Voters Approve at Least $37 Billion of US Muni-Bond Propositions

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(Bloomberg) -- US voters look likely to pass at least $37 billion of the state and local-government debt sales that were up for consideration in Tuesday’s elections, led by measures that will finance work on schools and other infrastructure projects.

Officials asked for approval of at least $66 billion of bond measures in total, according to a Bloomberg analysis of data compiled by IHS Markit that excludes referendums by Texas’s utility and water districts. An early tally shows that the preponderance are heading for acceptance.

The largest measures that have passed include a $4.2 billion statewide climate measure in New York and a $2.3 billion school bond in Austin, Texas, according to a preliminary Bloomberg tally of unofficial results. 

The approvals “send the message that voters care and are thoughtful about the multi-year impact that infrastructure has on their communities,” said Tom Kozlik, head of municipal research at Hilltop Securities Inc. “It is very clear that voters are not being short-sighted even if there are some negative economic considerations out there.”

The margin of approval for some of the measures is noteworthy. For example, New York’s environmental bond garnered nearly 60% of votes cast, out-pacing Democratic Governor Kathy Hochul’s victory with roughly 52%. 

Transcending Politics

“These measures transcend what happens politically,” Kozlik said. “Voters have a vision for the investment they would like to see happen in their states and regions.”

Governments where referendums passed now face the prospect of borrowing at the highest interest rates in at least a decade, which may lead some to delay plans to tap the bond market. With the Federal Reserve hiking rates to tame inflation, benchmark 30-year municipal bonds yield 4.05%, more than double levels earlier this year.

“Governments will be careful of how much the issuance costs,” said Alice Cheng, municipal credit analyst at Janney Montgomery Scott. 

She expects that some of the measures will start coming to market in the second half of 2023 at the earliest. 

“If the projects are not time-pressing, it may make sense to go in 2024 when volatility is more subdued and there is more opportunity in the market,” Cheng said.

Last year, voters approved at least 65% of the $28.7 billion in municipal bonds they were asked to consider, in what was a relatively weak year for bond referendum volume. Midterm elections often see more borrowings requests: Four years ago, local governments asked for approval of about $76 billion. 

“You are seeing governments still have capital needs they need to finance,” said Frances Lewis, senior managing director at MacKay Municipal Managers. Some had referendums delayed or reduced during the pandemic, Lewis said. 

Few measures were failing as of Wednesday, with at least $3.4 billion headed for defeat. A $650 million measure in Berkeley, California, to finance local infrastructure repairs and affordable housing, appeared to fall short of the required votes, according to unofficial results.

Here are some of the largest bond referendums approved, according to unofficial results:

New York

• New York voters approved a $4.2 billion environmental bond designed to improve water quality, while increasing investment to reduce the risk of floods and other disasters linked to climate change

Texas

• Austin: Voters approved a $2.3 billion bond for Austin Independent School District, part of a $2.44 billion package that will finance safety improvements, centers on equity and upgrades for campuses in the district

California

• Long Beach: Voters were on track to approve a $1.7 billion bond for Long Beach Unified School District to fund upgrades to school facilities, ensure building accessibility, fix leaky roofs and remove lead paint and asbestos