Municipal bond market participants think pensions will have the most impact on muni credit over the next five years and that there won’t be a federal infrastructure package that will make a difference in kick starting projects.
Those were the findings of an informal electronic survey of attendees at The Bond Buyer's National Outlook Conference. The survey was sponsored by Fitch Ratings.
“As confirmed in the market survey, there is a cautiously optimistic tone to the market this year with regard to modestly improved issuance prospects across a number of key sectors, after a big drop in volume during 2018”, said Dan Champeau, head of global public and infrastructure finance at Fitch, who moderated the survey panel. “The market survey and the related discussion is a way for us an industry to kick off the year with a focus on the prospects and challenges facing the market in 2019 and beyond”.
About 41% of the respondents thought issuance in 2019 will come in around $375 billion, while 36% were in the $325 billion camp.
“We are in the $300-$375 billion camp,” said panelist Rick Kolman, head of the municipal securities group at Academy Securities. “New money was a bright spot from last year, in terms of growth and new initiatives. If you look at absolute rates, rates are lower now – that could help accelerate new issuance.”
The doom and gloom topic of pensions was brought up, as 52% of the respondents thought state and local government pensions’ funded ratios will get worse this year, while 29% thought they will stay about the same and 18% thought they will improve. On the same topic, 75% of respondents thought that pensions and other post-employment liabilities will have the biggest impact on municipal credit over the next five years.
As far as infrastructure goes, 62% aren’t holding their breath for adoption of a plan that will help kick start projects and 70% said advance refundings will not come back by 2020. Of those surveyed, 69% said that the tax exemption won’t be under threat in 2019 or 2020, while 22% of people thought it would be.
“The window for a bipartisan federal infrastructure plan is closing. I don’t think there will be a plan, based on politics,” said panelist Nicole Riggs, vice president, public finance at MUFG. “There is no point person in the Administration and policy makers have to deal with a growing deficit. A gas tax increase is the most logical funding source, but a non-starter for many."
Panelist David Womack, senior vice president, public finance at Blaylock Van, agreed it would take bipartisan efforts to bring back advance refundings and go after the tax exemption again and he don’t see that happening.
“Our industry has always been under attack, the tax exemption saves local governments money and makes it easier for them,” he said. “Taking away the exemption would cost a lot more money. But I don’t think we can ever pull away and say we are safe. Those legislatures don’t understand our industry.”
