While municipal bond volume was essentially flat by par value in 2014, there were significant variations from sector to sector.
Education was down 5% and healthcare slipped 14%. On the other hand, general purpose was up 6%, utilities grew 15% and public facilities expanded 26%.
The sectors' relative strengths or weaknesses should be thought of in the context of the refundings that took place in the second half of the year due to falling interest rates, according to Citi senior municipal strategist George Friedlander.
The sectors that do long-duration, project-related issuances were where most of the refundings took place, he said.
This explanation helps to explain why utilities issuance was up, Friedlander said.
Most of it was refunding. Whereas overall issuance was up 3% in the third quarter and 30% in the fourth quarter, the figures for the utilities were 42% and 80%, respectively.
Bank of America Merrill Lynch head of municipal bond research Phil Fischer agreed that refundings were the explanation.
Education bonds usually have comparatively short maturities, making them unlikely to refund, which contributed to the sector's decline, he said.
"Many enterprise systems — water, sewer, electric, transportation — need infrastructure improvements that can't be deferred any longer," said Evercore director of municipal research Howard Cure.
"This could be driven by either government mandate, as in consent decrees by the federal government, to upgrade water or sewer systems, or a need to address neglected infrastructure before it becomes a safety hazard such as crumbling roadways and bridges," he explained.
The healthcare sector was down due to uncertainties connected with the Affordable Care Act and an excess of brick-and-mortar buildings due to an increasing emphasis on outpatient care, Friedlander said.
The excess of all these buildings was also connected with the large number of mergers that are continuing in the sector.
Many states have pulled back on education funding since 2010 said BMO Capital Markets managing director Justin Hoogendoorn.
Besides the shifts in sectoral issuance, in 2014 there were many sharp twists in the subsectors.
In the utilities sector, the gas subsector went up 720% by par value.
The substitution of natural gas for coal, which has been going on for a while, picked up pace in the year, Fischer said.
Much of this work required municipal bonds.
Also in utilities, state agencies issuance went up 95% and that of districts went up 64%.
By comparison, in the same sector issuance went down 67% in counties and parishes.
Friedlander tied this to the second half's refunding surge. Much of the utilities issuance from the counties and has short maturities and is unlikely to be refunded, he said.
In the public-facilities sector, stadium and sports complex issuance was up 218% in 2014.
There's an expanding interest in building public facilities to support public interest in sports, Fischer said. Refinancing may have been a factor in this growth, he added.
In the transportation sector, the toll roads, highways and streets subsector grew by 21%.
Since the transportation trust fund is driven by the federal fuel tax and is running a deficit, there is less money from the federal government for transportation, Cure noted.
"State and local governments resorted to debt financed by increases in various transportation-related taxes and fees," he said.
There have been several new toll projects that have just started, Friedlander said. States felt a little flusher with money and because of this, they did more highway financings. Finally, many toll road bonds have long maturities and were refunded.
Fischer had alternate explanations for the bond volume growth for toll roads, highways and streets. Public-private partnership activity is growing, he said. There is a great need for a variety of types of infrastructure and bonds provide three quarters of the finances for infrastructure.
Higher education issuance was down 21% since the sector is seeing fewer students enroll due to demographic and cost factors, Friedlander said.
"While colleges want improved facilities in order to compete, they have to weigh that against the continued pressure to balance financial operations, particularly where schools are increasing the amount of financial aid in order to fill seats," Cure said.
In the education sector, taxable issuance was down 61% in the year, compared to a decline of 30.7% for all municipal bonds. The overall decline was because munis' ratios to Treasuries were down, Fischer noted.
The universities' taxable issuance was down even more because they have greater than average flexibility about their issuance, he said.
Finally, in the education sector, district issuance was up 18% by par value and nearly 4% by number of issues, even as par value and number of issues were down in the education sector. Friedlander said school districts were replacing obsolete schools for kindergarten to 12th grade schools.
