Are we ready for a “golden age” of public finances as the infrastructure bill crosses the finish line?
The bipartisan infrastructure bill passed by the House of Representatives on Friday night promises hundreds of billions for a one-time reconstruction of America’s aging and neglected built environment. But for the municipalities likely to benefit from the funds and the bond market where such projects are normally funded, that may not do much to shake things up, according to public finance experts.
President Joe Biden is expected to enact the Infrastructure and Jobs Investment Act this week, including $ 550 billion in new federal investments in the types of projects that cities, counties and states fund and manage.
The biggest boost, according to an analysis by Moody’s Analytics, will go to spending on roads and bridges, electrical systems, railways, broadband, water systems and public transportation. An overview of some specific initiatives, from the National League of Cities, is here.
After approximately six-month $ 260 billion US bailout, it extends what Tom Kozlik, head of municipal research and analysis at Hilltop Securities, calls a ‘golden age’ of US public finances .
See: Cities and towns are set to receive $ 65 billion in stimulus from Washington. Here’s what to know about the US bailout
And: $ 195 billion in federal bailout money goes to US states. Here’s how some plan to use it
âI’m saying we’re entering one of the most positive landscapes for municipal bond issuance we’ve seen in a long time, and I’ve been pretty skeptical about it,â Kozlik told MarketWatch. âDon’t get me wrong, there is still some uncertainty out there. But I think the bailout really put public financial entities in a much different situation after this recent financial uncertainty compared to what we saw 10 years ago. “
Still, Kozlik believes total municipal bond issuance may rise only slightly next year – to perhaps $ 475 billion – $ 500 billion, from around $ 460 billion this year — at barely a warm endorsement from the transformative power of the bonds to rebuild America, let alone enough to fuel a squeezed market.
As he wrote in a research note after Friday’s House vote, the $ 550 billion to spend is paltry compared to the American Society of Civil Engineers 2021 Infrastructure Report Card, which identified a shortfall in US $ 2.590 billion infrastructure over the next decade.
Read: “Food fight” in the municipal bond market as demand devours all supply
âThere has never been an infrastructure program in this country that does not include states and locals,â said John Mousseau, President and CEO of Cumberland Advisors.
Mousseau believes the legislation may, at the margin, boost supply, but notes that the federal responses to COVID-19 that have been most effective have been those that have âfreed the moneyâ quickly, like the CARES Act, unlike those that slowly, like rental assistance programs.
âBeing able to rationalize the money that has been approved is just as important as taking out new money,â Mousseau said in an interview.
Indeed, several city managers told MarketWatch that their local infrastructure needs are so great that they acted as quickly as possible to allocate a portion of the federal spring dollars to such projects rather than wait for Congress to pass. an autonomous infrastructure bill.
It’s hard to see anything that could reduce demand for municipal bonds, which has been searing, Kozlik noted. âThe bailout law really put a floor under municipal credit for at least a few years,â he said.
See: Washington’s social spending bill snubs municipal bonds. Will the market care?
And because the infrastructure bill spending is spread over a few years – which will likely keep bond issuance muted – it will be useful for state and local budgets for some time.
Exchange-traded funds following muni bonds were down slightly on Monday, with the iShares National Muni Bond ETF MUB,
down 0.1% in the afternoon, and the ETF Invesco Taxable Municipal Bond ETF BAB,