WASHINGTON — Michael Decker has been among the most prominent muni lobbyists and has been an advocate for underwriters for almost 30 years.
In 2008, Decker joined the Regional Bond Dealers Association, now known as the Bond Dealers of America. Before that, he was senior managing director for research and public policy at SIFMA , where he oversaw the association’s research activities, including analyzing industry and market trends, collecting data and publishing research reports covering all aspects of the global securities market.
Decker spoke with the Bond Buyer about his plans to continue his role as a muni advocate at a time when Decker believes the business faces serious, market, regulatory and policy challenges.
Responses have been edited for clarity.
Q: What’s next for you?
I’ve been representing bond underwriters for almost 30 years, nearly all my professional life, and I plan to continue advocating for the municipal and broader fixed-income markets. The market space is facing significant risks and opportunities in Washington and I plan to continue to help shape the solutions. You know we lost the authority to issue advance refundings a little over two years ago. That was a huge loss for everybody — underwriters, bond lawyers, financial advisors, and especially issuers. It was the biggest hit that the municipal market has taken as a result of legislative action since 1986. That loss really emphasizes the risks that the market continues to face and I plan to work on defending the market and promoting [it] in Washington.
Q: So are there no plans then to go into the corporate space?
I plan to continue to be an advocate for the municipal market and the U.S. fixed-income markets.
Q: How has the muni world changed during your long career in it?
I see three trends that have marked the last 30 years for underwriters in the municipal market — the contraction of underwriting spreads, the contraction of bid-ask spreads and the growth of regulation. Average underwriting spreads have gone from around $11 per bond in 1990 to just over $4 last year and the number continues to fall every year. That’s great for issuers, but that trend and the level of compensation for underwriters is probably not sustainable. It could lead to exits from the industry and it will certainly contribute to continued consolidation. The same thing is happening with trading spreads, the average bid-ask spreads for municipals have declined from around 170 basis points ten years ago to just around 70 basis points last year. That’s in part driven by the effects of regulation and automation, but it’s also been driven by competitive pressure. That’s great for customers, but again I think we should be asking if the trend is sustainable.
The last thing I’d note is the trend of regulation. I know that issue from the perspective of dealers, but everybody is facing this pressure, including issuers who are ostensibly unregulated. I think we all understand the need for effective regulation. It’s vital to market soundness and I understand that the financial crisis deserved a regulatory response, but the pendulum has probably swung too far. The breadth of new rules the municipal market has had to digest over the last 10 years has been overwhelming. Municipals are generally not a high-margin business and now dealers and others are facing a situation where revenue is falling and compliance costs are increasing and I just hope it’s something that regulators are mindful of.
Q: You mentioned a trend in regulation, especially after the financial crisis, a lot of rules were created right afterward and even still now. Do you see that slowing down at all?
Well, certainly the immediate post-crisis rush of regulation has slowed down, but I see the environment for policy changes, in terms of risks and opportunities. Among the risks, I would say disclosure is one. The SEC in December telegraphed their disclosure agenda pretty clearly. They’re looking at issues like timing of filings, use of XBRL by issuers, disclosure of cyber and climate risks and other issues. As I read through the materials from the December conference and listen again to the presentations from the event, I have to ask myself, how is an underwriter supposed to know whether an issuer has appropriately disclosed the climate-related risks they face? The SEC has undertaken the biggest rewrite of municipal disclosure rules in 25 years and I just hope that we in the community can help them get it right.
Another regulatory issue that’s on my list is pre-trade price transparency. Regulators are considering mandating the reporting and dissemination of millions of data points every year associated with bids-wanted auctions and other market-making activity. I think it’s fair to ask, is this information really useful to investors, especially retail, and would implementing a pre-trade system in the municipal market really meet the costs-benefit test? Would the benefits to customers and investors really outweigh the costs of implementing and complying with the rule? Then taxes, every time there’s a tax bill moving through Congress going forward, eliminating private activity bonds will be on somebody’s list of revenue raisers. I think defending the tax-exemption is something we all have to always be very diligent about.
Q: With next steps in your career, do you see yourself then defending tax-exempt private activity bonds and possibly bringing back advance refundings?
I think there are some opportunities facing the market and the community as well. Infrastructure, we’ve heard members of Congress talk seriously about trying to move an infrastructure bill in the first half of this year. It’s always safe to bet that any legislative initiative won’t make it all the way into law. There are a lot of hurdles in the process and it’s difficult to move any legislation through the system. Then that’s probably the case for the infrastructure bill now under consideration too, but it’s important for the muni community to engage in the debate anyway, even if there’s no final infrastructure bill this year. Many ideas that emerge will get recycled later. If you think about advanced refundings in the 2017 tax law, that proposal didn’t emerge in 2017, it emerged two years earlier in a tax reform draft bill that was circulated by former Ways and Means Chairman Jack Kemp. So these issues never go away and the ideas that are being talked about now for infrastructure will come up again later, so it’s important to be at the table.
Some of the issues that are on the table would be great for the market — expanding private activity bonds, reinstating direct-pay bonds, expanding federal credit programs and others. The highway bill is another big opportunity. The FAST Act expires after Sept. 30 of next year. It’s going to have to be reauthorized in the current Congress and many of the infrastructure-related ideas that emerge in the 2019 discussion could find their way into next year’s highway bill.
Q: With the three points you mentioned earlier, what do you think is needed to advance the interests of the muni market?
The market exists and the tax-exemption exists for the benefit of issuers, so I think it’s always productive to think about policy issues in terms of how will issuers benefit or be hurt by whatever is on the table. In that context, I think to the extent that federal policymakers are looking to expand infrastructure finance, to promote an investment in schools and roads and bridges and airports and all the other assets that we finance. I think we should encourage them as they have many times in the past to look to the municipal market for solutions and that’s what I’d like to continue to promote.
Q: Is there anything else you’d like to add or anything I missed?
I guess I’d just emphasize that the municipal community is always stronger when we work together. We’ve got a really strong advocacy coalition when you bring issuers, underwriters, bond lawyers, financial advisors and others together to lobby our issues and the community has been most successful when we’ve done that effectively. And I’d encourage us to continue to advocate in that way.
