Last week, while everyone else was distracted by the NBA Finals, the Stanley Cup and James Comey, the rest of us in Muniland were on the edge of our seats during President Trump’s “Infrastructure Week.” During the campaign, President Trump proposed a $1 trillion plan to repair the nation’s infrastructure. Five months into his presidency, and having as many major legislative achievements as Patrick Ewing has championship rings,[1] we thought “Infrastructure Week” would be a great chance for the President to offer more details on the one issue with bipartisan support in Washington these days.
The major proposals made by the President over the course of “Infrastructure Week” were the creation of two new government offices: one designed to streamline the approval process for federal contractors and another office that helps project managers through the bureaucratic process.
The only major infrastructure project announced by the President was a proposal to change the air traffic control system from a federally regulated system to one run by a nonprofit organization governed by people from the public and private sectors.
The lack of detail in the President’s infrastructure plan may be having an impact on new issue volume, although there are other reasons for the slowdown, such as the recent increase in interest rates by the Fed and a dearth of refunding opportunities. In May of last year there was $42 billion of new issues and in May 2017 it dropped to $36 Billion, a 14.69% drop,[2] and in June, which is normally the busiest season for municipal issuance, we have seen an estimated 20% drop in issuances.[3]
Perhaps, if the President proposes, and Congress agrees, on more concrete infrastructure projects, we will see a positive impact on issuance. There is hope, given this is one of the only priorities that Republicans and Democrats seem to agree on.
Champions and GEO Scores
With last week’s conclusion of the NBA Finals and Stanley Cup Championship, we thought it would be fun (and interesting) to compare our proprietary GEO scores and major infrastructure projects with the cities whose teams made it to the finals. Below, we show the current and May 2016 GEO scores for the NHL and NBA championship contender cities. Also, special congratulations to the Pittsburgh Penguins and Golden State Warriors for victories in their respective league’s championship series.
While residents of Pittsburgh are celebrating the Penguins’ fifth Stanley Cup Championship (and second in a row) they are also wondering whether their rails on wheels program will receive federal funding which under the administration’s proposed budget is not in the cards. To fund the $233 million project, Pittsburgh residents are hoping that, as the budget works its way through Congress, it undergoes changes[4] to support this important need. Or will the burden fall to a new debt offering from the city?
In Nashville, the city council recently voted to eliminate $125 million in funding for a flood wall and it will not be working on the project in the upcoming year. While federal financing of this project may change whether this project is completed, the lack of detail in the President’s infrastructure plan is leaving this project’s completion up in the air.
While the Bay Area is satisfied with the Warriors ability to contain LeBron James in the finals, residents of Oakland must be very unsatisfied with traffic congestion in the area and are hoping the changes in the federal budget include funding for projects such as the Toll Bridge Rehabilitation Program (projected cost of $892.09 million) and the BART Railcar Procurement program (projected cost $2.03 billion). If not at the federal level, is this a new issuance opportunity? The sooner the market understands the federal government’s plan, the better for all.
Finally, Cleveland, which in addition to looking for help on offense for LeBron James and Kyrie Irving, is also looking for federal assistance to help fund the Northeast Ohio Regional Sewer District[5] project with estimated costs of $3 billion. Luckily for citizens of “The Forest City[6]” in January, President Trump highlighted this project as a priority when he released a list of 50 high priority infrastructure projects. However, when President Trump submitted his budget to Congress funding for this project was not mentioned. The proposed cuts of $2.6 billion to the EPA do not bode well for federal funding of this project.
With political turmoil in Washington and an infrastructure plan lacking in detail, we will just have to remain patient to see what happens to the municipal market during the rest of the year.
Have a great week.
Eli Molin and Gregg Bienstock
[1] Zero
[2] SIFMA
[3] I overheard my boss saying this
[4] Also known as “tweaks.”
[5] The system is also experiencing leaks
[6] Or “The Mistake on the Lake”