In 2021, the fastest growing municipal sectors were public facilities and environmental facilities.
Public facilities grew 41.8% while environmental facilities grew 38.5%. With 32.8% growth, the housing sector was third. These increases are in comparison to a 0.9% decrease in overall volume across all sector.
All data are from Refinitiv. All percentages refer to changes in dollar issuance volume for 2021 compared to a year ago.
Bloomberg News
Public facilities saw a 50.8% rise in new money and a 5.3% decrease in refundings. Environmental facilities saw a 73.9% increase in new money and a 5.7% decrease in refunds. Housing saw a 40.9% increase in new-money and a 48.9% decrease in refundings. There was a 15.8% increase of new money across all sectors and a 25.9% decrease in refundings.
John Hallacy, principal of John Hallacy Consulting, stated that public facilities are always the most active sector. Because they are funded largely from tax dollars, these projects are often more affordable when rates drop.
Hallacy said that the environmental category continues to grow because of federal funding and the need to replace lead pipes. The urgent need for affordable housing is driving current housing activity, particularly in high-priced areas like California and both coasts.
Housing ($9.7 billion), transport ($6.1 billion) and public facilities (3.7 billion) saw the largest dollar volume increases. Hallacy said that the transportation sector saw large-scale projects in surface transportation.
The most affected sectors were education (16.1%), utilities (6.3%), and healthcare (3.3%).
The unusually high issuance of education issuers in 2020, especially public and private colleges, is responsible for the decline in education from 2020, according to Erin Ortiz (managing director of municipal research at Janney Scott). In 2020, there was an increase of higher education liquidity borrowings.
Ortiz stated that the attractive rates in the second half of 2019 and 2020 prompted large taxable debt issuances by wealthy and large institutions. In 2020, they came to market with huge deals.
Hallacy stated that healthcare declined because long-term capital facility considerations were way down on the priority list, and masks and proper staffing were of utmost concern. Utilities have already done a lot in refinancing, and there aren’t many large-scale projects being undertaken. Alternative energy projects have not required as much capital to date.
The education sector saw a 36.5% increase in cities and towns subsector issuance, and a rise of 54 to 59 sales, despite the decline in the education sector. Hallacy said that South-based population growth is strong. You would see that most of the volume was concentrated in Texas and other Sunbelt States if you looked at the data.
The environment sector saw an increase of 38.5%. The pollution control subsector saw an increase of 65.3%, with 33 deals and 29 sales. Hallacy said that air quality is a major focus across the country, especially considering the current emphasis on environmental, governance, and social aspects. Since the U.S.A. has rejoined the Paris Accord, mitigation efforts have been back on the table. [on climate change].
The health care sector saw a 123.4% increase in life care/retirement sales, compared to 43.
Ortiz said that due to the pandemic’s negative impact on continuing care retirement communities, and the headline risk, 2021 will likely have a more robust calendar than in the initial year.
The subsector of civic and convention centers in the public facilities sector grew 161.9%, and 38 sales were achieved from 15. Hallacy stated that it is easier and more efficient to build when there are no live events.
The transportation sector saw a 395.8% increase in bridges sales, compared to 10. Hallacy stated that there is a lot of attention on substandard and deficient bridges throughout the country. These projects are capital-intensive and low-cost financing is a major positive in the plan for finance.
The overall issuance for utilities fell 6.3%, but the gas sector saw an increase of 192.6% and increased to 28 sales from 21. Hallacy said that gas is a more beneficial energy source because it has a lower environmental impact than other sources. Over the years, gas technology has made significant advances that have led to more efficient and less polluting generation plants.
Hallacy spoke out about his expectations for this year and said, “The larger the project, it is the more sensitive to changes in the interest rates.” Some plans might be delayed or postponed, I fear.
Federal funding can have a significant impact on what is done. Transportation funding will rise. Due to the diminishing influence of the pandemic, education and healthcare will rebound to their former glory.
Ortiz stated that the federal infrastructure bill has given states and other large municipal borrowers new incentives. Bond debt will likely be required to supplement federal grants.
