One of muniland’s most accurate forecasters, Tom Kozlik of Janney Capital Markets, has some astonishing numbers in a new report. He predicts that total municipal bond sales for 2014 will drop to between $250 and $275 billion. That is a big fall from 2013 issuance of $330 billion. Here are some of the factors that Kozlik used to develop his rationale for a shrinking muniland:
Higher interest rates
Use of direct bank loans
Less flexibility in spending
Political and voter attitudes
Lack of broad public policy supporting infrastructure spending
Kozlik goes further and says that the same factors will cause issuance to fall further in the next one-to-three years. So muniland could shrink for the next three years. Couple this with extraordinary demand for municipal bonds, and it’s an issuers’ market.
Most of Kozlik’s theory has already been dissected, but he brings in a sociopolitical angle that is not often discussed. The lack of broad public policy support for infrastructure spending is a significant issue. Reuters reported a poll in which California voters said they prefer paying down debt to broadening the social safety net.
California Governor Jerry Brown’s insistence on paying down debt and stockpiling savings instead of increasing funding for social services for the poor resonates with voters, who support the idea overwhelmingly, a new poll shows.
The study by the Public Policy Institute of California showed that 57 percent of likely voters prefer Brown’s proposal of paying debts and saving cash for hard times, compared with 39 percent who say the state should shore up its tattered safety net.