The municipal market is at a crossroads. Tax reform in late 2017 hit the market hard and continues to do so as we approach tax season. Pricing norms are being upended. Calls for transparency and accessibility continue to resound. Disintermediators are sniffing around the edges. Is this the end of the status quo as the muni market knows it?
It’s supposed to be. It ought to be. And if it isn’t, blame will fall in no small part on the industry itself.
One thing is certain: the industry needs more people doing a better job of articulating the value the municipal market delivers — whether in the halls of Congress, in state houses, on the campaign trail, or on the Street itself. Sure, presidents and policymakers on Capitol Hill regularly sing the hymns of infrastructure; but each year passes without major work being done at the federal level.
It’s not that the market doesn’t have people capable of bringing the industry’s fundamental value proposition to the fore. Many market participants and state and local government officials are quite good at explaining what it is they do — build schools, roads, hospitals and bridges — and why the municipal tax-exemption has been instrumental in bringing these projects to life affordably for more than a century.
But the message seems to get lost at times, a casualty of the forces of disruption the industry and the country are facing as well as some wounds it has inflicted on itself.
In the former category, consider the pace of change in areas such as technology, climate, politics and regulation, even AI and cybersecurity. These issues stand to upend how state and local governments function, and how federal lawmakers think about infrastructure funding (even if “infrastructure” does have broad bipartisan support).
In the latter, consider that some of that cadre of leading advocates for this industry have gone quiet — Michael Decker at SIFMA (my employer for four years as Decker’s head municipal policy analyst), for example. His departure, and SIFMA’s de-emphasizing of munis, have left many in the industry disappointed. But Decker’s absence also highlights just how untenable it is to rely on one voice (or lobbying firm) to advocate for the cause. We would be remiss, though, to not highlight the work being done at the Bond Dealers of America, which has ramped up its efforts to defend the municipal industry, especially since the financial crisis.
For those who think the stakes aren’t high, recall that it was earlier this decade that Congress bandied the idea of letting states declare bankruptcy, bills that were co-sponsored by none other than former House Speaker Paul Ryan. Ryan should have known better. He didn’t. The bill was introduced twice and it was left to the bipartisan National Governors Association to educate the top-ranking Republican in the House on the fundamental problem with the idea.
That ultimately good outcome should not distract from the big questions: How does one innovate in the face of political uncertainty that makes even maintaining the status quo a challenge? How do market participants get that message through to policymakers and even the public?
Issuers can play a key role by broadening the lens outside of simply defending the tax-exemption. To be sure, the tax-exemption is pivotal to how state and local governments fund infrastructure, the three quarters of which you already take care of. However, the issuer community needs to embrace new ideas and private capital and welcome the contributions of people who want to build out a broader financial support network for their projects.
Issuers and dealers alike need to stay ahead of – rather than foot-drag on – calls for improvements to how this business is conducted, whether that is in the area of transparency and disclosure or any other aspect of the business that technology stands to reinvent. Investors are demanding it, and rightfully so. Frankly, this is a debate that should already be settled and issuers who are getting it right should know that the Street will reward the good behavior.
An innovative spirit abounds in this industry. Right now, there is a real opportunity to guide this integral community into a new era and this market needs to embrace it, making sure everyone affected – whether they work in the business or benefit from projects that it finances – understand the critical role municipal finance plays in this economy. We’re going to do our part: In the coming weeks and months, we plan to highlight innovators and bring new voices to the fore, right alongside the voices of those who have done so much work before them to keep this industry vital.
Check out Editor in Chief Mike Scarchilli's note on changes The Bond Buyer will be rolling out on coverage and communication with the professionals and the leaders who work in and around municipal finance
