Week of 11/8/2021

Voters Decide… New and Renewed Administration For States And Cities… Chicago Stable Outlook Consensus… Fed’s Tame Taper…Historic Infrastructure Funds At Hand…

Voters Decide… Voters approved less than half of bond measures listed on last Tuesday’s ballots. Municipal Bond measures on the ballot, total $27 billion, are about half of last year’s level. Bond measures on the ballot were to the lowest since 2017. At least $5.1 billion of new bonds sought by local government officials were struck down on election day. New bonds for schools struck a sour note with Texas voters, as a $1.2 billion bond for school construction in Fort Worth, TX and a $727 million bond for a Leander school was rejected. A $190 million bond plan for a new arena did not curry favor with Denver voters. Voters found reason to splurge on public water systems and flood mitigation projects approving large scale bond issues in Virginia and Idaho. A climate conscious ‘Green Amendment’ to New York’s Bill of Rights received overwhelming approval, while a measure that could have relaxed voting rules in New York City did not pass muster. Detroit will look for more affordable housing options per voters’ decision. Voters expanded government authority to sell bonds to develop transportation or infrastructure in Texas. New muni bonds to boost city pensions were approved by voters in Norwich, CT. What merited voters’ positive consideration is low interest rates, as the borrowing could cost a pittance at about 3% weighed against the pension fund’s 6.25% long term return target. Americans took to the ballots to weigh in on crucial decisions ranging from debt and pensions to affordable housing, rent control and climate. Fewer bond measures on the ballot, along with voters’ prudence and state and local governments’ conservative debt practices put a lid on municipal bond supply. Bond investors’ search for new tax-free bonds is not getting any easier.

New and Renewed Administration for States and Cities… Policy decisions come on the heels of gubernatorial and mayor elections. In 2021, three states and 40 U.S. cities elected government administration. Governor Murphy (D) was re-elected by a narrow margin to lead New Jersey for a second term, a feat that no other democrat can claim. In Virginia, voters picked newcomer Republican Glenn Youngkin, a former private equity CEO. Governor Newsom (D) handily won California’s governor recall election. New York, Boston and Seattle ushered in new Mayors, while a run-off election will decide Atlanta’s next Mayor. In a vote of confidence, Miami voted overwhelmingly to renew the term of Mayor Francis Suarez (R). The Florida city has attracted scores of technology and finance jobs from the Northeast. Former policeman Eric Adams (D) will be the 110th mayor of New York City, as Mayor Bill DeBlasio (D) will seek the New York State governor office. “New leaders at the helm of New York state and the city have an opportunity to reset relations and collaboratively oversee initiatives that ensure the state’s economic engine remains a global business and tourist destination,” wrote S&P. State and city administration elections usher fresh debate on government revenue and spending, and are a barometer for the upcoming congressional mid- terms next year.

Chicago Stable Outlook Consensus… “They’ve gotten through the pandemic without creating additional long term pressures,” a S&P analyst praised Chicago adding “The outlook revision reflects our view of the city’s return to greater stability following the pressures created by the COVID-19 pandemic.” S&P, the third rating agency to boost Chicago’s credit outlook, has factored the recently enacted city budget including federal aid utilization before awarding its stable outlook. Referring to Chicago’s quest for structural balance, S&P noted, “there’s a clear movement in that direction.” Chicago budget director stated, “The recent acknowledgements by outside financial stakeholders confirm what we have been trying to achieve with our 2022 budget, that the city has struck the right balance of financial responsibility and investing in Chicago.”

Fed’s Tame Taper… No one was surprised that the Federal Reserve agreed to keep rates near zero and begin to wind down their $120 billion-a-month asset purchase program by about $15 billion in November and December. Fed Chair Jerome Powell tried to distance the end of tapering from potential rate hikes by noting, “We think we can be patient.” The Federal Reserve honed in on uncertainty on inflation. “Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors,” Fed Chair Powell played down the prospect of an imminent turn to raising interest rates. The Fed noted, “Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.”

Historic Infrastructure Funds At Hand… “We took a monumental step forward as a nation,” President Biden said this weekend upon the House passage of $1.2 trillion infrastructure spending bill. A bipartisan 228-206 vote approval of the plan, a crucial victory for the White House, brings funds for new roads, bridges, utilities and power grids. The package reauthorizes existing federal infrastructure programs for five years and pours in an additional $550 billion. This includes $110 billion for roads and bridges, $73 billion for power grids, $66 billion for rail projects, $65 billion for infrastructure, $55 billion for water lines, $42 billion for ports and airports, $39 billion for public transit and $7.5 billion for building a network of electric vehicle chargers. The bill doubles private activity bond caps and boosts public private partnerships. “This bill, which provides the long term certainty state departments of transportation need, encompasses many state DOT priorities,” stated the American Association of State Highway and Transportation Officials. Notably, unspent COVID-19 relief funds of around $205 billion, plus another $53 billion worth of returned jobless benefits and leftover money from other programs will be used for the infrastructure reform. The National Association of Counties stated, “The passage of the bill represents a major victory for America’s counties, which will help rebuild our nation’s infrastructure and economy by investing in locally owned infrastructure and preserving local decision making.” Massive infrastructure funds spell opportunity for the $3.9 trillion municipal bond market.

Compare 30-Year taxable U.S. Treasury yield 1.90% to 30-Year tax-exempt muni bond yield “AAA” 1.71%; “AA” 1.81%; “A” 2.07%; “BBB” 2.58%. For investors in the 35% tax-bracket, a 2.5% tax-exempt yield is equivalent to a 3.85% taxable yield. Top rated tax-free bonds yield 90% of comparable taxable U.S. Treasuries.