Road work ahead
The infrastructure bill benefits municipalities and muni investors alike.
The recently passed $1.2 trillion Infrastructure Investment & Jobs Act will take a load off states and municipalities by addressing decades of underinvestment in physical projects, a positive for investors in the broad muni securities market.
Most of us can name a road or bridge that worries us, but decades of inaction also have garnered criticism from the experts, including poor grades on the American Society of Civil Engineers Infrastructure Report Card. Municipal issuers will now receive funding for maintenance, upgrades and new projects.
The monumental bill increases federal spending by $550 billion over five years and provides for a five-year reauthorization of the existing federal highway bill. The new funding includes $110 billion for roads and bridges, $66 billion for rail projects, $42 billion for ports and airports and $39 billion for public transit. Much of the rest will go toward updating the power grids, drinking water and lead service lines, and expanding broadband access. The bill does not address other priorities once expected, including the return of advanced refunding and a direct-pay taxable bond program with federal subsidies to issuers.
Increased funding for infrastructure is a credit positive for state and local governments and related municipal entities that typically assume the lion’s share of public sector investment. According to the Congressional Budget Office, in 2017 state and local governments contributed more than three-quarters of the total $441 billion in public spending for transportation and water projects. Historically, a portion of those efforts would have gone unaddressed, delayed or been funded through additional debt issuance that strained cash flows and eroded credit quality.
The bill also will benefit municipal issuers of revenue bonds through large grants, including record amounts of transit funding. For example, the New York Metropolitan Transit Authority (MTA) has been experiencing a significant decline in ridership and operational revenues as a result of the pandemic. Lower revenues, projected budget gaps and a $55 billion 5-year capital program were expected to lead to higher leverage and had caused concern about the MTA's long-term solvency. It is now expected to receive significant funds to address capital needs, reducing the risk of credit deterioration.
Overall, the passage of the bipartisan infrastructure plan represents a win for the economy and should enhance efficiency and restore competitiveness. After years of frustrations with potholes, cracks in concrete bridges and the rising costs of snarled supply chains, consumers and investors should be heartened by the news.