$123.9B in Bonds Up for Voters’ Determination in Nov. 3 Midterms; Tax Issues Take Center Stage in Florida, California; Ohio Accounts for Largest Share of Data Center-Related Measures

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Voters are expected to decide on at least $123.9 billion in bond issuances spanning over 600 proposed measures across the nation in the Nov. 3 midterm elections, according to data compiled by Octus. Meanwhile, certain nonbond measures that propose expanding the homestead exemption in Florida, implementing a billionaire tax in California and imposing restrictions on data center buildout in states such as Ohio and Illinois are a few of the most widely discussed issues in the municipal market, sources told Octus.

Bond referendums are headlined by Texas and California, where $63.9 billion and $37 billion of debt will be voted on, respectively. In Texas, measures are dominated by municipal utility districts, whose residents are voting on a total of $40 billion in bonds across 151 different ballots. Other notable issues in the state include Dallas’ Proposition A, a $443 million bond issuance for fire, police and emergency services, and two ballots totaling $295 million in Austin to fund parks and libraries.

California will have two massive statewide propositions: Proposition 1, an $11.25 billion issuance for veteran and affordable housing, and Proposition 38, an $8.4 billion general obligation, or GO, issuance to fund scientific research. California will also be voting on 77 school district bonds totaling $11.3 billion. This follows a busy primary election season, where the state voted on $1.7 billion of school district bonds, with $1.1 billion of them passing.

Although California and Texas proposals make up the lion’s share of bonds being voted on in November, they are not the only states with debt on the ballot. Arizona will be voting on $2.1 billion of bonds, including a $285 million issuance from the city of Mesa. Other major cities across the country will also have their own referendums, including $425 million in Charlotte, $280 million in Baltimore and $450 million in Miami.

Beyond California, three other states will have statewide bond referendums, with Rhode Island voting on $600 million across four measures, New Mexico voting on $280 million in GO bonds and Arkansas voting on a $500 million GO issuance targeted toward water and sewer improvements.

Florida Property Taxes

“As the old Tip O’Neill saying goes, ‘all politics are local’ – and this is no different,” said John Mousseau, executive vice president and chief investment officer at Sarasota, Fla.-headquartered investment firm Cumberland Advisors, of Florida’s Amendment 3. Excluding school properties, this would amend the state constitution to exempt the first $150,000 of a home’s assessed value from property taxes in 2027 and $250,000 in 2028 and thereafter. The amendment also requires 60% voter approval to take effect.

A number of communities have already put a hold on hiring because of the uncertainty surrounding the bill, all while being “woefully behind in infrastructure development,” Mousseau added. “Remember these reductions in property taxes, if passed, will be made up by additional sales taxes – so the whole exercise is a regressive tax,” he cautioned.

Florida’s homestead exemption issue exemplifies that “no matter which side of the aisle you sit on, municipal finances are not immune to the pressures of partisan politics,” said Jason Appleson, managing director and head of PGIM’s municipal bond team. According to Barclays Research, there are 13 measures across seven states addressing homeowner and business exemptions, assessment rules, tax-rate authority and restrictions on imposing property taxes. In Florida specifically, local government revenue reductions are estimated at $4.6 billion in FY 2028 and $8.4 billion in FY 2029 if Amendment 3 is passed, which would have a significant impact on Florida local credits, Barclays noted.

Most at risk seem to be lower-rated issuers where capacity to restore funds may be more limited, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital. Although the ballot measure exempts school taxes, the state’s efforts to expand its voucher programs may pressure smaller districts with limited resources, she said.

Both S&P Global Ratings and Fitch Ratings have also released reports warning that Amendment 3’s passage could degrade credit quality for Florida’s local governments. The S&P report, which surveyed 90 local governments in the state, found that issuers would lose an average of 14% of their tax revenue and expect to make it up through a combination of user fee increase and special assessment charges.

California Wealth Tax

On the wealth tax front, California’s Proposition 40 would impose a one-time 5% tax on taxpayers and trusts with covered assets valued over $1 billion, with the proceeds going toward healthcare, education and food-assistance programs. This follows Washington state’s 9.9% tax for incomes over $1 million that was signed into law back in March and New York City’s pied-à-terre tax that took effect in July, noted Olsan. “The billionaire tax approach appears to present obstacles to [the] capture of all assets, particularly those held out of state,” she said. “I suspect there will be substantial legal challenges even if it does pass.”

The wealth tax is not the only notable California tax on the ballot, with five counties in the San Francisco Bay Area voting on Measure RTM, a sales tax increase that would avert the fiscal cliff transit agencies in the region face as they still recover from the ridership drop-off that came during the Covid-19 pandemic. The measure comes after a $590 million bridge loan approved by the state of California in February. Agencies in the area have already started to make contingency plans in case the measure does not get the 50%+1 of votes required to pass, with “doomsday” levels of service cuts having already been planned just in case.

Although the Bay Area faces the most stark choice when it comes to transit in November, other votes worth watching for their effects on transit credit include state elections in Pennsylvania, where the long-term funding situation for the Southeastern Pennsylvania Transportation Authority could change depending on whether the Democratic Party wins total control of the state government.

Data Centers

Turning to data centers, at least 44 ballot measures involving data center development are up for voting this year, with Ohio leading the pack with 21 measures across 18 jurisdictions, followed by Illinois accounting for seven measures. Most of Ohio’s measures would prohibit the construction of large-scale data centers, including those with aggregate loads exceeding 25 megawatts.

“The Ohio proposals are part of the broader backlash against data center development that we’ve seen recently in other parts of the country,” said Chad Farrington, co-head of municipal bond strategy at DWS. Given waning data center popularity in the United States, political candidates across the spectrum have been running on anti-data center campaigns, echoing “a chorus of complaints” from higher electricity costs to irritating humming noises, added PGIM’s Appleson.

Most recently, Senate Democrats blocked the Ratepayer Protection Act, or RPA, sponsored by Sen. Jon Husted, R-Ohio, who is facing a tough election race against his opponent, former Sen. Sherrod Brown, D-Ohio. The nonbinding features of the RPA, according to Democrats, did not go far enough to shield consumers from higher energy costs related to data center development.

But even if proposals aimed curbing data center development gain traction and are eventually approved, it will likely redirect development elsewhere rather than derailing the broader data center buildout, Farrington said. Projects may gravitate toward jurisdictions with available power and infrastructure and a more supportive political environment, which “could create meaningful differences among regions, particularly as we assess who pays for the infrastructure needed to support that growth, but probably [will have] only marginal impact,” Farrington explained.

With several states and cities having initiated stays on data center builds, “it seems to be a double-edged sword,” said Olsan. Either restrict buildouts and potentially risk forgoing valuable revenue streams, or permit builds to occur but with negative local sentiment related to utility rates and environmental impacts, she explained. “It’s possible a middle-of-the-road approach may serve municipalities well, especially where the center sponsors bear some or all of the cost,” she said.