DALLAS – A Trump presidency will bring a reduction in the attractiveness of the municipal bond tax exemption, according to the majority of respondents to a market survey at The Bond Buyer's Transportation / P3 conference in Dallas.
When asked how attractive the municipal bond tax-exemption would be to investors given some of President-elect Trump's proposed changes to the tax code, 53% said it would be reduced though still somewhat attractive, 33% said it would be broadly the same, and 14% said it would be significantly reduced. No one thought it would have no effect.
Respondents to the Fitch Live Market Survey, conducted during a panel discussion, didn't see much change in U.S. economic performance in Trump's first year. Thirty-seven percent said the economy would see tepid growth while 35% said growth would be about the same as this year. Only 10% saw an economic contraction while 18% expected strong growth.
Members of the panel discussion included moderator David Wylie, director at John Laing; Saavan Gatfield, senior director at Fitch; Ted Hamer, managing director at KPMG, James Preusch, chief financial officer of the Alameda Corridor Transportation Authority; and Nicholas Sourbis, managing director at National Public Finance Guarantee Corp.
Several questions focused in on the uncertainty regarding economic policy following the U.S. presidential election. Hamer said he expected little change to be felt in the market.
"As we look ahead to 2017 as to what the new administration may or may not do, it's anyone's guess right now," he said. "By and large, 'the status quo will prevail' is probably a safe assumption."
Respondents were evenly split when asked how confident they were that Trump would honor his promises on infrastructure investment in the U.S. over the next few years. Thirty-two percent said they were somewhat confident while 32% said they were not very confident; 23% were very confident and 12% said they were not confident at all.
Preusch said he came down on the side of being somewhat confident.
"I really see infrastructure as an area where it's far easier to keep the campaign commitments as to opposed to some of the other ideas that we have heard touted," he said. "This is one that for the most part is seen as a positive; it would be helpful to the economy, would be helpful to the employment and would produce benefits that are ongoing. We are still living with many benefits based on infrastructure from the Eisenhower Administration and it's time to revitalize some of that as well."
When asked which sector would be affected most positively by the new administration, 59% picked roads followed by 17% who said airports and ports; this was followed at 8% each by those who named transit and rail, water and social infrastructure.
An overwhelming 76% of the survey respondents said they expect the Federal Reserve policy makers to raise interest rates at their December meeting. Only 20% said the Fed would keep rates unchanged while 3% said the it would cut rates.
When asked how municipal bond issuance in the transportation sector will compare in 2017 with this year, 43% expected it to increase, 34% saw it falling below the 2016 level, and 16% said it would be about the same; 7% said they didn't know.
