drops as U.S. states await Trump plan details
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[August 07, 2017]
By Robin Respaut and Hilary Russ
SAN FRANCISCO/NEW YORK (Reuters) -
President Donald Trump arrived in office having promised a bold $1
trillion infrastructure investment plan over 10 years for roads,
bridges, airports and transit systems crumbling by the day across the
But nearly seven months later the administration has produced few
details on the future of federal infrastructure funding, one reason why
state and municipal governments have issued fewer bonds to improve
roads, water systems and other projects so far in 2017.
An early budget by Republican Trump even proposed stripping popular
transportation funding programs.
Through July, new municipal deals to fund transportation, utilities and
power projects totaled $50.7 billion, down 19.4 percent from the same
period last year, according to an analysis of Thomson Reuters data.
That decline outpaces a broader drop in the U.S. municipal bond market
overall, with total issuance down 13.1 percent thus far in 2017 to
New deals have lagged since November's post-election selloff, when state
and local governments quickly issued bonds fearing potential policy
changes and rate increases by the Federal Reserve.
Since then, the lower issuance has been driven by plummeting refunding
volumes. Such refinancings dominated last year's higher issuance levels,
but the states and cities that sell such bonds were put off by the
overall rise in rates.
"I think people started to realize that the agenda within the Trump
administration wasn't going to accelerate as quickly as had been
advertised," said Randy Gerardes, director of municipal securities
research at Wells Fargo in New York.
That is discouraging news for commuters, travelers and the
transportation industry that must contend with yawning gap of new
projects and maintenance across the country. The American Society of
Civil Engineers this year assigned a D+ grade to U.S. infrastructure.
The Trump administration has announced a 10-year $1 trillion
infrastructure plan financed through $200 billion in government funding,
underpinned by private investment.
While states and cities build most of the country's public
infrastructure, they rely on stable and predictable funding from the
federal government to help complete those projects.
Historically, the U.S. financed the vast majority of its infrastructure
through the tax-exempt, low-cost vehicle of the $3.8 trillion U.S.
municipal bond market.
Trump's plan to utilize private financing to spur the bulk of his
infrastructure program is "unrealistic," said James Grabovac, a managing
director at McDonnell Investment Management.
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U.S. President Donald Trump takes the stage to deliver remarks on
infrastructure improvements, at the Department of Transportation in
Washington, U.S. June 9, 2017. REUTERS/Jonathan Ernst
But state and local governments may be "reluctant to engage in long-term
infrastructure financing given that there's a promise of a trillion-dollar
federal investment program somewhere on the horizon," Grabovac said.
'BOND PICKER'S MARKET'
The dearth of infrastructure-related bond issuance has left a "bond picker's
market," with more buyers than sellers.
"When deals do come to market, people are aggressively bidding them up," said
Gerardes. "That's pushing up the price and down the rates."
Revenue bonds, which often finance infrastructure projects because they are
repaid with tolls, fares and fees instead of tax dollars, maintained a small but
steady spread over general obligation bonds for all of 2014 and 2015.
But that narrowed in the final days of 2016, and revenue bonds are now trading
on par with GO bonds. That is in part because belief in the safety of the GO
pledge has waned since special revenue pledges led to better bondholder
recoveries in some Chapter 9 bankruptcies.
Such competition for new deals could encourage governments to issue more bonds.
But that hinges on the support of politicians and taxpayers, who typically pay
higher user fees or increased taxes to service debts.
"Unfortunately neither one of those options are politically palatable," said
State and local finances are also still pressured by lingering pension and
retiree healthcare liabilities, leaving them wary of taking on more debt to fund
The tides may be changing, however. Last week transportation deals led the new
issuance calendar, buoyed by deals from San Francisco, Washington, Georgia and
Of all infrastructure sectors measured by Thomson Reuters - including water and
sewer, highways and airports - public power saw the biggest drop in issuance of
57.4 percent below par value.
Bonds issued for seaports and marine terminals, however, increased by 134.1
percent and for bridges by 59.9 percent.
(Reporting by Robin Respaut in San Francisco and Hilary Russ in New York;
additional reporting by Melissa Wen in San Francisco; Editing by Daniel Bases
and Grant McCool)
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