U.S. voters to weigh over $44 billion of bond measures in midterm election
Voters on Tuesday will decide if US cities and counties can bring more than $44 billion of bonds to the market to finance building and expanding hospitals, schools and roads.
That sum is down by roughly a third from 2022 - a midterm election year, typically when more referendums are brought to ballots - as issuers sought approval of more than $66 billion of bond measures. While voters signed off on more than 80% of last year’s proposals, the latest measures come as states and cities run out of federal Covid-relief funds and voters across the country are being squeezed by rising costs.
“It seems as though economic sentiment is still bad, people really feel hurt by inflation,” said Tom Kozlik, head of public policy and municipal strategy at Hilltop Securities Inc. Though, he added “if there are schools or local governments and areas that have been experiencing growth - a lot easier for them to ask for approval as opposed to places that haven’t been.”
Such is the case in Texas, one of the fastest growing states in the US. Hospitals and school districts across Texas dominate the list as the Lone Star State’s population growth continues.
More than 100 Texas issuers are proposing about $25 billion of bonds according to a Bloomberg analysis of bond measures compiled by S&P Global Market Intelligence’s Global Markets Group. The ongoing surge of issuances across the state has faced pockets of resistance. Still, 81% of all proposals wound up being passed last year, down slightly from an 86% average over the last decade, according to data from the Texas Bond Review Board.
Bloomberg’s analysis excluded referendums by Texas utility districts because they make year-over-year comparisons challenging. The measures account for roughly half of the nearly $80 billion of bonds on ballots across the country this year, according to S&P’s data.
Charlotte-Mecklenburg Schools in North Carolina is the only non-Texas issuer among the ten biggest referendums. The school district is proposing a package of bonds totaling $2.5 billion for 30 high-priority projects to “improve educational environments, offer more academic options, alleviate overcrowding, and renovate and replace aging CMS facilities,” according to its bond website.
Aside from Texas, the other states with combined ballot measures totaling north of $1 billion are Arizona, Iowa, Michigan, Minnesota, North Carolina and Washington.
Two New York issuers are proposing about $20 million in bonds, a drastic reduction from last year, when voters approved a $4.2 billion measure to allocate funds to fight climate change. The state has two constitutional amendments on the ballot. One would increase the borrowing capacity for small school districts and the other extends the authority of New York issuers to exclude sewage construction debt from their constitutional debt limits.
Despite the Bloomberg Municipal Index showing negative returns of 0.4% year-to-date, investors are still drawn to the asset class due to its tax-exempt quality. When adjusted for tax-savings, some investors in high-tax states can see yields of as much as 10%. Last Friday, 10-year benchmark municipal bonds extended a rally as yields notched the biggest weekly drop since 2022, according to data compiled by Bloomberg.
“Buyers’ growing realization that tax-equivalent yields are approaching nosebleed levels also has lit a small fire on the demand side,” Bloomberg Intelligence analysts said in this month’s edition of the Bloomberg Municipal Indices Monthly.