The Hall of Fame Roundtable

We will sit down with members of the Bond Buyer 2025 Hall of Fame to talk about their storied public finance careers. With experience spanning decades, we will take stock of where the industry has been in the past and what, in their view, lies ahead for the public finance industry.

Transcription:

Michael Scarchilli (00:00:08):
All right, everybody kick off our last panel of today. We have here on the stage six of the seven members of our new class of Hall of Famers. They'll all be officially inducted into the Hall of Fame tomorrow night at our annual dinner. So, for those of you that are attending tomorrow night's dinner, you'll hear speeches from each of these individuals talking about their careers. Before we get to that, we'll have an opportunity tonight to hear from everybody in a less formal setting. We're going to try to make this discussion a blend of experiences from all of our honorees—interesting things that have happened to them in their careers, ways that has shaped them—and also tap into the expertise we have at the table to talk about some of the things facing the muni market today.

(00:01:27):
And get their perspectives on where we are as a market and where we're going. So what we'll do is start with the first question and go down the list to each member of our Hall of Fame class for a personal introduction. We'll start with a brief lived experience story, like a pivotal deal, a mistake, or a turning point—something that changed the way that you work—and one lesson that you would pass down to the next generation. For this question, we'll start at one end of the table. Jim, you want to start us off?

Jim Martling (00:02:20):
Yes. My pivotal transaction was clearly the SR 91 express lanes for the OCTA. There was a privately owned concession there for a few years; it was a very advanced P3 by the state of California with a non-compete clause on the 91. The public agency OCTA entered negotiations with them to buy the express lanes. At that time, OCTA had zero toll road experience. That was interesting, but the response from the rating agencies and investors was tepid at first. We had multiple meetings in New York and San Francisco that went "fair," if you will. We actually had an unusual experience where we went to the IBTTA conference that fall in Paris. My client, Jim Keenan, the CFO of OCTA, spoke to 600 people from around the world about congestion management pricing. That gave us the opportunity to have several dinners and lunches with the rating agencies.

(00:03:36):
When in France, you do what the French do. We had French food and French wine, which seemed to be a bit of an equalizer in the process. But again, the final rating was triple-Bs. The requirement was two debt service reserve funds and a closed lien indenture. That was the very first public offering of tax-exempts for express lanes. In hindsight, we can say it was very successful. According to Wikipedia, there are now 60 express lanes in the country. I think OCTA set an example and did a great job of investor relations on an annual basis to update the agency so they could benchmark new projects versus the 91.

Michael Scarchilli (00:04:30):
Thank you.

Jim Haddon (00:04:32):
Okay, I guess I am up next. Jim Haddon here. There are two things I'd like to talk about. The question mentioned a mistake, and I always like to think about where I made mistakes. When I was a very junior banker early in my career—this goes so far back that some people on the stage might remember—the Wall Street Journal would have tombstones advertising our deals. This deal I worked on had a tombstone advertising it, and we were also long the bonds. So we were putting information about how you could buy these bonds in the paper. It was my responsibility as the low person on the totem pole to make sure that ad was absolutely correct.

(00:05:23):
There was a formula on how the interest rate was calculated. This was a variable rate bond, and variable rate bonds were rather new in the marketplace at that point. It had an interesting little formula. Anyway, yours truly messed up the formula, and I didn't buy the Wall Street Journal that morning. When I came to work the next day, I hadn't seen that there was a mistake. I tell you that story because my managing director called me in and asked, "Did you notice that the ad was wrong?" I said, "Oh, how'd that happen?" He said, "Well, I'm hoping that the Wall Street Journal only got delivered to my house today, but that probably wasn't the case. You have to do some explaining." Anyway, the point is we're in a business where accuracy is very important.

(00:06:16):
That was a big lesson learned for me. When I think of pivotal deals in my career, one was a tobacco financing. I ran the New York City account for Citigroup at that time. I actually learned about the tobacco settlement not at work, but through a couple of friends who worked in the asset-backed department. They explained this whole securitization and said, "You guys in muni finance ought to be all over this. These are your clients." So I took over that responsibility. We went to New York City, which was the largest issuer. The interesting thing about tobacco was it provided a source of upfront capital for issuers, particularly those that needed it. New York City jumped all over it and issued the first tobacco bond. We worked on it for a year proving out the legal credibility of the tobacco settlement agreement. There were all these nooks and crannies, but it created a whole new market that's been a good source of capital for people in our business. It's been a hell of a trading vehicle in the high-yield market. That was my pivotal deal.

Diana Hoadley (00:07:46):
Thanks, Jim. I'd like to talk about a pivotal deal that helped me do my second pivotal deal. In 1985, there was a tax law change coming around the same time I was getting married and graduating from business school. I thought, "Let me figure out how I can do this efficiently." I decided to work on one really big bond deal that would have ongoing fees, so then the next year I could start the higher ed business at Kidder Peabody because I really wanted to work with universities. But then the tax law changed and only let universities I was going to work with do taxable deals. I had to learn about making money in '85 so that I could have a business in '86.

(00:08:34):
In 1985, I worked on a billion-dollar revolving loan program for the Voluntary Hospitals of America. It was in eight different states with 23 different subseries per state. The physical bonds were delivered to our office just before the end of the year when the tax law was going to change and these deals were going to be illegal. All the CUSIPs were the same. I had to befriend the guy in word processing and use an expensive word processor to run all the bonds through the printer to black out the CUSIP numbers, get 23 rubber stamps, and stamp all the bonds by hand. No one was around; everyone was on vacation. I told my husband he had to come help me. We made all these bonds and brought them across the street in a wheelie bag to Chemical Bank, where the trustee put a squiggle on them. Images of other bonds had melted onto the bonds because when you put engraved bonds in a copier, they melt.

(00:09:42):
I'm sitting there trying to get the drum clean and seeing different images on it. I'd get calls from the desk for three months: "Diana, are these bonds real?" I'd say, "Well, which images are reproduced? Oh yeah, those are the real ones." Over time, we substituted out the pieces because the printers just couldn't make enough bonds. I learned how sometimes your paper doll and art skills are super important. That billion-dollar loan program involved me driving around to hospitals in eight states for several years, originating almost 300 loans. Those pools stayed outstanding until AMBAC went under during the '08 financial crisis. I had to learn about creating the loan servicing program, working with Orrick Herrington on loan documents, learning how floaters worked, liquidity facilities, and guaranteed investment contracts—things that don't necessarily exist much anymore.

(00:10:42):
I made enough servicing those pools that my boss told me if I wanted to do deals with Harvard, it was okay. I started doing financings for universities back before I had any gray hair; I was basically the age of my clients' granddaughters. It was exciting. None of my bosses wanted to do higher ed, so I thought I had smooth sailing. Then, when I ended up at JPMorgan, there was another financial crisis. This time we had public universities that really needed to borrow money but couldn't go to the taxable market like Harvard could. We helped create the Build America Bond (BAB). We did the first benchmark-size BAB for UVA, and the call provision of that deal became the one that everybody used. Those were examples of how I used dollars to finance my passion, and once I got there, I was able to do something really fun.

Thomas Doe (00:12:06):
That's great. I'm Tom Doe. It's a pleasure to be here with this group. I've always been interested in the data of the market. I always thought it was interesting because our data is so gray and cumbersome that who creates it and how it's used has always been fascinating to me. When I started my career in 1985, the municipal industry embraced a futures contract on municipal bonds. That was my entree into the market. I didn't know anything about the cash bonds, but I could learn about the futures market and be on an even playing field when I met people in the industry. As the futures traded and built interest, the Chicago Board of Trade decided to create new additional products.

(00:13:26):
They put options on the futures contract. For any of you who were around long enough to know, that contract settled on the value associated with 40 bonds published in the Bond Buyer. I started to notice that the movement or pricing of the data was changing. We all learn that data changes as the market evolves. I noticed on these options that there were a lot of call and put options with different strike prices. There were many options being written at call prices of 100 to 103, and many put options at 95 to 97. There was a three-point difference between them.

(00:14:29):
There was a participant in the market who had a billion-dollar municipal bond portfolio and had an active interest in writing virtually all those options. Because the value of the index was created by bids provided to five brokers, and he provided all the bids used for pricing the index, he was able to keep the index within that three-point band, collect the option premium he wrote, and put it in his pocket. Over the course of 18 months, a hundred million dollars of option premium went into his pocket. Interest rates went down, he had principal gains on the billion dollars in his portfolio, and he collected a 5% coupon as well.

(00:15:47):
That was the best trade I ever saw, and it gave me a great appreciation for the data of our market. We make a lot of assumptions in our industry, and those assumptions can cause us to miss what drives market behavior. Pricing evaluations are important; how we price deals and evaluate securities is something we sometimes take too much for granted. It gave me a great appreciation for data and how individuals can exert a tremendous amount of influence from the right seat in our industry.

Noe Hinojosa (00:16:43):
Well, no pressure, Tom. Noe Hinojosa here with Estrada Hinojosa. I've been in this business for 37 years, starting in 1987. I've had many pivotal times. One had to do with the old days when we as advisors would take bids from people calling in from New York. That was before your time, Tom, but you were already thinking about how to come up with MMA. Anyway, I learned about this kid coming out of college who took a bid and misplaced a digit, which was going to cost Lehman hundreds of thousands of dollars. We're dealing with the City of Houston and the City Secretary's office, saying this was just an honest mistake.

(00:17:47):
You get the City Attorney involved—I heard earlier that in our country, attorneys are more important than engineers. Well, what about the risk-takers? That's when many things came into my mind. Because of work like what Tom and many others are doing today, you log into a website and get bids from 12 different people. That's been pivotal to me. A challenge is how a young person today can appreciate those mistakes because, unlike Jim Haddon, I never made a mistake.

(00:18:32):
A second pivotal experience was working for Jerry Jones back in '01 and being challenged to fund a $600 million stadium project that ended up costing $1.2 billion. I won't bore you with the details, but it was a lot of fun. One of the things this industry has given us is so much fun. This is a very special group of intelligent people. On the muni side, I met with Jerry every Monday morning at seven o'clock in Dallas, tasked with solving how to move Texas Stadium from Irving to Dallas.

(00:19:37):
I told him it would have to be Arlington because that's where the public funding was. I don't have to tell you where the stadium is now. We're trying to win—we tied last night, and I'm sorry for the Cowboys—but that was one of the most important things in my career, staying with it until we moved into the stadium in '09. That's part of our business: being there with your client year after year, bringing solutions, and hopefully doing the right thing.

Sue Perez (00:20:16):
I'm Sue Perez from the Commonwealth of Massachusetts. Welcome to Boston. The lesson I learned coming from the issuer side happened while working lockstep with bankers on a deal. We got to the negotiated pricing—and "negotiated" is the keyword there—and we weren't seeing eye-to-eye with the underwriter. I looked to the bankers I'd been working with for weeks, and they just shrugged. I was pretty much on my own. That taught me a critical lesson: I need to make friends with the underwriters and engage them in the process a lot sooner.

(00:21:30):
Since then, on all our negotiated deals, we engage with the underwriters at least three weeks before pricing. We have ongoing conversations so that by the time we get to pricing, we're all on the same page regarding expectations.

Michael Scarchilli (00:21:30):
Thank you. How has the muni finance business changed over your tenures, and what is one practice you'd either revive or retire for good?

Diana Hoadley (00:22:07):
I'd like to jump in. I mentioned the VHA bonds with physical paper and rubber stamps. It was insane to have all those bonds on pieces of paper. I'm really hoping that someday the muni industry can use digital bonds on a blockchain. The last transaction I was working on before I retired was a digital asset bond, but unfortunately, Sam Bankman-Fried came along and the whole idea of "digital" became a little toxic. But I think it would be fantastic to have more electronic or blockchain technology for immediate trading and settlement, and for regulators to see that everything is moving along well. During my career, I've seen us go from BOBs (Boring Old Bonds) to BABs, and now I'm hoping for DABs (Digital Asset Bonds). Maybe AI can help us get more digital assets in the muni world.

Noe Hinojosa (00:23:49):
I'll offer that we live in a very fast world. It was a lot of fun being at DFW Airport recently. They invited us to see how facilities are made. We just did a financing for $2.1 billion for the construction of the new Terminal F. They are building it modularly on the field and transporting it over to the site. One thing I miss is seeing how these assets get built and what it took to prepare the credit for rating agencies to put into official statements.

(00:24:50):
I used to do those myself when I was a young banker. They used to be 24 pages long; now they're 120 pages. I won't mention that my son is a bond lawyer—I don't know what happened there. But I miss that interaction. Someone asked me about closings; we used to have 25 professionals around a conference room. I miss that public interaction. Today, we're going so fast and there's so much liquidity, which is great for rates, but I wish some of you would take a deep breath and take your people to see how water plants, airports, and stadiums get done. That's very important for our industry.

Thomas Doe (00:25:44):
On that point, I recall analysts going on junkets to put their hands and eyes on a project. That started to change, whether due to cost savings or because 80% of the market was insured, so people got a little more lackadaisical. I'll never forget the 2010 crisis. In the wake of Meredith Whitney, a head of a mutual fund group asked me what they should do because funds were leaving. I suggested he put ads in the paper stating his 50 analysts had reviewed the bonds and they were sound.

(00:26:15):
He said, "I can't do that. Compliance would have a problem. We only review 50% of the bonds in our portfolios; we rely on rating agencies and bond insurance." That was 15 years ago. Now, with AI and new technology, we've gotten a little complacent about credit again. I argue there's going to be a credit tsunami, climate-related, and I hope our industry is prepared. But the technology is evolving. I remember professors at MIT saying they wanted to develop blockchain to take down DTCC. Things evolve and adapt.

Michael Scarchilli (00:28:32):
Anyone else?

Jim Haddon (00:28:37):
I think post-Dodd-Frank, disclosure has certainly improved. With the insurers having gone through their cycles, analysts are doing more work on their own. I agree with Noe; we should do more site tours. We've made municipal websites very informative and transparent, but seeing how things are built matters. Recently, I went on a site tour for Hartsfield-Atlanta Airport. They took us everywhere—even the bathrooms. They explained how they thought about making it a nice place for travelers.

(00:29:59):
They also did something mechanically unbelievable: they widened the terminals without stopping business. The airport never closed, but they used sophisticated engineering to raise the ceilings and widen passageways. As an investor, the detail was very impressive.

Michael Scarchilli (00:30:35):
Moving on, how has electronic trading and analytics reshaped price discovery, liquidity, and execution? Where do you see that going?

Thomas Doe (00:31:03):
We're now a decade into the era of algorithmic trading. I don't know what percentage of secondary trading is algo-based, but it must be 40% or 50%. I was at the MSRB earlier this year talking about this. We've had an incredible era of credit stability. All the algo models have been built and tested in this period of stability. They measure how elements trade and adjust bid-ask spreads to manage risk.

(00:32:07):
But the test of volatility for most algos is limited to 2020 or the 2016 election. We haven't had a sustained period of instability in the last decade. If all models tend to correlate, do we risk unusual volatility? Pricing evaluations are incredibly important; every benchmark and comparable deal data is vital. Who is creating it and who holds the market risk on any given day is important.

Noe Hinojosa (00:33:25):
When I joined in '87, I learned the saying, "If I tell you, I have to kill you." I always wondered how to price a bond. Technology today has far surpassed what we once thought. Banks are getting bigger and technology must be on the edge or you cost issuers money. Issuers have a fiduciary duty to get the best for their constituency.

(00:34:27):
Tools will continue to improve. I remember Y2K and all the disclosure we had to comply with back then. I've seen a lot change, and I think it's for the better. There's a lot of liquidity. We're one of the few countries where sovereigns can borrow in a market as liquid as ours. Something has to be said for the fact that we have lawyers, technology, and professionals to help do the right thing.

Diana Hoadley (00:35:29):
From an individual investor perspective, I hope trading transparency and liquidity can help as we prepare for retirement. Right now, large investors have the upper hand. A client once told me, "Everything counts in large amounts." When you're a small investor, it's difficult. That's why I'm hoping for the digital bond; it would level the field.

Thomas Doe (00:36:18):
Regarding digital bonds, I remember when swaps were popular. A guy running risk at Lehman was presenting on a derivative and said, "Because this instrument is liquid, we can price it to the fourth decimal point." I asked what that had to do with anything. He said, "I know, but it sounded good." It's interesting how people perceive what's true.

Michael Scarchilli (00:37:09):
Jim?

Jim Martling (00:37:13):
We discovered 10 years ago there's more we can do for our clients in project development, not just transactions. We get involved on day one regarding design-build contracts and helping them manage projects. Most of our business in the last 10 years wasn't transactional fees. For the 405 project for Orange County, we were involved 10 years before it opened. We had sustained revenue for a long time. I think as an industry, we've let firms like KPMG take over project development business that I think is a core part of what we can offer.

Michael Scarchilli (00:38:16):
Let's talk about AI and the next generation of muni professionals. How do we train them to build real judgment and not just speed? Where can AI help, and where should it stay out?

Sue Perez (00:38:47):
You can't replace talking to people. You can have all the data and analysis, but there's a lot to be gained from observing experience and having human conversations. It isn't always cut and dry. A big challenge for this generation—having kids I'm texting to say dinner is ready even when they're upstairs—is teaching them that relationships and communication are critical to understanding how to use the data you have.

Diana Hoadley (00:39:43):
Personal interaction is really important. I was getting ready for a job interview recently and tried an AI agent for some of the questions. It spit out information that was interesting, but some of it was wrong. There are so many acronyms in our business that it just didn't make sense. Early in my career, I was told we needed a "SLGS sheet." I had a garden in the suburbs and used a salt shaker for slugs that were eating my hostas. I thought, "Slugs in the office?" Then I found out it stood for State and Local Government Series. If you don't have personal interaction to reality-check what these bots spit out, you're not going to get very far.

Thomas Doe (00:41:03):
I've been involved with the University of Chicago's Harris School, which has a Center for Municipal Finance. The level of interest and talent is amazing. Our colleague Tripp Kaiser is moving to the University of Texas to head up their municipal capital markets program. Seeing universities take the lead to focus on the municipal bond market is great. Engaging graduate students with the climate issue is an opportunity for our industry to lead. It's a great way to bring talent into the industry.

Jim Haddon (00:43:00):
I agree with Sue. It amazes me how much young people do electronically and how little they do verbally. We know there's more to this business than numbers and disclosure. On the other side, I believe AI will change the muni market. Many tasks we do now can be done by AI. It's interesting that we still sell bonds by picking up the phone and calling an institution; AI could make that very simple.

(00:44:06):
My son once said AI is "the smartest dumb person" he's ever talked to. At a conference last week, two Silicon Valley VCs were asked what they are telling their kids given the rise of AI. One said he's teaching his kids grit and perseverance—you can't learn that from AI. He also said AI will level the playing field because everyone will be "smart," but the human aspects will be what make you different.

Diana Hoadley (00:45:33):
I thought you were going to say, "I want my child to be a plumber."

Jim Martling (00:45:42):
We've had great luck with Northeastern University students. They have strong co-op programs and find them to be top-rate.

Noe Hinojosa (00:46:00):
Historically, we've had about $400 billion in issuance; this year might hit $600 billion. But let's not forget that maybe only 3% of that is done by sophisticated issuers like Sue. This industry also represents the "little guy" who might not have audits on time or know how to comply with disclosure rules. I'm on the front lines. After this meeting, I'll be in Dallas talking to the City Council about a $3.1 billion convention center expansion.

(00:47:15):
Then I'll go to Laredo for a bridge financing. You can have the smarts, but it's all about judgment. Elected officials today aren't different from 10 years ago—they are still out there getting votes. You have to be in the trenches. There's nothing like hard hustle, being on the road, and calling on people.

Thomas Doe (00:48:24):
Noe, tell the story about how you used a plane during COVID.

Noe Hinojosa (00:48:39):
The best investment I made was getting permission from my wife to buy a King Air. Texas is a big state. During COVID, the only way to preserve your client base was to be in front of them. You can't do this solely on Teams calls. You have to talk to a mayor, a judge, or a school superintendent. I got a plane and a pilot and I was on the road three times a week.

(00:49:26):
That's what it took to keep our presence out there. Some big firms don't want to talk about projects smaller than $50 million, but the little guy makes America run. They need help. When you are in this industry, you have to make a serious commitment to have a fiduciary duty to do what's in the best interest of the client.

Thomas Doe (00:50:15):
During the .com era, I read a book that said, "It begins with bits, but it ends with trust." That's the power of relationships—establishing trust with your clients.

Diana Hoadley (00:50:40):
It's also about which project you choose. Early on, I worked with a Catholic hospital system in the Midwest. The head nun's nickname was "The Flying Nun" because they had a jet to reach hospitals in many states. She said to me, "Diana, we have billions in the bank, but remember: no margin, no mission." I carried that thought through my career. You have to be able to make money on what you're doing for it to make sense.

Noe Hinojosa (00:51:59):
It's not about transactions; it's about being there with your clients through the good and the bad.

Jim Martling (00:52:11):
The highlight of my career: I've been a financial advisor to OCTA for 29 years. There's the trust.

Michael Scarchilli (00:52:24):
Regarding the regulatory environment: are we regulating the right things? What change in rules or disclosure would improve outcomes?

Noe Hinojosa (00:52:43):
I have a strong opinion about regulation and enforcement. Regulation has been great, but enforcement hasn't always been fair. My partner Bob Estrada served as chairman of the MSRB. My firm gets audited by FINRA every 18 months because we are considered a "high-risk" broker-dealer due to our size.

(00:53:44):
A few years ago, I told the SEC, MSRB, and FINRA in one room: we have developed a lot of regulation, but enforcement has not been fair. I'd hate for a "little guy" to get hurt because they didn't have the right counsel or advisor. Regulation helped clear out things like the defaults we saw in the late '80s, but enforcement needs to be equitable.

Diana Hoadley (00:55:29):
When working on the digital bond project, engineers noted the MSRB collects about 40 things that have nothing to do with the value of the bond. As we think about future regulation, are we tracking the right things? Maybe we need to add climate indices.

Thomas Doe (00:56:22):
The biggest challenge is that we need more creativity. Because of the tax exemption, we are a "long-only" market, so the market itself can't easily correct prices. We nudge prices higher until we can't find buyers, then adjust sharply and start again. I've told the SEC that you can't have true efficiency in a one-sided market.

(00:58:00):
We don't have a thriving derivative market. These factors inhibit us. Regulators need to take into account how distinctive our market operates compared to taxable counterparts.

Noe Hinojosa (00:58:45):
In enforcement, they never penalize you for losing money; they only come after you when you make money. Also, issuers are exposed if they don't know the true capital position of a bank during underwriting. I'm still waiting for a check from a firm that declared bankruptcy three days before a closing during the mortgage crisis.

Michael Scarchilli (00:59:58):
Last question. What are the biggest risks in the market right now, and what steps should we take to finance them smarter?

Noe Hinojosa (01:00:44):
For the little guys, we need accountants. Issuers are asked for audits six months after the fiscal year end, but we can't find the auditors. We need engineers and accountants to make things happen. We are over-regulating ourselves if we don't pay attention to the ecosystem. We need people to do the hard work.

Diana Hoadley (01:02:04):
We need more "bond school" and outreach to universities. I used to do "Public Finance 101" classes. Most students had no idea municipal finance existed; it wasn't "sexy." One of my sons went into public finance for a while and is now trying to run for city council. He says there's so much he learned in bond school that he can teach others.

(01:03:14):
Jim Lebenthal had those great "Built with Bonds" public service ads. He knew how to tell the story. If we can all be muni bond disciples and help young people decide this is a cool place to be, that would be fantastic. Every day there's something new to learn and something to contribute.

Thomas Doe (01:04:43):
Jim Lebenthal was a great messenger. Matt Fabian and I once saw him in a restaurant when he was quite old; we chatted for 45 minutes and heard the war stories. Academic engagement is invaluable, both for recruiting and for articulating the value of the municipal industry to the country. It's an exciting time ahead.

Noe Hinojosa (01:06:14):
Being part of this industry allows you to live a little longer because we have a lot of fun. Jim Lebenthal and Harvey McCall lived into their nineties and late eighties. Helping a client issue 30-year bonds and seeing them paid off is rewarding. Just because we're in the Hall of Fame doesn't mean we're retiring.

Thomas Doe (01:07:06):
It also doesn't mean we say no to a drink.

Michael Scarchilli (01:07:09):
With that said, we can let everybody go get their drinks. Thank you for all our Hall of Fame panelists. Congratulations on your well-deserved inductions, and we'll see you tomorrow.