, head of municipal strategy. “Taxable issuance remained proportionally elevated at 29% of total supply, depressing traditional tax-exempt issuance. In the tax-exempt market, reinvestment of income from maturities, calls and coupons outstripped issuance by nearly $16 billion, creating a powerful tailwind. New issues were oversubscribed by 11 times on average.”

The municipal market returned 0.6% in January, besting the Treasury sector. The BlackRock muni pros wrote that the high-yield muni market was a standout in January, gaining about 2%, as investors gravitated toward lofty yields, with tobacco bonds and Puerto Rican debt showing some of the market’s largest gains.

The iShares National Muni Bond exchange-traded fund (MUB), one of the larger muni ETFs, is up about 0.7% so far in 2021 and traded Thursday around $117.80. Reflecting the strength in the high-yield muni market, the Nuveen Municipal Credit Opportunities fund (NMCO), a closed-end fund, has returned 10% this year and trades at $14.20 a share, a roughly 4% discount to its net asset value.

Barron’s viewed munis unfavorably in a year-end outlook for income-producing securities. BlackRock takes a more upbeat view of the sector.

“While rich valuations will cause a drag, we expect strong demand to continue outpacing an elevated but manageable level of issuance. We believe fundamentals will likely benefit from additional fiscal aid, and vaccine distribution should support longer-term revenue normalization. As the new administration lays out its agenda and tax policy comes into focus, we anticipate heightened demand for tax-advantaged assets such as muni bonds,” the BlackRock group wrote.


By Andrew Bary

Feb. 11, 2021

Snag Short or Long Muni Exposure with 2 BulletShares.

Fixed income investors have turned to municipal debt in order to extract an added dose of yield. ETF provider Invesco gives investors short or long exposure to munis with funds like the Invesco BulletShares® 2021 Municipal Bond ETF (BSML) and the Invesco BulletShares 2030 Municipal Bond ETF (BSMU).

“Yield-hungry investors have been piling into riskier assets, and not only speculative stocks like GameStop,” a Wall Street Journal report said. “For an example of how negative real interest rates are distorting prices, behold the municipal bond market.”

“Last month investors snapped up $560 million in bonds issued by junk-rated Chicago Public Schools (CPS),” the report added. “The district’s 10-year bonds were priced at 1.94% and the 20-year at 2.24%—a mere 117 to 105 basis points above the AAA muni benchmark yields.”

Municipal bonds give investors exposure to a bond market that historically has low default rates. While a company can fold, local government typically won’t do so. The safety of investing in debt paid for by taxpayers adds an extra layer of assurance.

As for BSML, the fund is based on the Invesco BulletShares® USD Municipal Bond 2021 Index, which makes it ideal for short duration exposure. The Fund will invest at least 80% of its total assets in municipal bonds that comprise the index.

The Index seeks to measure the performance of a portfolio of US dollar-denominated debt issued by states, state agencies, or local governments with effective maturities in 2021. With that shorter duration, fixed income investors are less exposed to changes in interest rates.

Going Long with ‘BSMU’

Long duration debt will give fixed income exposure to higher yields, but investors must be willing to trade that for higher rate risk.

BSMU is based on the Invesco BulletShares® USD Municipal Bond 2030 Index (Index). The Fund will invest at least 80% of its total assets in municipal bonds that comprise the index. The Index seeks to measure the performance of a portfolio of US dollar-denominated debt issued by states, state agencies, or local governments with effective maturities in 2030.

The fund does not purchase all of the securities in the Index; instead, the fund utilizes a ‘sampling’ methodology to seek to achieve its investment objective. The fund and the index are rebalanced monthly. BSMU has a designated year of maturity of 2030 and will terminate on or about Dec. 15, 2030.



FEBRUARY 11, 2021

Muni-Bond Downgrades Top Upgrades for First Time Since 2014.

Municipal-bond rating downgrades exceeded upgrades last year for the first time since 2014, according to Moody’s Investors Service.

There were 309 downgrades compared with 296 upgrades in 2020, Moody’s said in an emailed report. The cuts affected $215.2 billion, or about 84% of the total debt affected by rating changes last year. About $42.1 billion of debt saw higher ratings, according to the report.

New York State, New York City and their related entities accounted for the largest share of the rating cuts by dollar amount, with nearly $100 billion of downgrades combined, according to Moody’s.

Borrowers that depend on tourism and commuters also suffered. New York’s Metropolitan Transportation Authority had its rating cut twice and still has a negative outlook. Hawaii, which is rated Aa2 with a stable outlook, had nearly $8 billion in debt downgraded.

“Unlike the last economic cycle with a recession, where you saw the downgrades happen later than the initial economic shock, the fact that the downgrades are happening now shows how much more proactive rating agencies have gotten,” said Dora Lee, director of research for Belle Haven Investments.

While investors should be mindful of risks taken with various credits, “these downgrades aren’t indicative of a widespread wave of default for the investment-grade space,” she said.

Many municipal governments are facing budget shortfalls because of rising costs and falling revenue amid the pandemic. President Joe Biden’s proposed relief package includes $350 billion of emergency aid to states and local governments, but Republicans have outlined a stimulus package that omits that.

Federal relief could mitigate some downgrades in the future, but not necessarily prevent them, according to Belle Haven’s Lee.

“These are governments under a lot of stress, and will be under stress for multiple years,” she said.

Bloomberg Markets

By Anastasia Bergeron

February 1, 2021, 3:55 PM MST

Record Muni-Bond Sales Surge Fueled by Borrowing for Budget Gaps.

The federal government isn’t the only one running up debt to cover its budget deficits.

As states and cities braced for pandemic-related shutdowns to batter tax collections, many turned to the municipal-bond market to soften the hit, contributing to a record-setting surge in debt sales last year.

According to an analysis by Municipal Market Analytics, at least one quarter of state and local government debt sales over $100 million included some element of deficit financing in the second half of 2020.

Such deficit borrowing is relatively rare for state and local governments, which are typically required to balance their budgets each year and often need lawmakers’ approval to issue debt to cover everyday bills.

But the severity of the economic slowdown last year — combined with a steep drop in interest rates — made that a more attractive option than cutting spending deeply amid an unprecedented pandemic. Among those who sold debt to plug deficits were New Jersey, which issued $3.7 billion of bonds to ease tax-revenue shortfalls, and Illinois, which tapped the Federal Reserve’s emergency credit line.

Such deficit borrowing may ebb. The budget deficits governments anticipated in the middle of last year haven’t been as severe as initially projected, giving some a temporary surplus of cash. At the same time, the Democrats who control Congress are likely to include aid for local governments in the next economic stimulus package, something Republicans opposed when they held the Senate last year.

“Absent some unexpected, much more severe lockdown of the economy, which is not our base case, I think you are going to see less of that this year,” James Iselin, a portfolio manager at Neuberger Berman Group LLC, said of deficit borrowing.

Bloomberg Markets

By Nic Querolo

February 3, 2021, 11:42 AM MST

Record Muni-Bond Sales Surge Fueled By Borrowing For Budget Gaps.

The federal government isn’t the only one running up debt to cover its budget deficits.

As states and cities braced for pandemic-related shutdowns to batter tax collections, many turned to the municipal-bond market to soften the hit, contributing to a record-setting surge in debt sales last year.

According to an analysis by Municipal Market Analytics, at least one quarter of state and local government debt sales over $100 million included some element of deficit financing in the second half of 2020.

States, cities stepped up borrowing as pandemic raged

Such deficit borrowing is relatively rare for state and local governments, which are typically required to balance their budgets each year and often need lawmakers’ approval to issue debt to cover everyday bills.

But the severity of the economic slowdown last year — combined with a steep drop in interest rates — made that a more attractive option than cutting spending deeply amid an unprecedented pandemic. Among those who sold debt to plug deficits were New Jersey, which issued $3.7 billion of bonds to ease tax-revenue shortfalls, and Illinois, which tapped the Federal Reserve’s emergency credit line.

Such deficit borrowing may ebb. The budget deficits governments anticipated in the middle of last year haven’t been as severe as initially projected, giving some a temporary surplus of cash. At the same time, the Democrats who control Congress are likely to include aid for local governments in the next economic stimulus package, something Republicans opposed when they held the Senate last year.

“Absent some unexpected, much more severe lockdown of the economy, which is not our base case, I think you are going to see less of that this year,” James Iselin, a portfolio manager at Neuberger Berman Group LLC, said of deficit borrowing.



2021 Bond Market Outlook.


Continue reading.

Seeking Alpha

Feb. 02, 2021

SIFMA US Municipal Bonds Statistics.

Monthly, quarterly or annual municipal bond issuance volume, average maturity, trading volume, outstanding and holders.

February 4, 2021

Court Plunges Into Puerto Rico Defaults That Put Bond Market on Edge.

The industry warns that bait-and-switch tactics could endanger trillions of dollars in debt and push local governments “off the precipice.”

BOSTON (CN) — In a pair of cases that could send shockwaves through the multitrillion-dollar municipal bond market and dramatically increase borrowing costs for governments at all levels, the First Circuit heard arguments Thursday on whether Puerto Rico bondholders could collect on collateral for almost $4 billion worth of defaulted loans.

Puerto Rico and other parties that want the money claim the security interest of the bondholders is worthless, despite the common industry assumption that similar bonds are backed by an underlying revenue stream.

“They are asking you to believe that the bondholders lent billions of dollars with no security interest,” their lawyer, Neal Katyal, told the court in Boston on Thursday. “But even the most fly-by-night payday lenders know that if there’s no collateral, the interest rates have to go through the roof.”

Puerto Rico’s claim “makes no sense,” added Katyal, a partner at Hogan Lovells who was U.S. solicitor general in the first term of President Obama.

“I wouldn’t lend someone $3,000 on those terms, let alone $3 billion,” he said.

Another attorney, Milbank’s Atara Miller argued that Puerto Rico’s stance leaves the bondholders with “an umbrella that we can only use on sunny days.”

The cases involve so-called “revenue bonds,” which are cheaper for municipalities to issue than traditional general-obligation bonds because they’re backed by a specific revenue stream. Two-thirds of all U.S. municipal bonds are revenue bonds, representing some $2.68 trillion in outstanding debt.

One of the cases that the First Circuit tackled Thursday turns on $3 billion in bonds backed by Puerto Rico highway tolls and excise taxes; the other, $800 million in debt secured by taxes on rum paid to Puerto Rico by the federal government. In both cases the revenues were supposed to be paid into a trust fund that protected the bondholders’ interests.

When the Puerto Rico agencies that issued the bonds defaulted, the insurers for the bondholders tried to collect from the trust funds, only to discover that the government had been diverting the money away.

Ultimately a federal judge ruled that the bondholders didn’t have the security interest in the revenue streams that they thought they had but rather a security interest in the trust funds — a decision that shocked the bond market. And since the funds were nearly empty, the bondholders were out of luck.

This was a “bait and switch,” according to an amicus brief filed by the Securities Industry and Financial Markets Association.

Represented by Faegre Drinker Biddle & Reath, the association argued that allowing the Puerto Rico agencies to get away with such trickery would mean that revenue bonds would be no safer for bond buyers that general-obligation bonds. As a result, bond buyers would stop accepting lower interest rates for them and borrowing costs for municipalities across the country would go sky-high.

Moody’s has already downgraded both Illinois highway bonds and Cleveland water bonds as a result of the lower court’s ruling, SIFMA said, adding that the ruling “risks shoving the municipal revenue bond market off the precipice on which it is balanced — with issuers paying the price.”

Katyal told the First Circuit that the bondholders are entitled to relief from the bankruptcy, namely an automatic stay, as long as they have a “colorable” claim to a secured property interest.

That argument appealed to U.S. Circuit Judge Kermit Lipez.

“We read the briefs for one side and say, ‘Okay, that makes sense,’ and then we read the other side’s briefs and say, ‘That makes sense,’ so why doesn’t that create at least a colorable claim?” asked Lipez, a Clinton appointee.

“We will acknowledge that the documents could have been drafted better,” defense lawyer Michael Mervis answered. “They’re hard to read. But just because something isn’t well-written doesn’t mean it’s ambiguous. One reading is a lot more plausible than the other.”

The defense argument is that the bonds in this case are different from standard revenue bonds because the underlying documents and statutes never obligated Puerto Rico to deposit the money in the trust funds and never said the money in the funds couldn’t be removed for other uses.

The Puerto Rico highway authority issued the bonds, but the excise taxes were levied by the commonwealth, and the commonwealth never ceded its taxing authority to the highway authority, said Mervis, who practices with Proskauer in New York.

If the bondholders win, they would have to sue the commonwealth on behalf of the highway authority, which would create a “procedural morass,” argued Luc Despins of Paul Hastings in New York, who represents the unsecured creditors’ committee.

But the cases before the court presented their own procedural morass. The bondholders are pursuing a separate remedy in the Puerto Rico insolvency proceedings, and the judges repeatedly badgered the bondholders’ lawyers about why they shouldn’t decline to rule and let the other proceeding sort things out, especially since the other proceeding was more advanced and might produce a quicker result.

“Why doesn’t the parallel proceeding satisfy your rights?” asked U.S. Circuit Judge O. Rogeriee Thompson, an Obama appointee. “From a practical point of view, we’re trying to figure out how this advances your cause.”

“The fastest way to get it resolved is to get it done in the [other] court,” suggested U.S. Circuit Judge Sandra Lynch. “God knows how long it would take” in the lower court, she said.

But Katyal told the court that the judge in the other proceeding couldn’t lift the automatic stay.

“Right now, every day that passes is a day that they are spending our collateral and commingling it and the other court cannot stop that,” Katyal complained.

But that’s “100% totally false,” insisted Martin Bienenstock, because the other court “can decide every conceivable claim they have lobbed.”

Bienenstock, also with Proskauer in New York, said the bondholders were just forum-shopping because the other court also seemed inclined to rule against them. “They have everything they want” in the other proceeding,” he said, “other than a different judge.”

Katyal said relief from the automatic stay would be simple, however, and would allow the bondholders to act immediately. “This isn’t about judge-shopping,” he said, “it’s about seeking a court that can provide appropriate relief.”

Lynch, a Clinton appointee, said the bondholders were taking a gamble in asking the First Circuit to rule.

“It strikes me that you’re rolling the dice here,” she said. “If you want us to reach the merits, you may regret the result you get because a ruling from us is binding on the lower courts, whereas otherwise the lower courts could change their minds.”



February 4, 2021

How Climate Change Will Influence Municipal Bonds?

California’s largest utility filed for Chapter 11 bankruptcy in 2019 after massive wildfires across the state created insurmountable liabilities following an extended period of drought. The Wall Street Journal called it the “first climate change bankruptcy,” and it could be a sign of what’s to come as temperatures rise and extreme weather events become more frequent.

Let’s take a look at how climate change could affect municipal bonds and why investors should consider climate change risks when building their portfolios.

Continue reading.

by Justin Kuepper

Feb 03, 2021

Fitch: Medicaid Enhanced Funding Extension Benefits State Budgets

Fitch Ratings-New York-01 February 2021: The recently announced extension of the emergency enhancement of the federal medical assistance percentage through 2021 by the US Department of Health and Human Services will provide a budgetary boost to state governments, the District of Columbia and US territories, says Fitch Ratings. Fitch estimates the federal medical assistance percentage (FMAP) enhancement provided approximately $34 billion in direct federal aid through the end of 2020, with a similar level anticipated for 2021.

Providing timely and direct fiscal aid to states limits their need to immediately pass on budget pressures to entities reliant on state funding, including school districts, public higher education institutions and healthcare providers. The FMAP enhancement is a part of the massive fiscal and economic stimulus which has been instrumental in supporting the economic recovery and better than expected state tax revenue performance since the coronavirus pandemic’s onset in spring 2020. Overall state revenues remain below the prior-year and pre-pandemic expectations.

FMAP is the percentage of a state’s Medicaid spending matched by the federal government and is generally tied to each state’s wealth levels. A federal statute sets a FMAP floor of 50%, which applies to states with the highest per-capita income, and a ceiling of 83%. In April 2020, the Families First Coronavirus Response Act (FFCRA) added 6.2 percentage points (pp) to every state’s FMAP percentage, providing an immediate flow of billions of dollars in direct federal aid.

FFCRA linked the enhanced FMAP to declaration of a temporary public health emergency (PHE) by the Department of Health and Human Services (HHS) Secretary, including any extensions. Importantly, the FMAP enhancement only affects states’ spending on those previously eligible for Medicaid, and does not apply to Medicaid expansion spending under the Affordable Care Act, which the federal government matches at 90% for all states. Medicaid enrollment for legacy categories is between 3x and 4x larger than expansion enrollment.

On Jan. 22, 2021, HHS notified governors that the new administration anticipated the PHE would remain in place through all of 2021 and that HHS would provide states with at least 60 days’ notice of termination. The prior administration made 90-day PHE extension decisions only within days or weeks of past expirations. Many states conservatively assumed limited or no extension of the PHE and enhanced FMAP in their fiscal-2021 enacted budgets. The current administration’s notification provides more budget certainty for states as they evaluate their current budgets and begin their fiscal 2022 budget processes.

The relative significance of the FMAP enhancement depends on each state’s total budget size and actual Medicaid spending. HHS’s Centers for Medicare and Medicaid Services (CMS) released data providing a state-by-state breakout of the more than $16 billion provided nationally through the 6.2pp FMAP enhancement between Jan. 1, 2020 and June 30. In July, the Kaiser Family Foundation (KFF) estimated the extra FMAP amount at $18 billion if the PHE extended through the end of 2020 and an additional $28 billion through September 2021. For calendar-year 2020, 12 states, including Missouri, Wisconsin, New York and Pennsylvania, had Fitch-estimated enhanced FMAP receipts, combining the CMS data and KFF estimates, totaling more than 2% of fiscal 2019 total governmental funds revenues. At the other end of the distribution, Alaska, Wyoming, North Dakota and Hawaii all received less than 1%.

Enhanced FMAP funding comes with several key statutory restrictions, including restrictions on removing Medicaid enrollees that might otherwise become ineligible for the program, which offset some of the positive budget implications for states. Fitch still considers the net benefits to be meaningful for most, if not all states. This was the case during the last two recessions, when the federal government also implemented FMAP enhancements.

Eric Kim
Senior Director, Head of US State Ratings
+1 212 908-0241
Fitch Ratings, Inc.
300 W. 57th St.
New York, NY 10019

Sarah Repucci
Senior Director, Fitch Wire
+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 Rtgs. Updates Report for US Public Fin. LOC-Supported Bonds and Commercial Paper Rtg Criteria.

Fitch Ratings-New York-02 February 2021: Fitch Ratings has published the following updated report: “U.S. Public Finance Letter of Credit Supported Bonds and Commercial Paper Rating Criteria“, updating an earlier report of the same title published on Feb. 18, 2020. The key elements of Fitch’s LOC-supported bonds and commercial paper rating criteria remain consistent with those of its prior criteria report.


Joseph Staffa
Senior Director
+1 212-908-0829
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004

Dennis Pidherny
Managing Director

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

Additional information is available on

SIFMA Muni Month: Advocating for Change to Fund Our Nation’s Infrastructure

Municipal bonds are a critical funding source of infrastructure in America. Munis finance the bridges, roads, schools, health care facilities, water and sewer facilities, airports and seaports our communities rely on. Building, maintaining and improving our infrastructure creates jobs and facilitates economic growth.

For example, in 2020, the Colorado Housing & Finance Authority issued $878 million of municipal bonds, and the Las Vegas Valley Water District $344 million.

The total amount of municipal bonds outstanding stood at $3.9 trillion at the end of the third quarter of 2020, which represents 7.8% of the total U.S. fixed income markets. Total issuance of municipal bonds in 2020 was $475.5 billion, an increase of 10.9% over 2019, and our members forecast 2021 issuance to be $502 billion. The three-year annual issuance average is $416.2 billion, which demonstrates the current strength of the market. 45.2 % of municipal bond investors are individuals, while 26.5% are held by mutual funds, which are held by individuals or asset managers on behalf of their investors. Municipal bonds are a popular investment option for those looking to preserve capital while earning interest, and most municipal bonds are tax-free at the federal if not the state and local levels. There are many benefits to this market not the least of which is the role it plays in infrastructure investment.

After decades of underinvestment, the U.S. faces an extraordinary infrastructure deficit. State and local capital investment has fallen from three percent of GDP in the late 1960s to less than two percent in 2014. The American Society of Civil Engineers (ASCE) estimates that the U.S. needs to invest $4.6 trillion in infrastructure by 2025 to replace failing facilities and maintain the capacity needed for a growing economy and population.

The impact of aging infrastructure on the U.S. economy is significant. The ASCE also estimates that the U.S. economy is expected to lose just under $4 trillion in GDP between 2016 and 2025 if the government does not invest in our infrastructure, 2.5 million American jobs will be lost.

SIFMA has designated this February “SIFMA Muni Month” during which we plan to meet with members of Congress and work with our state and local government and industry partners to advocate for ways to address the spending shortfall and the critical need to fund the restoration and improvement of our nation’s crumbling infrastructure. While we consistently engage on these issues, bringing a viewpoint which encompasses the breadth of the market with our broker-dealer, investment bank and asset manager members, the focus on infrastructure by the new Administration makes this a particularly timely topic for a concerted outreach to both newly elected and existing members of Congress.

We firmly believe that it is important to share our ideas and legislative initiatives with policy makers so that they are aware of programs which would benefit their constituents and local areas. Legislation which includes necessary financing tools is particularly needed now, when state and local governments are facing unprecedented expenses due to the COVID-19 pandemic.

Many of the legislative issues we are advocating for will reduce the cost of funding for state and local bond issuers and can result in additional bonding capacity to fund critical infrastructure, benefiting taxpayers and the local economy. Additionally, infrastructure investment and in particular tax-exempt bonds can be a key component to green finance. State and local governments are increasingly turning to municipal green bonds to finance projects which align with environmental, social and governance (ESG) goals. For example, the South Davis Sewer District in Utah issued bonds in 2017 for a project to convert organic waste into renewable natural gas for sale to power plants. The $43 million project is expected to generate enough electricity to power 25,526 average U.S. homes and reduce carbon dioxide emissions equivalent to taking 36,515 cars off the road.

President Biden has made infrastructure investment a key component of his agenda. We support these efforts and the related economic growth and job creation.

As part of SIFMA Muni Month we will advocate for changes which would allow for increased infrastructure spending:

  1. Secure the passage of legislation to permit issuers to advance refund their municipal debt on a tax-exempt basis;
  2. Authorize a new direct payment bond program on a permanent basis;
  3. Expand the volume cap and uses for Private Activity Bonds (PABs); and
  4. Increase the annual limit on the amount of tax-exempt obligations that may be issued to qualify for the small issuer exception to the tax-exempt interest expense allocation rules.

In addition, we continue to believe preserving the tax-exemption for interest earned by investors on state and local bonds, which is the financing mechanism for the clear majority of infrastructure projects that state and local governments undertake, is crucial.

Advance refunding is an important financial management tool which, prior to its elimination in the Tax Cuts and Jobs Act, allowed state and local governments to save billions in interest costs by using proceeds from one bond issuance to pay off another outstanding bond. The new bond was then be issued at a lower interest rate than the older unpaid obligation.

By reducing their debt service expenses through tax-exempt advance refundings, states and localities were able to free up their borrowing capacity for new investments in infrastructure and other important public projects, in turn boosting their local economies with the creation of new jobs and making public services more affordable—much like homeowners refinance their mortgages to lower costs. We strongly support restoring tax-exempt advance refundings to help state and local governments efficiently manage their financial obligations.

Taxable direct pay bonds may attract a significant pool of capital from long-term investors, such as pension funds and insurers who have a substantial appetite for long duration assets to match their liabilities. While traditional municipal bonds are tax-exempt, the interest on direct pay bonds is taxable, with the issuer receiving a refundable tax credit for a portion of the interest costs. For example, in 2009 and 2010, the federal government authorized the “Build America Bond” program whereby states and localities issued bonds with taxable interest instead of tax-exempt interest and received a partial reimbursement for their interest expense.

We believe that Congress should authorize a new direct pay program on a permanent basis as a supplement to, not a replacement for, tax-exempt bonds. This program should be structured such that reimbursements to borrowers are not affected by budget sequesters.

Private activity bonds are issued by state and local governments on behalf of private borrowers for a limited list of uses. We support expanding the use of private activity bonds for infrastructure. However, because this issuance comes with significant restrictions like volume limitations and application of the alternative minimum tax, which raises the cost of financing for each project, we believe that state and local governments should be able to issue tax-exempt bonds for infrastructure projects with private participation in the same manner as they issue bonds for purely public projects.

The small issuer exception program offers a proven incentive for local banks to purchase the tax-exempt debt of small local governments and borrowers, such as small colleges, health care facilities, and charities. The current limit, set at $10 million, has not been increased since 2010 and should be increased and adjusted for inflation in future years.

Our national infrastructure challenges are so complex and large that a single solution is not enough. With existing federal infrastructure programs failing to meet current demand, the U.S. is continuing the troubling trend of under-investment in this area and risks substantially adding to the financial burdens of state and local governments. This will only lead to further delays of investment in and maintenance of critical public projects, including highways, bridges, hospitals, airports, schools, water and sewer systems. SIFMA strongly supports providing incentives to rebuild our nation’s infrastructure and we encourage policymakers to explore funding options to address this crisis.

February 1, 2021

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the voice of the nation’s securities industry. He is also chief executive officer of the Global Financial Markets Association (GFMA).

S&P Green Transaction Evaluation: San Francisco Municipal Transportation Agency Proposed Series C 2021 Green Bond

The San Francisco Municipal Transportation Agency (SFMTA) is responsible for the management of all ground transportation in the city of San Francisco, including the Municipal Railway (Muni) and bus public transit, as well as bicycling, paratransit, parking, traffic, walking, and taxis. SFMTA plans to issue $235 million in early 2021, with final maturity in 2051.

Download the Evaluation.

Transportation & Infrastructure: What to Expect from the Biden Administration & 117th Congress: Mintz, Levin

With Democratic majorities in the U.S. House and U.S. Senate, Congress and President Biden’s new administration are working to quickly advance proposals to provide for economic relief as the nation continues to reel from the now nearly one-year pandemic. One area of emerging bipartisan focus is a long-sought measure to address the nation’s crumbling and outdated infrastructure, which could be paired with a required surface transportation reauthorization bill. The face of the Administration on this effort will likely be Secretary of Transportation, Pete Buttigieg, the former South Bend, Indiana, mayor, who the full Senate confirmed yesterday by a vote of 86-13. It’s worth noting that Secretary Buttigieg is the first Senate-confirmed openly LGBTQ Cabinet Member in American history. Some of the key issues we are watching on transportation and infrastructure are discussed below. We will be providing additional updates on these and other issues in this space in the near future.

Surface Transportation Reauthorization

The most recent surface transportation bill, the Fixing America’s Surface Transportation (FAST) Act, was set to expire on September 30, 2020, having been signed into law by President Obama in 2015. Although the previous 116th Congress had taken steps toward enacting a new five-year surface transportation bill, those efforts stalled, leaving Congress to approve a one-year extension. The original authorization for the FAST Act provided $305 billion over fiscal years 2016 through 2020 for highway, highway and motor vehicle safety, public transportation, motor carrier safety, hazardous materials safety, rail, and research, technology, and statistics programs. Despite the challenges of the previous congress in passing a new surface transportation bill, it is generally a bipartisan issue and with unified control of government by the Democrats we anticipate that we will see a new surface transportation bill approved well before the current extension expires on September 30, 2021. Whether that is as a stand-alone bill or as part of a larger infrastructure package will be determined in the coming months, but this debate will no doubt involve the usual partisan disagreements over funding levels.

Traditionally, reauthorizing the Highway Trust Fund (HTF) serves as the must-pass lynch-pin of a larger surface transportation bill. Ordinarily, various Senate committees will produce legislative titles, based on their jurisdiction, to a larger surface transportation package. The Environment & Public Works Committee contributes a legislative title that largely addresses transportation infrastructure and policy; the Commerce Committee produces a title on regulatory and innovation transportation policy, including for rail, automobiles, and commercial vehicles; and the Banking Committee traditionally contributes a title on public transit. The Finance Committee has jurisdiction over the HTF itself and produces the revenue portion of the bill. In the House, the process is largely the same, but the Transportation & Infrastructure Committee has jurisdiction over a significant majority of the surface transportation bill.

Highway Trust Fund (HTF)

With increasingly fuel efficient automobiles and no increase in the gas tax since 1993, the primary source of funding for repair and maintenance of roads and bridges, the HTF is on the verge of becoming insolvent as soon as this year but no later than 2022 unless Congress acts. Proceeds from the HTF routinely fall short of the nation’s transportation infrastructure needs, and the pandemic could exacerbate this shortfall as Americans are driving less than they were pre-pandemic.

Over the past decade, the general treasury has kept the HTF afloat with infusions of funds, but there is a growing reluctance to continue this practice. There are various proposals to remedy this situation, including a federal fuel usage fee as part of the price of wholesale transportation fuels collected at the terminal rack. The fee would be phased in at five cents per year over four years, indexed to both inflation and improvements in fuel efficiency, and have a five percent annual cap.

House Transportation & Infrastructure Committee Chairman Peter DeFazio (D-OR) has previously proposed a national vehicle miles traveled (VMT) pilot program, which would allow taxpayers to opt in and then provide a refund for the estimated gas tax they would have paid. The concept of VMT is supported by many House Republicans, including Transportation & Infrastructure Committee Ranking Member Sam Graves (R-MO), as well as Secretary Buttigieg.

Many Republicans, including Senate Minority Leader Mitch McConnell (R-KY), have strongly objected to an increase in the gas tax in the past, so we will be watching to see how they react to any proposals from Democrats to raise the tax. President Biden has not stated whether he supports an increase in the gas tax, but has described the HTF as being “grossly underfunded.”

Autonomous Vehicles

Although we have seen continued moves in the automotive market toward Autonomous Vehicles (AVs), and many transportation policy leaders support for AV technology as a potentially revolutionary economic and cultural development, Congress has yet to pass legislation aimed at AV regulatory policy. The closest they have come to success with AV legislation was two congresses ago when the House of Representatives approved by voice vote the SELF DRIVE Act, while the Senate Commerce Committee unanimously approved the AV START Act. With broad bipartisan support there was hope throughout the 116th Congress that there would be final enacted legislation; however, finding consensus on moving forward has proven difficult. Secretary Buttigieg has spoken favorably about advancing AV technology, and we anticipate that the Administration and Congress will again seek to enact AV legislation this congress. An AV bill could emerge as a standalone or as provisions in the automobile safety portion of a Commerce title to a surface transportation bill.

During the Obama Administration the Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) issued the first-ever federal guidance on AVs in September 2016 (AV Policy) focused on integrating AVs into American roadways. The Trump Administration followed up with AV Policy 2.0 in 2017, AV Policy 3.0 in 2018, and AV Policy 4.0 in 2020. With federal guidance to date being entirely voluntary, 32 states have now approved their own AV policies, creating a patchwork of polices nationwide. Last January, NHTSA issued a rule revising existing federal motor vehicle safety standards (FMVSS) to exempt AVs that do not carry passengers from crashworthiness standards. The rule further amended certain FMVSS to conform with AV features, such as the lack of a steering wheel or front row seating without passenger and diver designations. It’s unclear whether the Biden Administration will continue such a regulatory trend, but as AV technology continues to see more widespread acceptance by consumers, we could well see a greater sense of urgency for Congress to codify a regulatory structure for AVs in statute.

Municipal Bonds

While Democratic control of the House and Senate makes this highly unlikely, we’ll be watching closely for any proposals to end the tax-exempt status of municipal bonds, which finance 75% of the nation’s infrastructure projects, including highways, ports, bridges, airports, public utilities, and water and sewer facilities.

Supporters of advance refunding (AR) bonds will be looking for opportunities to revive this option, which allows a bond issuance to be paid off with another lower-interest bond issuance. This practice was terminated by language in the 2017 Tax Cuts and Jobs Act. In the 116th Congress, Sens. Roger Wicker (R-MS) and Debbie Stabenow (D-MI) introduced legislation to reinstate advanced refunding. Similar legislation was introduced in the House by Reps. Ruppersberger (D-MD) and Stivers (R-OH), who serve as co-chairs of the Congressional Municipal Finance Caucus. Proponents of AR will be pushing for reintroduction of these bills in the 117th Congress.

There were two other bond measures introduced in the 116th Congress that did not see final passage, but which supporters will be pushing to see reintroduced in the 117th Congress. The Municipal Bond Market Support Act was introduced by Reps. Sewell (D-AL) and Reed (R-NY) and would make a permanent modification to the small borrower exception (BQ) raising the maximum from $10 to $30 million and applying the maximum at the borrower level. The American Infrastructure Bonds Act, was introduced by Sens. Wicker (R-MS) and Bennet (D-CO) and would have reinstated direct pay municipal bonds, add non-profit eligibility and require a governmental issuer.

Biden Proposal for Public Transit Agencies

Just ahead of his inauguration as the nation’s 46th president, Mr. Biden unveiled a $1.9 trillion “American Rescue Plan” providing emergency COVID-relief and economic stimulus measures. While much of the proposal is related to health care and vaccinations, there are proposals directly related to transportation, including $20 billion in relief for the hardest hit public transit agencies.

Mintz – Christian T. Fjeld, R. Neal Martin and Anthony M. DeMaio

February 4 2021

Pandemic Relief? Infrastructure Is the Far Bigger Prize.

The payoff for states and localities from federal infrastructure legislation is likely to be many times more than COVID stimulus aid. Governors and local leaders need to play their cards wisely.

The first major fiscal legislation to come out of the Biden era will likely be some version of its pandemic stimulus bill, already in the congressional hopper. States and local governments are almost certain to receive some level of federal aid, though nobody will be surprised if the number gets trimmed by GOP opposition and the compromise efforts of moderates in both houses.

But while governors, mayors and other local government officials cannot help but lobby fiercely for immediate help for their 2021 budgets, those numbers are chump change compared with what is potentially coming down the pike for infrastructure funding. The federal dollars at stake for the Biden administration’s forthcoming infrastructure bill are likely to be five to 10 times greater than the pending stimulus bill will provide, if intergovernmental public-finance strategists play their cards wisely.

So state and local government leaders and their policy associations will be smart to immediately lay out and buttress their lobbying and advocacy plans for the infrastructure bill. To deflect and rebut newly reborn congressional deficit hawks, a fallback tax plan to pay for the federal share will require both savvy and moxie, and the state and local lobbyists would do well to be in the room for those discussions as well.

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New Year Brings No Respite to Muni Senior Living Sector Turmoil.

The coronavirus pushed three dozen municipal-debt issues for senior living communities into default last year and another five have already missed payments in 2021, sowing distress in one of the nation’s safest bond markets.

The securities deals that defaulted for the first time in January included one for a retirement community in the Chicago suburbs that needed to preserve cash as regulations imposed to combat the pandemic curbed move-ins and left about one quarter of it unoccupied.

“The surge in Covid-19 cases following Thanksgiving and Christmas suggests further disruption lies ahead,” said Beth Burnham Mace, chief economist at the National Investment Center for Seniors Housing & Care. “That said, the recent distribution of the vaccines should soon provide some relief.”

The coronavirus, especially lethal to the elderly, has made the senior-living industry the riskiest segment of the $3.9 trillion municipal-bond market, where defaults are extremely rare because states and cities have broad power to raise taxes to cover their debts. But it’s also open to non-profits, including those that run retirement communities, that can sell debt through local government agencies. These facilities are facing increased costs for staff and protective equipment as well as move-in restrictions from state health agencies. As a result, many are unable to repay what they’ve borrowed.

Falling Occupancy

Residency at assisted and independent living facilities fell to 80.7% in the fourth quarter, a record low and an almost seven percentage point decline since the first quarter, according to data from the National Investment Center. Moreover, the data shows wide disparities geographically. The San Jose market had the highest occupancy rate of 31 metro areas at 88.5% and Houston, the lowest, at 73.5%.

The resulting financial pressure drove five senior living communities in Georgia, New York, New Hampshire and Illinois into default this year.

Hillside Village, a 221-unit continuing care retirement community in Keene, New Hampshire, failed to make a Jan. 1 interest payment on $73 million bonds and has hired a chief restructuring officer. Through November, the facility collected $2.3 million less revenue than projected. Glen Arden, Inc., in Goshen, New York defaulted because of financial difficulties that preceded the pandemic.

Preserving Cash

In Schaumburg, Illinois, about 20 miles (32 kilometers) west of of O’Hare International Airport, occupancy at Friendship Village of Schaumburg fell to 78% as of Sept. 30 from 84% at the end of March.

Despite obtaining a Paycheck Protection Program loan, the community had to spend half its cash reserve in the last nine months to make up for lost revenue. The retirement community suspended payment on $122.6 million of debt to preserve cash, its chief financial officer said in a letter to bondholders.

“The action we take today is a step toward fulfilling our goal, which is to preserve the ability of FVS to operate until the health and economic crises caused by Covid-19 have abated,” wrote Michael A. Flynn, Friendship Village’s CFO.

Highly Leveraged

The Emmaus Calling, a non-profit senior living owner run by an Austin, Texas family that has issued $400 million of municipal bonds to acquire two dozen communities, has 12 in the Houston area. The highly leveraged purchases — financed entirely with debt — left little room for error amid the pandemic, which forced TEC to restrict move-ins and cancel live tours.

That’s threatening to tip more than a quarter of the bonds into default. About $115 million of the bonds issued by TEC affiliates are distressed and $36 million of them had their ratings withdrawn after the company needed to tap reserves to cover debt, according to data compiled by Bloomberg.

TEC’s Glen Hope Harbor Inc. portfolio of nine assisted-living facilities in the Houston and San Antonio were struggling even before the pandemic. In August 2019, S&P cut the ratings on $38 million bonds issued by Glen Hope Harbor to junk after it drew on reserves to pay debt. The rating company cited “very low” occupancy rates and competition from new Alzheimer’s care facilities, which forced management to discount rents to attract tenants.

Glen Hope Harbor defaulted on a $3 million portion of its bonds last February, before the virus cut occupancy to around 70% by the end of June. Some of the non-defaulted Glen Hope bonds due in 2039 are trading for about 32 cents on the dollar, down from 106 cents when they were first issued five years ago.

Mission Fees

TEC has supported and will continue to support its facilities by deferring fees and providing loans, according to an email from Jennifer Rodriguez, president of Choice Management Services, LLC, which oversees TEC’s assisted living facilities. Robbie Wittner, TEC’s president, didn’t respond to emailed questions.

The debt burden on TEC’s assisted living portfolios is even higher because it has taken upfront payments of as much as 1.4% from its bond sales as “mission contribution fees,” used to help pay the salaries of Wittner, her husband Lloyd Kitchen, and son Lloyd Kitchen III.

“They’ve borrowed to pay themselves, which means you need to cover that borrowing in addition to what you paid for that facility so that would make things more difficult,” said Lisa Washburn, a managing director at Municipal Market Analytics.

Bloomberg Markets

By Martin Z Braun

February 3, 2021, 7:30 AM MST

— With assistance by Natalia Lenkiewicz, and Laurel Brubaker Calkins

Error Identified In S&P U.S. Local Government General Obligation Model, Review Indicates One Rating Affected

S&P Global Ratings Feb. 3, 2021  —  S&P Global Ratings has identified an error in its U.S. Local Government General Obligation Model (LG CST), which it uses to assign ratings under the following criteria: “U.S. Local Governments General Obligation Ratings: Methodology And Assumptions” (published Sept. 12, 2013).

The model error relates to the computation of budgetary and economic scores, including how metropolitan statistical areas (MSA) data may be integrated into economic score calculations.

Following the discovery of this error, we:

Until the model error has been corrected, we are adjusting our use of the model to address the potential effect of the model error and to allow for the model’s continued use in surveilling and assigning ratings consistent with our criteria.

This report does not constitute a rating action.

The reports are available to subscribers of RatingsDirect at If you are not a RatingsDirect subscriber, you may purchase copies of these reports by calling (1) 212-438-7280 or sending an e-mail to [email protected] Ratings information can also be found on S&P Global Ratings’ public website by using the Ratings search box located in the left column at Members of the media may request copies of these reports by contacting the media representative provided.

Fitch: Biden’s Plans for Healthcare Largely Positive for NFP Hospitals

Fitch Ratings-New York/Austin/Chicago-03 February 2021: President Joseph Biden’s plans to expand healthcare coverage under the Affordable Care Act would generally improve the financial position of not-for-profit hospitals, Fitch Ratings says. Not-for-profit (NFP) hospital margins have been squeezed by high pandemic caseloads and costs, with multiple pressures on revenues and expenses as well as an uncertain regulatory environment likely to continue. Reducing the number of uninsured and shifting the payor mix towards Medicaid coverage and privately insured will help mitigate revenue pressures.

Higher unemployment and administrative weakening of the Affordable Care Act (ACA) under the prior administration contributed to the numbers of those without health insurance. However, President Biden’s recent executive order to open a three-month window sign up for healthcare through the ACA federal insurance marketplace highlights his intentions to expand coverage.

Expansion of the ACA is more likely now that democrats have a narrow majority in the Senate, but not one that is filibuster-proof. Biden did not campaign on more aggressive federal expansion of healthcare, such as a public option or Medicare for All, and this is not on the table, nor is it likely to gain traction. Some members of Congress have expressed concerns over the large federal budget deficit against a backdrop of significant federal stimulus spending. Medicare is already one of the federal government’s largest budget items, but Medicare spending is unlikely to receive material scrutiny before the 2022 Congressional elections.

The Biden administration is expected to focus on reducing the number of those who are uninsured by raising the upper-income eligibility limit for healthcare premium subsidies, increasing premium tax credits for those purchasing plans through the ACA marketplace, raising the Medicaid poverty-level threshold and encouraging the 12 states that have not expanded Medicaid under the ACA to adopt expanded coverage. This latter change would be credit-positive for hospitals in states where Medicaid has not been expanded, although political headwinds in key states like Texas persist. It remains to be seen whether certain Medicaid waivers such as work requirements or block grants granted by the Trump administration will be rescinded by the Biden administration.

Congress may be able to pass a bill to reduce prescription drug prices. Lowering the minimum age qualification for Medicare may also be considered, although this will face political hurdles from deficit hawks, and would have mixed results for healthcare providers if a significant number of people move to Medicare from commercial payor coverage.

The Supreme Court is expected to rule mid-2021 on the challenge to the ACA, California v. Texas. Even if the Supreme Court decided that the individual mandate penalty is unconstitutional and inseverable from the rest of the law, some form of the ACA or its components could be reinstated through ‘fixes’ passed by Congress. Roughly 20 million individuals could lose healthcare coverage if the ACA does not survive. This would generally reduce hospital revenues and could exert downward rating pressure on hospitals, particularly in states that expanded Medicaid coverage under the ACA.


Mark Pascaris
Director, US Public Finance, Not-for-Profit Healthcare
+1 312 368-3135
Fitch Ratings, Inc.
One North Wacker Drive
Chicago, IL 60606

Kevin Holloran
Senior Director, Head of Not-for-Profit Healthcare Ratings
+1 512 813-5700
2600 Via Fortuna, Suite 360
Austin, TX 78746

Sarah Repucci
Senior Director, Fitch Wire
+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.

S&P U.S. Not-For-Profit Health Care Rating Actions, December 2020 And Fourth-Quarter 2020.

S&P Global Ratings’ Not-For-Profit health care rating actions for the fourth quarter of 2020 had seven downgrades and two upgrades. There were also six favorable and six unfavorable outlook revisions.

The rating activity during the fourth quarter aligns with previous commentary regarding elevated downgrades and continued unfavorable outlook revisions relative to upgrades and favorable outlook revisions. Reflecting largely pandemic related credit pressure, we affirmed our negative sector outlook shortly after the end of the fourth quarter (see “Outlook For U.S. Not-For-Profit Acute Health Care: Navigating The Bumps While Getting Back On Track,” published on Jan. 12, 2021). While there were two upgrades during the fourth quarter, those upgrades were due to the merger or combination with higher rated entities. All three upgrades since we revised the sector outlook to negative from stable on March 25, 2020, were related to merger related activity and not underlying improvement in credit quality. Despite the negative outlook on the sector and industry pressures, there has also been meaningful stability among many issuers, evidenced by the 68 affirmations during the fourth quarter of 2020, representing about three-quarters of credits analyzed.

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Municipal Bonds - Don't Ignore With Higher Taxes And Budget Relief Ahead.


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Seeking Alpha

Feb. 04, 2021

BondView Releases Municipal Bond Reference Data Service.

NEW YORK, Feb. 2, 2021 /PRNewswire/ — BondView, a leading provider of bond and fund information, today launched their new Municipal Bond Reference Data Service to facilitate quick, easy and cost-effective use of muni bond data into a variety of applications.

Using BondView’s Municipal Bond Reference Data means users no longer need to maintain and update expensive databases. The service includes all the descriptive data, from basic to extended security, that the majority of user applications require.

High quality reference data is available on over 1.5 million U.S. Municipal Bond issues from over 50,000 different issuers. Including:

BondView Municipal Bond Reference Data is searchable using a variety of industry standard identifiers and can be supplied in a number of different formats:

Robert Kane, CEO of BondView, said, “BondView’s Municipal Bond Reference Data is a quick and cost effective way to add comprehensive high quality municipal bond data into user applications. Using our cloud-based service means there is no longer any need to negotiate complicated and expensive database subscriptions.”

More Information:

Contact Jim Walker, Press Inquiries, BondView, [email protected]

Phone: 866-261-9533

Nuveen Credit-Focused Muni CEFs Remain Attractive.


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Seeking Alpha

Feb. 02, 2021

State Street and Nuveen Teaming Up On a New Active Muni ETF.

With yields low and some states facing fiscal challenges, active management and municipal bonds could be an ideal match for many income investors.

State Street Global Advisors and Nuveen are tapping into that theme with the SPDR Nuveen Municipal Bond ETF (MBND), which debuted yesterday.

MBND “will mainly draw its holdings from the Bloomberg Barclays 3-15 Year Blend (2-17) Municipal Bond Index, which covers investment-grade debt with two to 17 years of maturity remaining. The portfolio can hold a wide variety of types of municipal debt from a variety of entities, from states and territories drilling down to counties and districts, according to a statement.

Why Create the MBND ETF Now?

Yields on munis have been steadily falling, with bond prices rising, even before the coronavirus pandemic. After the 2017 tax law changes, demand for tax-exempt munis became more attractive in response to caps in the federal deduction for state and local taxes, especially among higher-tax states. The tax law also diminished supply due to new limits on when governments can issue tax-exempt debt.

Due to the economic shutdown, which led to a spike in unemployment rates across the country, plenty of states are facing budget woes. Some of those with the worst shortfalls are among the largest issuers of municipal bonds, meaning they’re also among the biggest weights in this category’s ETFs. But the muni market is proving resilient.

The new MBND “can invest in holding of any credit quality but limits its junk bond exposure to no more than 20% of the portfolio. It aims for a weighted average duration of 4.5-7 years and a weighted average maturity between five and 12 years. The fund benchmark guides the portfolio exposure, with individual securities weighted within 5% of their weight in the index and sectors deviating by no more than 10%.”

State Street and Nuveen partner on three other passive municipal bond ETFs, including the $4.5 billion SPDR Nuveen Bloomberg Barclays Short Term Municipal Bond ETF (NYSEArca: SHM).



FEBRUARY 5, 2021

State and Local Governments Relied on Debt for Budgetary Help In 2020.

More borrowing likely in 2021, market analysts suggest

State and local governments have sought a variety of ways to cope with the fiscal fallout of the COVID-19 pandemic and recession, including borrowing on the municipal bond market. But municipal bonds are commonly used to pay for major, long-lasting projects, so whether—and how—to use them to borrow for immediate budgetary relief can be a challenging question for government officials.

Matt Fabian is a partner and Lisa Washburn is chief credit officer and managing director with Municipal Market Analytics (MMA), a research and consulting firm that specializes in the U.S. municipal bond market. Founded in 1995, the company—which has worked with The Pew Charitable Trusts to support Pew’s research on state fiscal health—helps investment firms, banks, and financial advisers navigate the nearly $4 trillion market. This interview with Fabian and Washburn has been edited for clarity and length.

Q: We know that state and local governments cut spending and, in some cases, raised taxes to try to close their budget gaps in 2020. What else did they do?

A: State and local governments faced severe 2020 and 2021 budget crises because of the COVID-19 pandemic. So, they used the municipal bond market to reduce or postpone annual expenses, raise operating capital, and restructure otherwise damaged finances. All of these activities could, collectively, be called deficit financing—that is, paying for government expenses through borrowing.

These are not typical uses of the municipal bond market, where an overwhelming majority of financing is for long-term infrastructure projects. But last year, with state and local governments seeking as much as possible to avoid cutting spending, raising taxes, or postponing pension payments, they shifted their emphasis to short-term and temporary solutions. As the pandemic continued and federal stimulus money dried up, they increasingly took on debt for budgetary help.

We analyzed 442 municipal bond issuances over $100 million between August and mid-December of 2020, and we found that at least a quarter—and, because in some cases the ultimate use of the money wasn’t clear, perhaps as many as half—involved some form of deficit financing.

Q: How did state and local governments use this borrowed money?

A: We saw clear evidence of what we’d call direct deficit refinancing, where the money from bonds or loans is used to replace money that would ordinarily have been collected from taxes to fund regular, ongoing government programs. There was also evidence of what we’d call indirect deficit refinancing, such as using money from bonds to pay for projects that previously were paid for with cash.

The most common method of direct deficit financing was “scoop and toss” refinancings, in which new bonds are sold to retire old ones and a meaningful portion of debt service payments are delayed. It’s not exactly the same as what a homeowner might do with a “cash-out” refinancing of a mortgage, but the result is the same in that it frees up cash on hand.

Q: Is deficit financing a good idea?

A: That depends. Deficit financing with debt could, depending on the type of bond issues, create a longer-term budgetary liability to pay for immediate, short-term operating costs. That’s generally considered an unsound practice, with potentially negative implications for a government’s credit rating. In fact, some governments constitutionally or statutorily prohibit deficit financing.

But this crisis has presented such a severe and abrupt challenge to state and local finances that policymakers looked to use a range of tools to weather the storm. Any response to fiscal emergencies such as those caused by the coronavirus comes with challenges and limitations. In this case, borrowing became one part of a package of budget and policy responses, one that may have allowed governments to avoid, at least for the time being, other harsh measures—such as raising taxes or cutting services.

Q: So, have credit rating agencies in fact downgraded any state or local governments as a result of them using municipal bonds for short-term purposes?

A: So far, the impact on state and local credit ratings has been only minimal, which is a departure from how the credit rating agencies would normally respond. And a few factors may cause this to continue: There’s a greater acknowledgment on the part of the agencies of the uncertainty facing governments right now; there’s less concern in the current environment over the short-term impact of one-time budgetary fixes that in more normal times the rating agencies might have seen as “gimmicks”; and because state and local governments have been slow to release their financial disclosures, the agencies don’t yet have, in some instances, a clear picture of state or local government finances for 2020 and 2021.

However, there’s also good reason to assume that rating downgrades are coming this year and next as more governments disclose their financial information. These downgrades would make it more expensive for any entity that’s been downgraded to issue bonds, resulting in further budget challenges.

Q: Given the scope of the budget challenges for states last year, did the federal government intervene in the municipal bond markets?

A: Yes. In April, Congress created a lending backstop at the Federal Reserve called the Municipal Liquidity Facility, or MLF, with $500 billion that was available to state and local issuers for deficit financing. The MLF was valuable because it increased liquidity available to state and local governments and reduced the risk that states and cities that were facing fiscal challenges would make bad policy choices (such as selling assets, drastically cutting local aid or social services, or considering debt service payment freezes) or face a cash crisis that itself could lead to market disorder.

At the end of last year, the U.S. Treasury—which is the Federal Reserve’s partner in operating and overseeing the MLF—requested that the Fed return to Congress any unused cash from the original $500 billion stake and stop approving any new loans. The loss of the MLF could somewhat hamper the public finance market in 2021 because the program provided state and local governments looking to borrow with a federal assurance of immediate liquidity.

Q: Are there long-term policy implications of governments using municipal bonds for short- and mid-term budgetary needs?

A: It’s too early to say for sure, but there’s reason to suppose that debt incurred now is unlikely to disappear from government balance sheets for years to come. What’s more, because state and local financial conditions this year are likely to be closer to the second half of last year than to 2019, we see no reason not to expect similar borrowing this year.

Last year bond issuers shelved any new projects that could be delayed; they also depended on the lending markets to offset COVID-driven budget losses. It’s reasonable to assume that the same thinking could apply to the next few years. So, we expect that state and local governments, with perhaps a new respect for needing cash on hand, will continue to grow their debt balances over the medium- to long-term.

If that happens, state and local government may find themselves hindered—in particular, in times of crisis—by the lack of financial flexibility resulting from the rising expenses that come with larger debt balances. State budget writers and other officials could minimize that by more effective debt management strategies and a longer-term outlook when it comes to budget planning.

The Pew Charitable Trusts

January 28, 2021

Financial State of the Cities 2020.

Chicago, Jan. 26, 2021 (GLOBE NEWSWIRE) — The 2021 Financial State of the Cities (FSOC) surveys the fiscal health of the 75 largest municipalities in the United States. This data is released today by Truth in Accounting (TIA), a think tank that analyzes government financial reporting. TIA analysts draw their data from the fiscal year 2019 audited Comprehensive Annual Financial Reports on file in city halls across the country, which are not analyzed on this scale by any other organization. The fiscal year 2019 audited Comprehensive Annual Financial Reports show cities financial data prior to the coronavirus pandemic. This new data comes as the federal government is considering additional aid for states and cities.

The 2021 FSOC report found that 13 of the largest cities had more assets than obligations, a key indicator of long-term financial health. The remaining 62 cities carried varying levels of debt, many of them in the billions of dollars range prior to the coronavirus pandemic.

These 62 cities went into the coronavirus pandemic in poor fiscal health, and they will probably come out of the crisis worse. Even the fiscally healthiest cities are projected to lose millions of dollars in revenue as a result of the coronavirus pandemic. The uncertainty surrounding this crisis makes it impossible to determine how much will be needed to maintain government services and benefits, but these cities’ overall debt will most likely increase.

Irvine, California had the best city finances in the U.S. with a $370.3 million surplus. If you were hypothetically to divide that figure by the number of Irvine taxpayers, each Irvine taxpayer’s share is $4,100.

Not every city in the United States is so lucky. Many larger and older cities owe billions of dollars to unfunded retirement plans for public sector employees. New York City claimed the prize for worst municipal finances in the United States for the fifth year in a row. Every taxpayer in the Big Apple would have to pay $68,200 in order for the city to pay off all its bills. Chicago (second-worst in the nation) would need each taxpayer to pay $41,100. The average taxpayer burden across all 75 cities in the report works out to $7,355.

“The bottom line is that the majority of cities went into the pandemic in poor fiscal health and they will most likely come out of it even worse,” says Sheila Weinberg, founder and CEO of Truth in Accounting.

The full Financial State of the Cities report can be found online here.

Truth in Accounting

January 26, 2021

The Financial State of the Cities report is an in-depth study of the financial condition in America’s largest cities. Data for this report was derived from cities’ 2019 comprehensive annual financial reports. As of January 19, 2021, Tucson, AZ and New Orleans, LA had not released their 2019 annual financial reports. Therefore, we were forced to use fiscal year 2018 information for these two cities.

Founded in 2002, Truth in Accounting is dedicated to educating and empowering citizens with understandable, reliable, and transparent government financial information. Sheila Weinberg is a Certified Public Accountant with more than 40 years of experience in the field.

MSRB 2020 Municipal Bond Market In Review.

Read the MSRB Review.

State and City Cutbacks Stifle Broader U.S. Economic Recovery.

State and local governments are exerting the biggest drag on the U.S. economy in more than a decade as they eliminate jobs and cut spending in the wake of the pandemic, underscoring President Joe Biden’s push to extend aid to make up for lost tax revenue.

Such cutbacks have contributed to a slowdown in the economy for three straight quarters, marking the longest taper since the fiscal crisis that persisted from 2009 to 2012, according to preliminary data released by the U.S. Bureau of Economic Analysis Thursday.

States and cities have been bracing for major revenue shortfalls because of shutdowns since March to contain the virus, prodding them to eliminate more than 1.3 million jobs. The speed and scale of the budget cutting surpasses what happened in the wake of the housing market crash, when such steps largely weren’t enacted until it hammered tax collections after the recession had officially ended.

State and local government employment fell 6.6% last year, the steepest drop in Labor Department records since the mid-1950s. Payrolls remain barely above the 18-year low of 18.4 million in May and account for the smallest share of working Americans since 1966. During her confirmation hearing Jan. 19, Treasury Secretary Janet Yellen said budget shortfalls will beget more layoffs and have “ripple effects through the economy.”

While state budget shortfalls haven’t been as severe as initially estimated as higher-income workers held onto their jobs and stock prices rallied, local governments are still expected to contend with large deficits in the coming fiscal years.

Biden has proposed extending $350 billion of aid to governments as part of his $1.9 trillion stimulus plan, a sum that the Brookings Institution estimates will account for three-years of lost revenue. That plan faces opposition from some Republicans in Congress.”

“State and local government economies will feel the aftereffects of the pandemic for a long time. They will continue to be a drag on national GDP for a year, if not more,” said Vikram Rai, a municipal bond analyst at Citigroup Inc. “The longer the aid is put off, the worse it is for state and local governments.”

On a conference call Thursday held by the U.S. Conference of Mayors, the National League of Cities and the National Association of Counties, officials warned of more job and service cuts as they contend with the increased expenses that come with battling to pandemic.

Dayton, Ohio Mayor Nan Whaley said her city cut 200 jobs and will need to delay hiring new cops or firefighters this year. Mayor Jeff Williams of Arlington, Texas also spoke to the urgency.

“The devastating consequences will last for years,” Williams said of the impacts of the pandemic and the lack of aid. “This crisis is not over, and whenever it is over we are going to be digging out of it for some time.”

Bloomberg Business

By Fola Akinnibi

January 28, 2021, 1:48 PM MST Updated on January 28, 2021, 2:51 PM MST

— With assistance by Jeff Kearns

S&P 2021 Credit Outlook For U.S. Public Finance: Back On Track?

Key Takeaways

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29 Jan, 2021


Fitch Ratings Updates Public Finance Interactive ESG Dashboard, Heatmap - 4Q20

Fitch Ratings-London-26 January 2021: Fitch Ratings has updated its interactive ESG dashboard for Public Finance and Global Infrastructure for 4Q20. Fitch has also enhanced its interactive ESG relevance heatmap for 4Q20, with new regional and country selection capabilities.

The dashboard shows the distribution of Fitch’s ESG Relevance Scores (ESG.RS) for 2,656 issuers or transactions across the Global Infrastructure Group (Infrastructure), International Public Finance (IPF) Local and Regional Governments (LRG), IPF Government-Related Entities (GRE), and U.S. Public Finance (USPF) Tax-Supported and USPF Revenue sectors.

The dashboard shows that ESG risks influence rating decisions for 5.5% of Infrastructure issuers or transactions. Within IPF, 0.4% of GRE and 20.7% of LRG issuers had ESG risks influence rating outcomes. These risks influenced rating decisions for 3.6% of USPF Tax-Supported issuers and 5.5% of USPF Revenue issuers.

The governance and social categories have similar levels of impact for Infrastructure issuers, while environmental impact affected rating decisions less. Higher ESG risks for IPF LRGs have been identified in recent rating actions, with 13% of issuers scoring a ‘4’ or ‘5’ (indicating rating relevance), as several Ukraine local government defaults have affected Political Stability and Rights governance scores. IPF LRGs had higher ESG.RS for 5% of issuers in the environmental category, followed by 3% in the social category.

For USPF Tax-Supported issuers, governance impact influenced 1.7% of rating decisions, followed by social impact at 1.1% and environmental impact at 0.8%. Governance influenced more rating decisions for USPF Revenue issuers than environmental or social issues did, with 3% of entities scoring a ‘4’ on governance. There were much lower levels of ‘4’ and ‘5’ ESG.RS across the environmental and social categories for these issuers.

For more information please see

The American Rescue Plan.

On January 14, President Joe Biden provided an outline for his administration’s first major legislative effort.

The $1.9 trillion American Rescue Plan includes multiple provisions that have been debated on Capitol Hill throughout 2020, including $350 billion for state and local governments, as well as an additional $1,400 in direct payments to individuals.

President Biden made it clear that bi-partisan support for the plan is a priority, but also indicated the willingness to use the reconciliation process, lowering the bar to clear in the Senate from 60 votes to 51, should Republicans take a hardline stance against the plan.

Notable provisions:


How Biden's Stimulus Plan Could Impact Municipal Bonds.

Nick Venditti, Wells Fargo Asset Management senior portfolio manager, discusses what the Biden administration’s $1.9 trillion stimulus plan means for the municipal bond market. He speaks with Bloomberg’s Taylor Riggs on “Bloomberg Markets: The Close.”

Watch video.

Bloomberg Markets: The Close

January 22nd, 2021, 2:01 PM MST

Unexpected Impact Of The Biden Administration? A Muni Bond Boom.

All things considered, the municipal bond market had an exceptional 2020.

In a year in which municipalities were faced with an economic crisis that had some investors concerned about defaults, the VanEck Vectors CEF Municipal Income ETF rose 3.44% in 20201, a stunning turnaround given its sharp decline during March.

Muni bond investors have several tailwinds to thank for that rebound, according to VanEck Senior ETF Product Manager Michael Cohick: a supply-demand imbalance driven by fewer bond issuances, the realization that municipalities are in a better position than the financial crisis of 2008, and the Federal Reserve, whose municipal liquidity facility acted as a lender of last resort.

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by Spencer Israel

January 29, 2021

Largest Inflow in Tax-Exempt Munis On Record: Kazatsky (Radio)

MUNIS IN FOCUS: MUNIS in FOCUS: Eric Kazatsky, Senior U.S. Municipals Strategist for Bloomberg Intelligence, on muni valuations setting new highs. Hosted by Paul Sweeney and Vonnie Quinn.

Listen to audio.

Bloomberg Radio

January 29, 2021 — 11:40 AM MST

The Supreme Court Confirms That Passive Retention of Property Does Not Violate Section 362(a)(3): Squire Patton Boggs

On January 14, 2021, the Supreme Court unanimously held in City of Chicago v. Fulton that a creditor’s passive retention of a debtor’s property does not violate section 362(a)(3) of the Bankruptcy Code. The Court’s 8-0 decision (Justice Barrett did not participate in the consideration or decision of the case) may have the unintended effect of increasing bankruptcy costs and making it more difficult for individual debtors to achieve a “fresh start”.

When a bankruptcy case is filed, certain Bankruptcy Code sections take immediate effect and have a significant impact on a debtor’s property. First, section 541(a)(1) creates the bankruptcy estate, which is comprised of “all legal or equitable interests of the debtor in property.” This includes any property made available to the estate by other provisions of the Bankruptcy Code. One such other provision is section 542, which governs the turnover of property to the debtor’s estate. Section 542 commands that, with certain exceptions, any entity in possession of a debtor’s property shall deliver the property to the debtor.

Second, a bankruptcy petition operates as an automatic stay, preventing, in relevant part, “any act to obtain possession of property of the estate…or to exercise control over property of the estate.” 11 U.S.C. § 362(a)(3). The automatic stay is one of the fundamental elements of the bankruptcy system: it protects the debtor’s assets from unilateral creditor actions during the bankruptcy case and maintains the status quo.

II. The Facts

The Fulton case involved four individual debtors, each with the same unfortunate story: the City impounded their vehicles for nonpayment of fines and fees under the Chicago Municipal Code; they filed Chapter 13 bankruptcy in response to the impoundment; and they requested that the City return their vehicles. When the City refused, each debtor argued that failure to return their vehicle violated the automatic stay. In each case, the bankruptcy court agreed.

III. The Seventh Circuit Decision and the Circuit Split

These four cases were consolidated on appeal to the Seventh Circuit Court of Appeals, and the appellate court affirmed the bankruptcy courts’ decisions. In In re Fulton, 926 F.3d 916, 925 (7th Cir. 2019), the court reasoned that the passive retention of estate property is “an act to…exercise control” over the property in violation of section 362(a)(3). Rather than requiring the debtors to bring an action for turnover under section 542(a), the court held that the automatic stay imposed an affirmative obligation on the City to turn the vehicles over as soon as the debtors filed their bankruptcy petitions.

With this decision, the Seventh Circuit joined the Second, Sixth, Eighth, Ninth and Eleventh Circuits in finding that failure to return property seized prepetition violates the automatic stay. Conversely, the Third, Tenth and D.C. Circuits all previously held that retention of seized property does not violate the automatic stay. This circuit split made this issue ripe for Supreme Court review and on October 13, 2020, the Court heard oral argument

IV. The Supreme Court’s Decision

In a unanimous decision authored by Justice Alito, the Supreme Court vacated the Seventh Circuit judgment and held that merely retaining possession of estate property seized prepetition does not violate section 362(a)(3). The Court reached this decision based on three conclusions.

First, the Court held that reading “any act…to exercise control” in section 362(a)(3) to cover mere retention of property would make that section a blanket turnover provision, and render the “central command of section 542 largely superfluous.” Since section 542 governs the turnover of property to the estate, it would be surplusage if section 362(a)(3) already required an entity to relinquish control over the property as soon as a bankruptcy petition is filed.

Second, the Court held that if the debtors’ proposed reading of section 362(a)(3) was accepted, the stay would eliminate the exceptions enumerated in section 542. Section 542 lists certain property that need not be turned over to the estate. If section 362(a)(3) covered mere retention of estate property, the Court held that this would command turnover of property that is clearly excepted from turnover by section 542.

Third, Justice Alito’s opinion concluded by reviewing legislative history. Sections 362(a)(3) and 542 were included in the original Bankruptcy Code. However, section 362(a)(3) originally applied the stay only to “any act to obtain possession of property of the estate”; the phrase “or to exercise control of the estate” was not added until the 1984 amendments. The Court reasoned that transforming 362(a)(3) into a blanket turnover provision would have constituted a substantive change to the Bankruptcy Code. Had Congress wanted to make such an important change, it would have done so explicitly by cross referencing 362(a)(3) to section 542 or otherwise indicating its intent to do so.

V. Takeaways

Although the future implications of this decision remain to be seen, one thing is certain: this was an incredibly narrow decision. As Justice Sotomayor’s concurrence makes clear, the Court did not decide whether and when section 362(a)’s other provisions require a creditor to return a debtor’s property. The City’s actions here may well have violated other provisions in section 362, but the Court did not decide this issue one way or another.

Even though this case involved Chapter 13 debtors, the decision likely has implications for Chapter 7 and 11 debtors as well since at the very least, debtors will now have to bring adversary proceedings under section 542 to recover property retained by a creditor, rather than relying on section 363(a)(3). These proceedings consume time and money, reducing assets in a debtor’s estate and limiting the amounts that other creditors may recover in a liquidation or plan of reorganization.

Squire Patton Boggs – Emily Shandruk

January 27 2021

Stand Pat, Don’t Act: Supreme Court Holds That Mere Retention of Debtor Property Does Not Violate Section 362(a)(3) of the Bankruptcy Code’s Automatic Stay Provision - Cadwalader

On January 14, 2021, the U.S. Supreme Court issued an opinion addressing a split among circuit courts on whether an entity violates Section 362(a)(3) of the Bankruptcy Code’s automatic stay provision by passively retaining possession of a debtor’s property after a bankruptcy petition is filed. Section 362(a)(3) prohibits “any act . . . to exercise control over property” of the bankruptcy estate. 11 U.S.C. § 362(a)(3).1 This “automatic stay” provision is automatically triggered once a bankruptcy case is commenced, and is intended to give the debtor a breathing spell from its creditors, including from any collection efforts, foreclosures, and other actions creditors may take against a debtor’s property. The question here was whether the automatic stay provision in Section 362(a)(3) is also applicable to property already in the creditor’s possession at the time of the bankruptcy filing. In a unanimous2 decision authored by Justice Samuel Alito, the Supreme Court held that mere retention of estate property after the filing of a bankruptcy petition does not violate Section 362(a)(3). City of Chicago, Illinois v. Fulton, No. 19-357, 2021 WL 125106 (U.S. Jan. 14, 2021).

The Supreme Court’s decision provided at least some comfort to creditors that they are unlikely to be considered in violation of the stay under Section 362(a)(3) or incur related damages liability by merely passively retaining debtor property, including collateral, already in their possession. However, the decision did leave open the possibility that retention of debtor property could violate other provisions of the automatic stay under some circumstances, such as where retention is used as leverage to “collect . . . or recover a claim against the debtor.” See 11 U.S.C. § 362(a)(6).

The decision also helped clarify the relationship between the Bankruptcy Code’s automatic stay provision (Section 362) and its express “turnover” provision (Section 542) by establishing that only Section 542, and not Section 362(a)(3), imposes an obligation to turn over debtor property to the debtor’s bankruptcy estate. This clarification is favorable to parties in possession of debtor property, because turnover under Section 542 includes exceptions and usually entails the commencement of an adversary proceeding and an opportunity to present defenses, which would not necessarily be available if turnover were required automatically under Section 362(a)(3).

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Cadwalader Wickersham & Taft LLP

January 22 2021

S&P: Five U.S. State And Local Government Pension And OPEB Trends To Watch For In 2021 And Beyond

Key Takeaways

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25 Jan, 2021

S&P U.S. Higher Education Rating Actions, 2020

S&P Global Ratings lowered 34 ratings and raised four ratings on U.S. colleges and universities in 2020. Notably, of the ratings that were lowered, 12 had outlooks that had been revised to negative as part of S&P Global Ratings’ response in April to the risks associated with the COVID-19 pandemic. In addition, only one of the four upgrades in 2020 occurred after the onset of COVID-19.

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28 Jan, 2021

S&P U.S. Charter Schools Rating Actions, 2020

In 2020, S&P Global Ratings’ rated universe of charter schools experienced more downgrades than upgrades, reflecting the inherent risks of the sector as well as liquidity and enrollment pressures that were magnified by the COVID-19 pandemic (chart 1). However, the number of downgrades in 2020 (17) was below highs in 2014 (37) and 2017 (37; chart 2), reflecting the growth and maturity of the sector in recent years.

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28 Jan, 2021

Fitch: Media Revenues Anchor Stable Outlook for Sports Facilities, Leagues and Teams in 2021

Fitch Ratings-New York-28 January 2021: Immensely valuable media content will drive the Stable Outlook for sports with far fewer fans attending stadiums and arenas until well into 2021, according to Fitch Ratings in its annual Outlook report for the sector.

The sports operating environment will not be materially worse than 2020, though the coronavirus pandemic remains tough to navigate for the NBA, MLB, NFL and NHL. “With local government restrictions keeping most sports fans at home for the foreseeable future, stadiums and arenas will experience the greatest pressures from lower game-day revenues and expiring contractual sponsorship agreements along with premium seating inventory,” said Senior Director Chad Lewis.

Absent widely available vaccines, sports leagues are still demonstrating the ability to play games during the pandemic and meet expectations of their media agreements. National and local media contracts are also providing significant revenues and providing strong bondholder support for sports leagues, factors that support Fitch’s Stable Outlook for the year. That said, the headroom for current league ratings is shrinking.

“Sports leagues and facilities will have diminished liquidity to cover operating costs and debt obligations under no-fan or limited-fan scenarios and may, as a result, have to tap the debt markets with more frequency,” said Lewis. “If de-leveraging and/or the return to pre-pandemic operating levels is slower than expected, negative ratings action may be warranted.”

Fitch’s “2021 Outlook: Global Sports Leagues and Facilities” report is available at ‘’.


Chad Lewis
Senior Director
Fitch Ratings, Inc.
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

Record High Muni Prices Leave Investors Waiting to Buy the Dips.

The record high valuations in the municipal-bond market have put some investors in an unusual position: rooting for a surge in supply that would push down prices.

With new cash pouring into mutual funds and a steep slowdown in the pace of new debt sales this month, the yields on 10-year tax-exempt bonds have been hovering around 70% of those on Treasuries. That measure, a key gauge of relative value, hit about 66% in mid-January — the lowest in at least two decades — signaling that the prices of state and local bonds are unusually expensive.

That dynamic is contributing to a “lack of investor appetite,” with trading levels slowing over the past several months, strategists at Barclays Plc said in a Jan. 22 note.

That may change if the pace of bond sales picks up as expected after the end of January, a usually slow month for state and local government debt offerings. Some Wall Street banks, including Citigroup Inc., are forecasting a massive surge in debt issuance in 2021 as local governments seize on low interest rates to refinance bonds or bankroll public works projects to help jumpstart their economies after the pandemic.

“At some point, the calendar will start picking up again, which will create more opportunities,” said Susan Courtney, head of the municipal-bond team for PGIM Fixed Income. “We’re looking forward to a pickup in supply from that perspective.”

Bloomberg Markets

By Amanda Albright and Anastasia Bergeron

January 26, 2021, 11:30 AM MST

Why Investors Should Consider Taxable Municipal Bonds when Retirement Planning.

Jason Bottenfield of Steward Partners Global Advisory joined Yahoo Finance Live to discuss strategies for retirement planning amid market volatility and why it may be time to consider taxable municipal bonds.

Video Transcript

SEANA SMITH: It’s time for our retirement report here brought to you by Fidelity Investments. And for that, we want to bring in Jason Bottenfield. He’s wealth manager and partner of Stuart Partners, a global advisory.

And Jason, let’s just start with the big story of the week. And that, of course, is the action that we’ve seen a lot of these heavily shorted names. What are the conversations that you’re having with your clients? And I guess what are the biggest concerns that you have after the action that we saw this week?

JASON BOTTENFIELD: Yeah, no, Seana, there’s been a lot of action for sure. And it’s been on every news channel. So obviously, clients are focusing on it and calling a little bit. I don’t think necessarily they’re wanting to get involved as much, but, you know, some have asked that question.

A lot of what we’re trying to do is just position that look, this is an anomaly that’s happening right now. But for those that are getting involved, I think there’s some opportunities for education. I mean, this is an opportunity to where a lot of investors, whether they’re younger or millennials or whoever saying is getting in on this.

There’s an opportunity to really look at how are they positioning those trades that they’re getting into? And I think there’s a learning moment that’s happening here. But as far as our clients, I think we’re just kind of educating them on what’s happening. They don’t really get it. And so that’s really what we’ve been doing this week.

ADAM SHAPIRO: What about those clients who are 10 years from retirement? One of the things we’re hearing a lot about now are taxable muni bonds.

JASON BOTTENFIELD: Yeah, so really an opportunity in the taxable municipal bond space is a little bit of a play on, you know, if the new Biden administration is going to be putting money into infrastructure. I mean, that’s always on the table. And a lot of presidential administrations talk about it.

But as far as the taxable municipal bond space, we’re really using it as really a parking place. So if you’re 10 years from retirement or just looking at parking some of your equity gains that you had last year, we’re really putting a little bit of money there. You can make a little bit of yield, and they are taxable. So it’s not a play on the taxable equivalent yield like a regular municipal bond.

But you do get that credit quality. And if we do get some of those dollars going in, right now, the municipal market’s getting a lot of sentiment. A lot of people are pouring into it. And the prices are high. But in the taxable municipal bond space, there’s some value there and there’s some opportunity.

ADAM SHAPIRO: When you talk about munis though, I thought the attraction to munis years ago was that they weren’t taxable. So how should an investor approach that and look at them as part of their portfolio?

JASON BOTTENFIELD: Yeah, as far as the municipal bonds in their portfolio for the tax-free income, I mean, really higher net worth individuals with the Biden administration potentially pushing tax rates, not this year. We don’t think it’s going to go retroactive. But for 2020, rising taxes always provides an opportunity for municipal bonds to be a big part of a higher net worth investors portfolio just because of that tax-free income.

The problem is you’ve got to be a little bit of buyer beware here because the prices are pretty high. And they have been going up over the last few years. And especially now that there’s a lot of focus on taxes going up, you start to see those prices go up.

But there are some value plays out there. But municipal bonds are a core place for people to park some cash just because of the fact that the risk-free nature– it’s not really risk-free, but it’s not as risky as equities, and it’s not as risky as corporate bonds, because of the way that the nature of muni bonds are structured with municipalities.

SEANA SMITH: Jason, has your approach changed at all now with the Biden administration inside the White House?

JASON BOTTENFIELD: I don’t think our approach has changed. I really look at all this. We’ve got to figure out where the puck’s going. What’s going to happen with taxes? What’s going to happen with some of these regulatory mandates? But I think everybody’s been kind of seeing that shift anyways, whether it’s talking about where millennials are moving– where technology is moving.

But I think just in general, we’ve all seen a shift during the pandemic to where technology allows us to do, you know, Zoom meetings. And quite frankly in our business, it’s really been an improvement to the way that we’re able to operate with client. So trying to latch onto those and trying to figure out where potentially the new administration moves the puck, that’s part of the call.

Is it infrastructure spending? Is it pushing more to environmentally friendly which might be looking at hydro cell technology and things of that nature. So yeah, we’re trying to figure out where things are going, but I think that shift has already been made. And so we’ve been making some adjustments along the way.

But with the markets on a high right now, [INAUDIBLE] the new administration or an old one, we’ve started to look let’s go into a little bit more market neutral funds and maybe park some of those gains that we had last year and just see how things play out for the next two months.

SEANA SMITH: Jason Bottenfield at Steward Partners Global Advisory. Thanks so much for joining us today.

Yahoo Finance

January 29, 2021

Fitch: New Lead and Copper Rule to Raise Costs for Water Utilities

Fitch Ratings-Austin/New York-19 January 2021: The Environmental Protection Agency’s (EPA) new Lead and Copper Rule (LCR) is not expected to impact utility credit quality over the near-term, but it could have a material effect on certain water utilities’ capex and credit profiles over the medium- to long-term, particularly for those utilities that serve communities with a large proportion of older homes and buildings that will likely require greater lead service line (LSL) remediation, Fitch Ratings says. The LCR is expected to raise near-term operational costs for all utilities and negatively affect capital budgets in the longer term as LSLs are identified and replaced.

Overall, the EPA expects annual costs to implement the LCR to be as much as $839 million, up to 80% more than the prior rule, with most of these costs borne by the water utilities. The increased costs of monitoring, outreach and LSL replacement may crowd out other operating costs and infrastructure projects and could lead to higher rate increases than currently anticipated by utilities, heightening concerns in the industry over service cost affordability.

Utilities will face increased operational costs under the LCR with requirements for identifying LSLs and increased water testing and outreach. If lead is detected in excess of the trigger threshold of 10 parts per billion (ppb), a utility will need to review water treatment, implement corrosion control measures and/or replace LSLs. Smaller utility systems serving fewer than 10,000 people are granted more flexibility with regard to these measures in their implementation of the LCR.

Under the new rule, utilities have three years in which to inventory LSLs, which will provide more visibility on which systems will bear greater costs for replacement. The EPA estimates that there are 6.3 million to 9.3 million homes across the country with LSLs and millions of other buildings with lead solder and/or faucets with lead. Older homes and other buildings in areas with relatively higher levels of poverty have been identified by the Government Accountability Office (GAO) in its December 2020 drinking water report as more likely to have lead pipes. Those systems serving older and poorer residences will face a greater capital burden of replacing LSLs but may also have the least flexibility to absorb increased capital costs.

After LSLs have been inventoried, the LCR requires an annual LSL replacement rate of 3% versus 7% under the old rule for communities exceeding the 15 ppb federal action level. While the required percentage replacement rate of LSLs is lower, the new LCR closes loopholes from the previous rule that led to much lower replacement rates. Further, the new rule requires full replacement of LSLs, including both the utility and privately-owned portion of the line, to count toward the replacement rate, whereas the prior rule included partial and other types of replacement in the calculation. As a result of the changes being implemented, the EPA expects annual investment in LSLs replacements to be as much as 70x higher under the new rule than the prior one.

The rule becomes effective 60 days following its publication in the Federal Register. President-Elect Joseph Biden’s administration will have the opportunity to decide whether it will allow the final rule to go into effect or if it will propose a new rule. States may pass more stringent lead water level regulations than those in the new LCR.


Douglas Scott
Managing Director, Head of US Water and Sewer Ratings
+1 512 215 3725
Fitch Ratings, Inc.
111 Congress Ave., Suite 2010
Austin, TX 78701

Sarah Repucci
Senior Director, Fitch Wire
+1 212 908-0726

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

Fitch: Pandemic Heightens ESG Labor Issues for NFP Hospitals

Fitch Ratings-New York/Austin-19 January 2021: Healthcare staff have faced unprecedented pressures during the coronavirus pandemic, with job dissatisfaction and nursing shortages potentially leading to longer-term staffing and expense pressures at US hospitals, Fitch Ratings says. Hospitals and healthcare systems’ ability to maintain adequate staffing and provide for employee safety and well-being during the pandemic has become more critical than ever. Fitch believes the importance of these labor issues to a hospital’s Environmental, Social and Governance (ESG) Relevance Score and credit has been heightened over the past year, indicating the potential for these considerations to have a greater bearing on a hospital’s rating over time.

The coronavirus pandemic has implications for healthcare employee well-being, which may be affected by cost cutting, insufficient supply of personal protective equipment (PPE) at the onset of the health crisis, greater work stress and demands and environment safety. Employees in patient-facing roles are enduring difficult conditions, leading to burnout, labor strikes, demand for higher wages and loss of staff. Fitch believes these issues could negatively affect labor relations and present longer-term challenges in attracting, hiring and retaining staff at hospitals.

The pandemic has exacerbated the widespread need for nurses, particularly those working in intensive care units, resulting in staff shortages and higher costs, which is expected to continue in the near term against a backdrop of lower revenues due to reduced elective surgery volumes. Staffing is a hospital’s largest expense, usually around 50% of total expenses. US hospitals have needed to ramp up staffing and supplies during the pandemic, and are competing for a limited supply of nurses, including more expensive contract nursing staff. These pressures are heightened for smaller rural hospitals that must staff up for increased caseloads, as rural areas typically do not have a significant supply of nurses from which to draw. Rural hospitals are challenged to compete for nursing staff and pay for overtime, traveling nurses and premium pay.

The longer it takes to effectively manage the pandemic, the more difficult it will become to maintain high staffing levels if there are recurring surges of infections, especially if the surges occur across multiple areas of the nation simultaneously. Under this scenario, fatigue will inevitably escalate among existing staff who could decide to retire early or leave the workforce due to fears of contracting the virus, or if they feel their health, well-being and safety have not been prioritized or are at risk.

The widespread availability of effective vaccines should accelerate the foreseeable end of the pandemic and mitigate staffing risk for hospitals, especially given that healthcare workers have been prioritized to be among the first recipients of vaccine doses. High inoculation rates will eventually reduce caseloads and ease pressures on staff. However, hospitals will have to face the longer-term challenge of attracting talent to an industry that already faces a labor shortfall and consider investing in programs that positively impact employees and reduce turnover to mitigate expense increases and improve clinical outcomes.

President-elect Joseph Biden’s American Rescue Plan proposes to aid the healthcare industry’s coronavirus response by providing $30 billion for supplies and PPE and investing $10 billion in domestic manufacturing of medical supplies. The plan also recommends a Covid-19 workplace protection standard that would cover a wide range of workers, including hospital staff, from unsafe working conditions and retaliation. Fitch views the healthcare priorities in the proposed plan as positive steps to help alleviate pandemic-related workplace environment challenges.


Richard Park
Director, US Public Finance
+1 212 908-0289
Fitch Ratings
2600 Via Fortuna, Suite 330
Austin, TX 78746

Sarah Repucci
Senior Director, Fitch Wire
+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: Some U.S. States Seeing Renewed Job Losses

Fitch Ratings-New York-20 January 2021: State employment improved marginally in November 2020, though Fitch Ratings’ latest U.S. States Labor Markets Tracker shows renewed job losses for some states that curbed some of the ground gained over the summer.

‘With economic activity slowing in the fall, several states have recovered less than 50% of the jobs lost at the peak of the pandemic,’ said Senior Director Olu Sonola. Among those states are Minnesota, Oklahoma, Massachusetts, Delaware, New York, Wyoming, New Hampshire, Illinois, California, New Mexico, North Dakota and Hawaii. Additionally, Fitch Ratings-adjusted unemployment rates for Massachusetts and California are more than 5.0 percentage points (pp) higher than their respective official unemployment rates.

Employment losses are still largely dominated by the leisure and hospitality industries, representing 36% of all job losses at November 2020, despite making up only about 11% of total employment before the onset of the pandemic. These sectors continue to show significant signs of weakness, given government travel restrictions and consumer reluctance to travel. Fitch anticipates sector weakness is likely to persist for several years.

Fitch’s latest ‘U.S. States Labor Markets Tracker’ is available at ‘’.


Olu Sonola, CFA
Senior Director
+1 212 908 0583
Fitch Ratings, Inc.
300 W. 57th St.
New York, NY 10019

Arthur Tildesley, CFA
Associate Director
+1 646 582 4749

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

Additional information is available on

S&P Outlook For U.S. Water And Sewer Utilities: 2021 Provides 2020 Hindsight

Sector View: Stable

The negative pressures from COVID-19 may take longer to present themselves, if they materialize at all. Many factors that steadied ratings in 2020 might be less of a factor in 2021, depending on both the recovery and additional federal actions; still, just enough positives exist to lend rating stability.

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S&P Outlook For U.S. Public Finance Housing: Sheltered From The Storm

Sector View: Stable

Our view on the sector has shifted to stable based on a demonstrated combination of organizations’ credit fundamentals and direct support: the financial strength and resilience of housing issuers, near-term government support helping to stabilize at-risk households’ finances and added funding for institutions. While we expect unemployment levels to remain elevated through 2021 and the evolution of the pandemic remains uncertain, we expect most housing entities will experience minimal credit pressures. Certain subsectors may even receive additional support from the new administration.

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21 Jan, 2021

S&P Credit FAQ: What The Latest COVID-19 Economic Relief Bill Means For U.S. Public K-12 Schools

Key Takeaways

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21 Jan, 2021

Study Examines How Clean Air Act Affects Municipal Bond Market.

Research has studied the effects of climate risk on financial markets, but few studies have addressed the effect of environmental policy on those markets. A new study examined whether federal policy aimed at mitigating local air pollution–specifically, the Clean Air Act–affected the municipal bond market from 2005 to 2019. The study concludes that increases in regulatory stringency or uncertainty over future environmental policy increased the cost of municipal debt used to fund infrastructure and other projects. The findings have implications for policy, including the risk that environmental regulations could jeopardize local governments’ ability to raise capital for critical infrastructure.

The study, by researchers at Carnegie Mellon University (CMU), appears as a National Bureau of Economic Research working paper.

“Our work provides the first empirical evidence that environmental policy affects municipal bond yields, and thus, the cost of raising funds for providing essential local public goods, such as hospitals, schools, and roads,” explains Akshaya Jha, assistant professor of economics and public policy at CMU’s Heinz College, who coauthored the study. Researchers selected the Clean Air Act to study, in part because it is one of the most significant federal interventions into markets in the postwar period. In 2010, annual pollution-control expenditures required to comply with the act were roughly $3 billion, with annual benefits of the act more than $200 billion.

A central part of the Clean Air Act is the National Ambient Air Quality Standards (NAAQS), through which the U.S. Environmental Protection Agency (EPA) sets maximum allowable concentrations of local air pollutants. Establishing the NAAQS is a two-pronged process. First, the EPA announces a proposed rule. Then, after a public comment period, the final NAAQS are announced.

Counties with pollution levels above the final NAAQS in any given year are deemed to be in nonattainment. While the EPA sets the standards, state and local governments are responsible for establishing plans to ensure compliance. Often, compliance mandates that polluting firms in local jurisdictions reduce emissions levels, which can be costly.

Researchers collected secondary market data on municipal bonds from the Electronic Municipal Market Access database. Municipal bonds are issued by local governments, and are typically used to finance projects like schools, roads, and infrastructure. These data comprise secondary market trades in the U.S. municipal bond market, including more than 140 million trades from 2005 to 2019. The study examined only municipal trades that could be linked to a county and focused on regulations targeting ground-level ozone, resulting in more than 81 million trades corresponding to roughly 3,000 counties.

The study concluded that:

Municipal bond yields increased in response to the announcement of the proposed rule but declined after the announcement of the final standard. This suggests that investors require higher returns to be compensated for the uncertainty induced by the announcement of the proposed rule; this uncertainty is resolved with the announcement of the final rule, lowering the returns necessary for investors to hold the bond.

Around annual compliance announcements, yields fell for counties that remained in compliance but increased for newly noncompliant counties. This suggests that investors perceived that municipalities facing nonattainment had a higher default risk.

Yields were substantially higher for bonds from counties just above the relevant ozone standard than for bonds from counties just below the standard. This suggests that increases in regulatory stringency or uncertainty over future environmental policy increased the cost of municipal debt raised.

A growing body of research has documented that climate risk has been priced into financial markets. “Our results for local air pollution regulations suggest that any cost-benefit analysis of new climate policy must consider the impacts on financial markets of both extreme weather events and the costs associated with complying with the new policy,” notes Stephen A. Karolyi, assistant professor of finance and accounting at CMU’s Tepper School of Business, who coauthored the study.

Because municipal bonds are used to finance local public goods, such as schools, infrastructure, and health care facilities, distortions to municipal bond yields might jeopardize local governments’ ability to raise capital, the authors suggest.

“Our findings should be part of a policy debate regarding the tradeoffs inherent in providing local public goods and federal-level environmental regulations,” suggests Nicholas Muller, associate professor of economics, engineering, and public policy at CMU’s Tepper School of Business, the study’s other coauthor.



How Biden's Stimulus Plan Could Impact Municipal Bonds.

Nick Venditti, Wells Fargo Asset Management senior portfolio manager, discusses what the Biden administration’s $1.9 trillion stimulus plan means for the municipal bond market. He speaks with Bloomberg’s Taylor Riggs on “Bloomberg Markets: The Close.”

Listen to Audio.

Bloomberg Markets

January 22nd, 2021

CUSIP Request Volume Surges in December, Driving Total 2020 Volumes for Corporate and Municipal Securities Above 2019 Totals.

Volatile 2020 Ends with Municipal Volumes Up 10% and Corporate Volumes Up 7%

NEW YORK, Jan. 19, 2021 /PRNewswire/ — CUSIP Global Services (CGS) today announced the release of its CUSIP Issuance Trends Report for December 2020. 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 increase in request volume for new corporate and municipal identifiers. On a year-over-year basis, total CUSIP request volume for corporate and municipal securities surpassed those seen in 2019.

CUSIP identifier requests for the broad category of U.S. and Canadian corporate equity and debt totaled 4,177 in December, up 6.4% from last month. On a year-over-year basis, corporate CUSIP requests are up 6.9%. The December 2020 monthly volume increase was focused in U.S. corporate equity, which climbed 24.0% versus November 2020 totals.

Municipal volume also increased in December. The aggregate total of all municipal securities – including municipal bonds, long-term and short-term notes, and commercial paper – rose 12.6% versus November totals. On an annualized basis, municipal CUSIP identifier request volumes are up 10.1% through December. On a state-by-state basis, issuers in Texas requested 99 new municipal identifiers in December, followed by New York with 89 and California with 75.

“While it has clearly not been a straight path to this point, overall CUSIP request volume across nearly every major asset class ended 2020 considerably higher than last year,” said Gerard Faulkner, Director of Operations for CGS. “Month-to-month results showed significant volatility throughout the year, but when the dust settled, we ended the year with a 10% increase in municipal request volume and a 7% increase in corporate request volumes, which is a real testament to the efficiency of our financial markets during a period of extreme uncertainty.”

Requests for international equity and debt CUSIPs both rose in December. International equity CUSIP requests were up 3.4% versus November. International debt CUSIPs increased by 10.5% on a monthly basis. Syndicated loan requests were up 63.7% on a monthly basis and down 23.3% year over year.

To view the full CUSIP Issuance Trends report for December, click here.

Struggling Local Governments May Get Help From the Private Sector.

As their fiscal woes become worse, some government officials are looking more closely at public-private partnerships as a way to jump-start their economies.

For state and local governments, the pandemic has brought financial gloom: Tax collections are down, public health expenses are up, and their infrastructure backlog is growing. Hope for swift relief from Congress was dashed late last year when the Senate refused to go along with a House plan to bolster state treasuries.

For developers and real estate investors, it all spells opportunity.

The fiscal challenges could spur new ways for the private sector to collaborate with state and local governments, said Gabriel Silverstein, managing director of SVN Angelic, a real estate investment and advising firm in Austin, Texas.

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The New York Times

By Miranda S. Spivack

Jan. 19, 2021

Treasury Nominee Voices Support for State and Local Relief Funding.

Janet Yellen also said during a confirmation hearing that a cap on the federal deduction for state and local tax payments should be studied more before any changes are made to the policy.

The federal government will need to “act big” to address the financial fallout from the coronavirus pandemic and efforts should include funding for state and local governments, said Treasury Secretary nominee Janet Yellen during a Senate confirmation hearing Tuesday.

Acknowledging the country’s growing debt burden, Yellen told the Senate Finance Committee that the benefits of funding a robust recovery plan “will far outweigh the costs.” She also suggested that it would not be a good time to withhold funding from states and localities.

“Over the next few months, we are going to need more aid to distribute the vaccine; to reopen schools; to help states keep firefighters and teachers on the job,” Yellen said during her opening remarks. “We’ll need more funding to make sure unemployment insurance checks still go out; and to help families who are at risk of going hungry or losing the roof over their heads.”

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Route Fifty

By Andrea Noble,
Staff Correspondent

JANUARY 19, 2021

Is Economic Rebound Certain for Local and State Governments in 2021?

The U.S. local and state economies contribute over 10% to the national GDP, and their economic recovery will certainly determine the fiscal path of our national economy

In spite of an ongoing pandemic and economic halt, local and state governments are optimistic about an economic rebound in 2021. Primarily, this optimism can be attributed to widespread vaccination efforts and, more importantly, a political shift that has awarded all three branches of government to a single party, which may be seen as an avenue to get various economic legislations passed with ease to bring the economy back on track. Furthermore, the recent talks of the new administration about additional federal stimulus involved prioritizing the fiscal health of local economies, economic recovery, and preventing further job losses.

In this article, we will take a closer look at the upcoming initiatives of the federal government and how they will likely impact local and state economies.

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by Jayden Sangha

Jan 21, 2021

Buttigieg Touts Benefits of Advance Refundings in Confirmation Hearing.

Yesterday, Transportation Secretary Nominee Pete Buttigieg touted the benefits of advance refundings Senate Committee on Commerce, Science, and Transportation confirmation hearing, a top priority for the BDA.

Senator Roger Wicker (R-MS), lead sponsor of Senate legislation last year that would reinstate municipal advance refundings, asked the former Mayor of South Bend, Indiana if he would be in support of such a measure.

Buttigieg responded by stating:

“In terms of stretching local dollars, one thing we found in past eras where interest rates were dropping is that the use of advance refunding techniques allowed state and local governments to refinance at lower interest rates, while still holding harmless the holders of the bonds. As mayor few things gave me more fiscal pleasure than to find that we could save taxpayer dollars by refunding previously existing debt especially since we do our accounting on a cash basis. This holds a lot of promise for relief to local governments.”

The BDA continues to press Congress and the new Administration to reinstate municipal advance refundngs and incorporate bond provisions into any infrastructure package.

Last week, the BDA wrote to the Biden transition team, laying out priorities for the new Administration.

The letter can be viewed here.

The BDA will continue to provide updates as they become available.

Bond Dealers of America

January 22, 2021

The Best Tax-Free Municipal Bonds For 2021.

The yield on the 10-year Treasury is exhausted after its epic run to nearly 1.2%. It’s due for a breather.

Anyone who buys the long bond today can still “lock in” a 1.1% yield. But remember, this bounty won’t escape the tax man. Any interest income we earn from Treasuries—no matter how sad—is subject to federal and state taxes.

So, if we’re multiplying your nest egg (let’s use $500K) by 1.1%, we must remember that the final answer is probably not $5,500 in annual income. Because if we’re raking in income from any other sources, we should lop off a chunk of this for taxes.

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by Brett Owens

Jan 21, 2021

Prospects Brighten for State and Local Aid from Washington.

With Democrats in control of the Senate and the rest of Washington, further stimulus is a near-certainty. State and local aid, which has been held up by the GOP, will be part of the mix.

Washington is suddenly looking more generous. Last Tuesday’s elections in Georgia gave Democrats control of the Senate. That means, among other things, there’s new hope that Congress will provide additional aid to states and localities.

“There will be another bill,” says Patrick Murphy, vice president of public finance at Arnold Ventures, a philanthropic foundation. “I don’t question that now.”

What an aid package will look like, however, is anyone’s guess. Over the past year, congressional Republicans and Democrats have remained far apart on the issue. Back in May, House Democrats passed the Heroes Act, a COVID relief package that included $1 trillion for state and local governments. Senate Majority Leader Mitch McConnell balked, at one point suggesting that states having problems should declare bankruptcy.

But McConnell will no longer be running the Senate. That means the prospects for additional aid, which were starting to look like a dead issue, have suddenly brightened. Once Kamala Harris is sworn in as vice president, she will provide the tie-breaking vote in a chamber that will be split 50-50 after the Georgia results are certified (which will happen no later than Jan. 22).

“There are very basic things that states need to survive right now that are possible tonight that were not possible this morning,” Anne Caprara, chief of staff to Illinois Gov. J.B. Pritzker, tweeted in response to the Georgia Senate results. “These races really were that consequential.”

Struggling states, cities and counties shouldn’t count on an enormous windfall. The fact that the stock market has held up and the economy has recovered more rapidly than anticipated in the spring means that the revenue picture is now better than anticipated. “It’s not just that some states are doing better than they expected based on forecasts there were developed at the darkest point economically,” says Tracy Gordon, a senior fellow with the Urban-Brookings Tax Policy Center. “Some states are doing better than they were the previous year.”

That’s a minority of states, Gordon points out. And, even though revenues aren’t as bleak as they once appeared, expenses continue to mount, given demands on unemployment, health and other social service programs.

In December, state and local governments shed 52,000 jobs, bringing the total number they’ve lost since the pandemic to nearly 1.4 million – almost double the amount following the Great Recession.

“Even though revenues might look a little bit better, that doesn’t account for the unbudgeted expenditures that cities are making, such as buying personal protective equipment and paying for people to make sure restaurants are in compliance,” says Michael Wallace, a legislative director for the National League of Cities. “Funding for existing priorities got shifted into things like that.”

But a fiscal picture that is muddy rather than drastic has dampened congressional interest in making states and localities a priority. Economists generally agree that aid to lower levels of government is among the best ways to boost the economy during a recession, having a multiplier effect on economic activity, but members of Congress are always reluctant to raise revenues and then let someone else spend it. That’s a bipartisan reality.

Democrats will hold the Senate by the narrowest possible margin. It’s likely that they’ll have to give in to some Republican demands, assuming aid is passed as part of normal legislation that would need 60 votes to break a filibuster. “Yes, the Democrats have the Senate now, but it’s the slimmest of slim margins,” Murphy says, “and that means that compromises have to be made.”

Still, anything is better than nothing, which might have been the continuing story if Republicans had held onto the Senate.

“It’s been made pretty clear that Senate Democrats in particular are looking at ways to include state and local government aid in the next (relief) bill,” says Dan White, director of fiscal policy research with Moody’s Analytics, a financial research firm. “There are a lot of blue-state senators whose states are being badly hurt.”

Don’t Spend It All in One Place

Last month, McConnell made clear his opposition to handing governors a blank check. Particularly Democratic governors. “Democrats are acting like it’s more important to supply the governor of California with a special slush fund than to help restaurant workers in California keep their jobs,” he said last month during floor debate over the most recent stimulus bill.

McConnell is not alone in holding that kind of attitude. Xavier Becerra is Joe Biden’s pick for Health and Human Services secretary. The last time a Democratic administration took power, back in 2009, he was vice chair of the House Democratic Caucus. He warned Obama administration officials against direct aid to states. “A lot of us were saying, don’t give the governors slush funds,” Becerra said, according to Michael Grunwald’s book about the 2009 stimulus package, The New New Deal.

Becerra will no doubt be on board this time around. Biden wants to see additional aid to states and localities.

Perhaps as important, Joe Manchin supports the idea. Manchin is considered the most conservative Democratic senator, so his vote will be the chamber’s tipping point. Manchin, a former West Virginia governor, cosponsored multiple attempts to provide aid to states and localities last year, including initial provisions in the stimulus package enacted last month.

Although that package did not end up including direct aid, it did provide substantial money for state and local functions. Notably, it provides $82 billion for K-12 and higher education, as well as $20 billion for states to fund vaccine distribution.

That’s $100 billion states won’t have to spend on those programs. “Money’s fungible,” Murphy says. “That’s money they can use for something else.”

In addition, states and localities will benefit from additional dollars provided by the package in areas such as unemployment, small business loans, rental assistance and stimulus checks. They aren’t receiving that money directly, but it will all lead to more spending and other activity that can be taxed.

How Much Do They Need?

The trillion-dollar figure in the Heroes Act didn’t appear out of thin air. Last spring, there were various estimates that showed states, cities and counties were collectively looking at shortfalls of that magnitude over a three-year period.

The combination of earlier rounds of federal stimulus, the fast-recovering stock market and the fact that the pandemic’s economic effects have fallen hardest on low-income workers has kept revenues from declining as steeply as initially expected.

“The economy is performing much better than people thought,” Gordon says. “In July, the Congressional Budget Office forecast that personal income would be down 6 percent in the third quarter, but in the actual data it was down by about 2 points.”

In December, Moody’s Analytics estimated that state and local governments faced total shortfalls for fiscal 2020 through 2022 of about $170 billion, after accounting for their own reserves and the federal aid they’d already received. The money from the most recent stimulus package brings the amount needed to stave off spending cuts and tax increases below $100 billion, White says. “There’s still need, but nowhere near a trillion,” he says.

Not all Republicans oppose additional aid. State and local government groups stress the need to work with members of Congress from both parties. “We expect to work very closely with them on both sides, to make sure they’re aware of the shortfalls cities face and what layoffs are going to mean for the broader economy,” says the NLC’s Wallace.

Sen. Bill Cassidy of Louisiana has probably been the leading GOP proponent of assisting states and localities. “If we do not provide stability for states, we risk wasting all the money spent to save small businesses,” he wrote last May. “These small businesses need basic government services.”

At the time, Cassidy was introducing a bill to provide $500 billion in state and local aid. He was part of the bipartisan group with Manchin that developed the framework for the most recent stimulus, which in their version would have provided $160 billion in aid.

The total figure may yet be revised downward. Many lawmakers, including Cassidy, will want to put guardrails on the money, to make sure that state and local governments don’t use emergency aid to backfill chronic problem areas, such as pensions.

“The substance of state and local aid will be debated, but its prospects are going to depend on the menu of the various other things that are being negotiated,” says Scott Pattison, deputy executive director of the Multistate Tax Commission. “With some Republicans supporting aid, they will have other demands that will be pushed.”

When state and local governments were left out of the December package, it looked like they had missed the last train out of the station. Now, with Democrats controlling all of Washington, further stimulus is a near-certainty.

With a 50-50 Senate, there’s no margin for error. Some money for states and localities will be part of the next package, but it will end up being a lot less than they’d hoped for last year.

“I don’t think having a razor-thin Democratic majority in the Senate means we’re barreling ahead and doing something like the Heroes Act,” Gordon says. “Conditions have changed and a trillion dollars isn’t called for now.”



Biden Relief Plan Tosses $350 Billion Lifeline to States, Cities.

President-elect Joe Biden’s $1.9 trillion relief plan would provide a major financial rescue for states and cities, eliminating the need for deep budget cuts that would weigh on the recovery and easing the risk in the municipal-bond market.

The measure proposes $350 billion of emergency aid to states and local governments, enough to more than cover the immediate budget shortfalls caused by shutdowns to contain the virus. It would also extend $20 billion to public transit agencies like New York’s Metropolitan Transportation Authority, the subway and bus operator whose revenues have been decimated as Americans work from home.

“The top-line number is more than enough for what states and cities would need,” said Dan White, director of public sector research for Moody’s Analytics.

The move to help local governments marks a sharp break from the Trump administration, which characterized such efforts as a bailout for Democratic strongholds even though the economic impacts are distributed broadly around the nation. With business shutdowns threatening to reduce tax collections, states and localities have already eliminated nearly 1.4 million jobs since the pandemic struck, far more than were cut in the years after the Great Recession.

The prospect of more aid once Biden takes office and Democrats control the Senate was welcome in the municipal-bond market, which was battered by a selloff early last year amid concern about how badly tax collections would be hurt. The extra yield that investors demand to own the bonds of some of the most financially strained borrowers — including Illinois, New Jersey and New York’s MTA — has dropped, indicating that investors are pricing in less risk. In the week through Wednesday, a record amount of cash flowed into mutual funds focused on high-yield municipal bonds, according to according to Refinitiv Lipper US Fund Flows data.

The aid in Biden’s plan is far less than the $1 trillion approved by House Democrats last year, and Goldman Sachs Group Inc. estimated it may be pared back to about $200 billion given that Senate rules may require it to receive some Republican support. Barclays Plc strategists also said that the Biden plan may be difficult to pass in its current form.

“I don’t have high hopes that it’s actually included in any package that’s passed in the spring,” said White, the Moody’s analyst.

The previous federal stimulus measures have helped to prop up state and local tax revenue by jolting the economy, leaving governments facing smaller budget shortfalls than were projected early in the pandemic.

State tax revenues increased 5.6% in November compared to a year earlier, according to preliminary data from 46 states compiled by the Urban Institute.

That means even a pared back aid package may go far. Moody’s Analytics had estimated that aid of about $80 billion to $100 billion could cover the firm’s forecast for the shortfall facing states and local governments through mid-2022.

“Any direct relief for state and local governments is going to be a positive,” said Jeffrey Lipton, a managing director and municipal debt analyst for Oppenheimer & Co.

Bloomberg Politics

By Amanda Albright

January 15, 2021, 10:15 AM PST

— With assistance by Shruti Singh

American Cities See Their Luck Turn With a Biden Administration.

Local government aid in Joe Biden’s proposed stimulus bill is the latest bright spot for cities and states that were treated as adversaries during the Trump administration.

America’s states and cities are emerging from political exile.

President-elect Joe Biden’s proposed cabinet includes at least six officials who have led municipalities or states, like former South Bend Mayor Pete Buttigieg and Rhode Island Governor Gina Raimondo. That’s in sharp contrast to President Donald Trump, whose cabinet relied heavily on corporate and industry insiders.

On Thursday, state and local leaders got a glimpse of what an ally in the White House could mean. Biden outlined an economic stimulus package that would provide $350 billion in aid to municipal governments. Such help was a major roadblock in stimulus negotiations in 2020, with Trump repeatedly characterizing it as a bailout for Democratic states like Illinois.

The sea change comes after four years of political attacks by the Trump administration on what he has called “Democrat-run cities” that have had real-world impacts, from Covid-19 aid to more regional issues like stalled funding of the Gateway rail tunnel to link New York and New Jersey. Mayors have spent years sparring with the White House over its immigration policies, and after protests over police brutality and racism in 2020, his administration labeled cities like New York City “anarchist jurisdictions” and threatened to withhold federal funding.

“It’s no secret that the outgoing administration did not view cities, for the most part, favorably,” said South Bend Mayor James Mueller. He said he hopes Biden’s cabinet picks like Buttigieg, who Biden nominated to lead the Department of Transportation, are a signal that cities “will be treated better” under the new administration.

Covid Relief

The most immediate issue that mayors and governors are pressing is budgetary relief to ease the economic fallout from the pandemic, which has crimped local tax revenue while increasing costs for services. In a Jan. 13 letter to Congress, the American Federation of State, County and Municipal Employees and other groups pushed for the passage of $1 trillion in emergency funding for states, cities, towns and schools.

Biden’s plan would send $350 billion to state and local governments, more than double the $160 billion that a number of Republican members of Congress had backed late last year in a bipartisan compromise proposal.

Federal relief measures so far have supported municipal tax revenues indirectly by propping up consumer spending and small businesses, but local officials have warned that the outlook is uncertain as the pandemic continues to spread, signaling more shutdowns and economic pain to come. Tax collections also tend to lag economic conditions.

Kathy Maness, president of the National League of Cities, said she was encouraged by Biden’s choice of leaders who come with an understanding of state and local issues. “They get it,” said Maness, a town council member for Lexington, South Carolina. “They get what it’s like to run a city.”

Roads and Bridges

Mayors and governors also are looking for the Biden administration to push forward a comprehensive federal infrastructure package, something that Trump promised during his first presidential campaign but failed to deliver.

“If you listen to localities you’re going to learn things,” said Henry Cisneros, a former mayor of San Antonio, Texas, and former secretary of the Department of Housing and Urban Development. “And I think this administration has put people in place, like Pete Buttigieg, who understand that.”

Buttigieg has already said he’ll bring a “mayor’s perspective” to the job and touted his focus on infrastructure as a tool to revive South Bend after the 2008 recession.

Raimondo, who Biden is nominating to lead the Commerce Department, is also seen as an infrastructure advocate. As governor of Rhode Island, she spearheaded an infrastructure plan financed by tolling commercial trucks. Boston Mayor Marty Walsh, Biden’s nominee for Labor Secretary, is the focus of a new 4.5-hour Frederick Wiseman documentary that puts a spotlight on the efficacy of local government. The cabinet nominations also include U.S. Representative Marcia Fudge, former mayor of Warrensville Heights, Ohio, Tom Vilsack, former governor of Iowa, and Jennifer Granholm, former governor of Michigan.

Adie Tomer, who leads the Metropolitan Infrastructure Initiative at the Brookings Institution, said he expects that the Biden administration may foster an array of “pro-metropolitan” policies. That will also be a way for Biden to deliver benefits to his electoral base in big cities like Atlanta, he said.

It will help that Buttigieg and the other nominees with mayoral and gubernatorial experience may also have a strong network of local officials that they can draw on, Tomer said.

“There’s not going to be an adversarial relationship,” he said. “They’re going to be really excited to work with the Biden administration.”

Bloomberg CityLab

By Amanda Albright

January 15, 2021, 8:00 AM PST

Biden Calls for $350 Billion in State and Local Aid as Part of Massive Stimulus.

The president-elect released details on Thursday for a $1.9 trillion coronavirus relief package.

President-elect Joe Biden is urging Congress to provide state, local and territorial governments with $350 billion in emergency aid, along with billions of dollars in assistance for schools and transit, as part of a sweeping coronavirus relief package that he unveiled on Thursday.

The $1.9 trillion proposal also outlines plans for putting $20 billion towards a national vaccination program. Additionally, it would provide $1,400 one-time payments to many Americans whose earnings are below a certain amount, while also extending unemployment insurance programs adopted in response to the pandemic and boosting them with a $400 per-week supplemental payment.

“We need to move quickly, we need to move fast,” the president-elect said during a speech about his proposal on Thursday evening.

Biden also wants to see the federal minimum wage raised to $15 an hour from the current level of $7.25. Many cities and states have taken action in recent years to raise their minimum wages to that level.

On the education front, Biden is calling for $130 billion to help K-12 schools reopen safely and $35 billion for a higher education relief fund directed at public institutions, including community colleges. Biden has set a goal of reopening the majority of the nation’s kindergarten through 8th grade schools within his administration’s first 100 days.

The scale of what he is proposing is substantial compared to earlier relief packages. The law known as the CARES Act, approved in March, totaled about $2 trillion. A more recent deal that President Trump signed into law at the end of December was around $900 billion.

Some Republicans were quick to knock Biden’s proposals.

Rep. Kevin Brady, of Texas, the top Republican on the House Ways and Means Committee, called the plan an “economic blind buffalo that does nothing to save Main Street businesses, get people back to work, or strengthen our economy.”

Florida Sen. Marco Rubio said on Twitter that Biden “knows the plan he outlined tonight can’t pass ‘quickly'” and that pushing all of it together would delay the proposed $1,400 payments to individuals.

“Let’s get the extra money to people first,” added Rubio, who is among the Republicans who have backed $2,000 payments to individuals. The last round of relief legislation included payments topping out at $600.

A description of Biden’s new plan says the $350 billion in proposed emergency funding for states, localities and territories would help them keep public workers on the job, distribute the vaccine, scale up virus testing, reopen schools and maintain other services.

There’s also $20 billion in the plan for public transit agencies that have seen ridership and fare revenue plummet due to the virus outbreak.

Biden said during his remarks that he and Vice President-elect Kamala Harris have been speaking with county officials, mayors and governors of both parties on a regular basis. “We’re ready to work with them, help them get the relief they need,” he said.

The U.S. Conference of Mayors on Thursday night welcomed the president-elect’s proposal and said they were briefed on it earlier.

“Cities of all sizes must have direct, flexible assistance so that they can be a driver rather than a drag on America’s recovery,” the group’s president, Louisville, Kentucky Mayor Greg Fischer, said in a statement. “President-elect Biden has made clear he intends to solve this crisis, and mayors are grateful for his leadership,” he added.

Including the funding for the vaccination push, Biden is proposing about $160 billion of spending centered around a slate of public health efforts to battle the virus, such as expanded testing and a public health jobs program. His overall plan also calls for $30 billion in rental and utility assistance for households.

There’s a raft of other proposals as well, ranging from bolstered food assistance for struggling families, to support for child care programs, and billions in loan and grant offerings for small businesses.

Prior Stumbling Block

Disagreements between Democrats and Republicans about whether to provide state and local governments with additional direct aid was a major stumbling block in the negotiations that culminated in the coronavirus relief package Trump signed at the end of December.

Many Republicans have balked at the idea of doling out more federal cash to states and localities to help them deal with the costs and lost revenue brought on by the pandemic, arguing in some cases that it would amount to a “bailout” for states with poorly managed finances.

Democrats, on the other hand, have been supportive of providing the aid, which state and local government advocacy groups have pushed for and which some economists say will help with the nation’s financial recovery from the virus.

Biden’s term will begin as the political dynamics in Congress have changed. After two Democrats won runoff elections in Georgia this month, Democrats gained a slim advantage in the U.S. Senate. The chamber will be divided 50-50 between the two parties, but Democrats can count on a tiebreaker vote from Harris.

Democrats already controlled the House.

The most recent federal relief legislation included significant aid that will help state and local finances—for example, $54 billion for K-12 schools, $22 billion for higher education, around $14 billion for struggling transit systems, and funding for vaccine-related initiatives.

Other assistance to households and businesses included in the law is expected to boost state and local tax revenues.

But the December package did not include another big pot of money like the Coronavirus Relief Fund that was part of the CARES Act, the relief measure passed in March. That fund provided $139 billion for states and larger-sized local governments.

States and localities used the CARES Act money to help pay for a wide range of public health and economic relief programs. Officials say the aid helped them cover costs that otherwise would have been difficult to afford. At the same time, however, they have complained that the rules for how the money could be used were too rigid and that smaller communities didn’t receive direct allotments.

In many cases, state and local tax revenues have exceeded the dismal projections that forecasters first issued after the coronavirus hit. But conditions vary between states, and those that rely heavily on revenues like sales taxes or whose economic fortunes are yoked tightly to tourism, gas and oil production, or parts of the service sector with high unemployment tend to be struggling more.

“States are continuing to face fiscal stress,” Shelby Kerns, executive director of the National Association of State Budget Officers, said Thursday during an event held by the Volcker Alliance.

Meanwhile, there’s still a great deal of uncertainty about how bad the financial fallout from the virus will be at the local government level.



JANUARY 14, 2021

BDA Calls on Biden Administration to Support and Embolden Municipal Bonds.

Today, the BDA submitted a letter to President-Elect Joe Biden outlining the importance of the tax-exemption and discussed municipal market priorities that his administration should consider as they begin work on an infrastructure and public works plan.

The letter can be viewed here.

Beyond calling on the administration to embrace and embolden tax-exempt municipal financing, the BDA reiterated the need for the administration to support common-sense legislation that will:

The BDA continues to advocate for these municipal market priorities on the Hill and will provide updates as they come available.

Bond Dealers of America

January 13, 2021

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