California Seen As Tackling Infrastructure Gaps

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LOS ANGELES — California is beginning to address some key infrastructure gaps, Wells Fargo analysts said in a report.

"The state's financial position and its economy has improved since it was hard hit during the last recession, and we see the state and its issuers beginning to address some key gaps in its infrastructure," said the report, released Wednesday and authored by senior analyst Randy Gerardes.

California is the largest state by population in the United States and for municipal bond issuance generally, comprising about 13% or $54 billion of total primary market bond issuance in 2015, the report said.

"Although year-to-date issuance in the state is down 2.5% year over year, we expect the state through its transit agencies, airport authorities electric and water utilities to be active over the near term," Gerardes said.

Wells Fargo anticipates approximately $6 billion in issuance from the Los Angeles region alone over the next 12 months.

The state's financial position and its economy have improved since it was hard hit during the last recession, he said.

"We continue to be bullish on infrastructure revenue credits," analysts said. "Revenue supported credit offers investor's protection from the long-term challenges associated with post-employment benefits and offer less political risk, in our view."

Even transit agencies, which have relatively more challenges related to labor than other infrastructure sectors still offer some protection from pension and OPEB benefits challenges, the report said, because capital projects are largely funded from broad based sales taxes.

Competing government priorities continue to make revenue-supported projects and alternative project delivery methods, such as public-private partnerships, somewhat more attractive to public sector issuers.

Population growth in cities such as Bakersfield, San Jose and San Francisco are driving spending infrastructure spending, analysts said.

Analysts cited three drivers of infrastructure capital spending: managing vehicle congestion, minimizing negative environmental outcomes and modernizing to meet societal changes and increases in demand.

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Transportation industry Infrastructure California
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