Upward of $99B Bond Measures on US Election Ballots Next Week; California Drives Volume With $63B Bonds

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Bond Measure Tracker

U.S. voters are to decide on at least $98.7 billion of municipal bond measures on Election Day, according to updates to Octus’ bond referendum database.

“It’s the largest year in terms of initiatives on the ballot, specifically in California,” said Mikhail Foux, managing director and head of municipal research and strategy at Barclays.

Since the most recent update, Octus, formerly Reorg, has added 178 new bond measures totaling nearly $18 billion to the database, bringing the total number of measures tracked to 451 as of today, Oct. 30. Coverage began in early September, when Octus tallied an initial $61.5 billion in bond measures. This is the last update before Election Day.

Of the measures tracked, California still has the highest volume, at $63.2 billion, followed by Texas, Colorado and Arizona.

The largest measures this year include $10 billion of climate bonds and $10 billion of school bonds from the state of California. The Golden State’s Proposition 4 plans to fund environmental protection projects, water infrastructure projects, and state and local parks, while Proposition 2 will fund public schools and community college facilities.

Other state bond measures include smaller propositions from New Mexico, Rhode Island and Maine. Voters in Rhode Island will decide on a $120 million bond measure to finance affordable housing, along with a $53 million climate bond.

Meanwhile, more than $63.4 billion of measures will be voted on across 318 local school and college districts, which is roughly 64% of total bond volume. Los Angeles Unified School District will ask voters to approve the largest school bond measure on the ballot – a $9 billion bond measure for renovation and facility improvement projects. Houston Independent School District is a close second, bringing a combined $4.4 billion bond measure to voters.

Octus has compiled a list of bond proposals on Election Day ballots. An updated snippet of the top 10 measures by size is shown below.
 

If issuers want to immediately apply voter-approved financing, they will need to reckon with a dense market, as there’s still “a lot of pent-up supply,” according to Foux. “Issuers are finally realizing that they shouldn’t sit and wait; they should come to the market with their deals.”

This year brought in a heavy supply of municipal debt, and market participants expect next year to continue the same trend. This week alone marks the sixth consecutive week of new issuance over $10 billion, and the market rapidly sold off midweek last week as a consequence of sustained levels of heavy issuance.

Municipalities, however, still have the option to delay when they want to approach the market.

“Voters will approve a bond measure, but that doesn’t mean that [issuers] have to issue it at that certain point in time,” said Cooper Howard, a fixed-income strategist at Schwab Center for Financial Research. “It gives [municipalities] a way to decide when they want to take advantage of that increased debt limit that was approved by voters.”

The bond volume per state on the November ballot, including bond measures voted on by counties and smaller municipalities, is shown below:
 

New debt issuance would be only a fraction of the election’s potential impact. Market participants are looking toward waning American Rescue Plan funding, the Tax Cuts and Jobs Act of 2017 and potential expiration of tax-exemption as key policies that could affect the municipal market.

After the election, lawmakers will prepare for the expiration of provisions from the Tax Cut and Jobs Act of 2017, which ushers in the risk of eliminating the tax exemption, according to Tom Kozlik, head of public policy and municipal strategy at Hilltop Securities.

Beyond that, “it’s hard to say at this point. We need to know who’ll be in office and the outcome of the election,” Foux said. “At the end of the year, there might be some initiatives that could help certain parts of the muni market. For example, FEMA needs to be replenished.”

An infrastructure gap still persists, according to Kozlik. There is an annual infrastructure gap of $174 billion, even after infusion of government monies from the Infrastructure Investment and Jobs Act of 2021 and the Inflation Reduction Act of 2022, Kozlik wrote in his recent municipal commentary.

Nonetheless, nearly $99 billion of bond measures will be up for vote Tuesday to target infrastructure gaps and new construction across municipalities. And for those that are approved, “that implies that it has strong backing, strong support from the local populace,” Howard said.

Octus’ entire database of municipal bond ballots is HERE.