Municipal participants of every stripe gathered in midtown New York on Monday to discuss topics ranging from the tax exemption to Americas infrastructure to what's worth the risk for investors.
The Bloomberg Municipal Bond Summit co-sponsored by Municipal Market Analytics began with a panel discussion on who decides and benefits from infrastructure spending and decision making and how does that influence policy around the exemption.
Matt Fabian, partner at MMA moderated the panel of Patrick Brett, managing director at Citi, Chris Hamel, managing director and head of municipal finance at RBC, and Emily Brock, director of federal liaison center for the Government Finance Officers Association.
Panelists generally agreed that it seems unlikely the tax exemption will go away completely.
"Gridlock has been a friend, there are a lot of people in the house who stand firmly dedicated to preserving the tax exemption," said Brock. "But the tone did change from before the election to after the election."
The popular topic of infrastructure was livelier, as the panel debated what can help the infrastructure problem in America.
"What is the answer to the underfunding of infrastructure? The preservation of tax exemption is core to the solution of the infrastructure problem," said Hamel. "The under-funding issue is not financing, there's loads of capital out there that's available for infrastructure. The problem is how do you pay it back? I don't have a problem with national infrastructure bank but does state and local government really need another borrowing vehicle? I am not opposed to it but frankly I don't think they do. If you talk to a P-3 sponsor and what's the first complaint? It is that there is not enough deals."
Hamel made a distinction between funding and financing.
"If you take two of out the five pillars of a P-3, design and build, you can broadly adopt procurement, lowering cost of infrastructure between 10-20%. We can do more with the same resources," Hamel said. "When it comes to local government, sometimes they don't manage long term assets well, as they have short term view and don't look 30 years plus the down the road."
Brett said that when it comes to infrastructure, we have to realize what works but also what doesn't.
"When we had Build America Bonds, only the direct subsidy was issued, no one issued the private activity bonds," he said. "There just is no market for a taxable tax credit bond."
The second panel was a buy-side discussion on whether regulation, low interest rates and reduced liquidity have changed the business model for packaging and evaluating the investment product. The panel was made up of" John Miller, co-head of fixed income and chief investment officer of Nuveen; David Hammer, head municipal portfolio manager at PIMCO; Adam Ferguson, portfolio manager at Vanguard Funds; and Rob Amodeo, head portfolio manager for municipal sector, Western Asset Management.
Discussion focused on investor concerns over general obligation bonds.
"About 95% of our funds are revenue bonds, but I think GOs have been mispriced in the muni market for a long time," Hammer said. "You get a wider value with revenue bonds and they tend to be more secure. In the stressed GOs you have seen some second guessing, but the stronger-credit GO's you don't second guess."
The topic of consolidation in the municipal pricing and indexes space came up as well, as the four panelists said they weren't changing their pricing services.
"I don't think the consolidation is necessarily a bad thing, it will just give you a more elaborate matrix," said Miller.
Amodeo said that it is hard for him to explain a change of pricing service to his clients, just because they bought the benchmark.
"I can't justify that to clients, as we have had the same pricing service for 30 years, also once you decide to change, you can't reserve that decision," Amodeo said.
The third panel talked about measuring credit risk in a market where timely and robust data is inconsistent. The discussion was moderated by Lisa Washburn, managing director at MMA and consisted of Fabian, Ben Schuler, managing director of research and Fidelity Research and Management and Mary Francoeur, managing director and Public Finance Management.
