Municipal Bond Analyst Survey, 2018

Source: Tom Kozlik, PNC, Municipal Commentary, April 5, 2018

Key Survey Findings: Pensions still the top issue, but state government credit quality jumped to the third most important issue

State government credit quality (48%) jumped to the third-ranked “most important trend” in our survey of 168 municipal analysts. Last year, state credit quality was ranked eighth (24%).

Public pensions (92%) and federal policy uncertainty (60%) remain the first and second most important issues/trends facing the market.

The 2017 Tax Cuts and Jobs Act impact on municipals: 78% of analysts forecast 2018 municipal bond issuance will be under $350 billion versus $446 billion in 2017.

More related to the 2017 tax cut: 29% expect the elimination of advance refundings to have the greatest impact on the municipal bond market. Total 2017 issuance was a record $446 billion.

Tax-exemption threat: Only 11% of municipal bond analysts see a “strong” or “very strong” threat to the municipal bond tax exemption after the passage of last year’s tax cut legislation.

Climate change: Only 3% of those surveyed believe state and local governments are “prepared” or “very prepared” for climate change.

Infrastructure: President Donald Trump’s infrastructure proposal did not resonate well with those analysts surveyed, with 37% having a “negative” or “very negative” opinion of the plan.

Pensions: Half of the municipal analysts polled think there is a public pension funding crisis.

Recoveries: Most (79%) analysts do not expect future municipal bond recoveries to be “strong” or “very strong.”

A total of 64% of analysts polled have a “somewhat unfavorable,” “very unfavorable,” “undecided,” or “do not consider ratings” view about Kroll’s municipal bond ratings. This is a slight improvement compared with the total of 66% reported in our 2017 survey.