Reporters’ roundtable

Transcription:

Chip Barnett: (00:03)
Hi, and welcome to The Bond Buyers reporters’ roundtable, an inside look from the experts at what will be happening around the country that’s of interest to you in the public finance arena. I’m Chip Barnett. And with me today is the core of the bond buyers regional coverage senior reporters, Yvette Shields, Karen Pierog, Keely Webster and Thomas Nocera. Welcome. We’re gonna be looking ahead to what’s on tap for this summer in America, and, uh, what’s gonna be happening even into the fall. Let’s get started, Thomas. what’s it looking like along the East Coast?

Thomas Nocera: (00:38)
Hi Chip. So the East Coast has a few interesting things going on. And one of the biggest stories most recently was the better than expected haul that New York pulled in off of sports betting. They legalized the industry in January. So according to recent reports that come out there’s weekly and monthly reports that tally profits made by the nine authorized bookmakers in the state, plus whatever the city, the state is getting off it, which is a 51% cut. And since legalizing it $6 trillion has been bet by residents. The companies have grossed 4$25 million, and the states made another $243 million in revenue. And that’s headed into the new fiscal year a little after a month after signing New York’s biggest budget in its history, which already had a lot of tax revenue like other states are showing as well. So the story was looking at where that money was gonna go, because there’s a lot of programs that are still hungry for funds.

Thomas Nocera: (01:44)
And there’s a lot of pushing in the legislator to have the state’s reserves bumped from 15% where they are now to 25%. Unfortunately right now, or at least until the next budgetary negotiations, that’s gonna be impossible because all the money’s tied up in education aid and a fund for sports youth programs throughout the state. So whether or not that will change next year, given the fact that this industry is producing way more money than they thought it would be, is still up in the air. So that’s in New York. In New Jersey, we have a look at just the budget and where the money from this budget is going because they have $4.5 billion in revenue. And again, like a lot of other states they’re riding on a post COVID surge in the economies and Jersey’s funds are gonna be directed towards plenty of places, but the key debates right now, going on before the deadline on June 30th, focus on a few programs that are likely to get large portions of this.

Thomas Nocera: (02:53)

So one of them is a tax relief effort and it, uh, models the plan put forward by assembly speaker Craig Coughlin, which is gonna use funds to expand an existing program called the anchor program that gets property tax rebates to homeowners, making anywhere up to 250,000 a year, the other proposal, and, um, likely a place for a lot of the money is going to be the plan by Senate budget and appropriation share to increase the surplus. And this has gained a lot of support across the legislature right now. He was asking for $5 billion at the beginning of negotiations, this recent he was actually for $5 billion at the beginning of negotiations. The governor had agreed to $4.5 billion now with the updated numbers and a higher than expected revenue, he’s asking for $8 billion, whether he’s gonna get it is still up in the air proposals are in between the two.

Thomas Nocera: (03:52)
So there’s some at six, some at seven, and they’re still trying to figure out which one they’re gonna go with. The surge in state’s revenue and all this extra money is temporary again, and experts are warning that it might be. There might be a big windfall as we go into the next year and the fir in the years into the future. So they believe that it is a wise decision to use it for reserves more long-term initiatives, but, um, those negotiations is still ongoing. Those are the major stories from the East Coast. I’m gonna give it back to you now, Chip,

Chip Barnett: (04:32)
Thank you very much, Thomas. Here in New York City, they’re also worried a lot about reserves. Currently, the New York City Mayor and the New York City Council, and the OMB are sitting down and discussing the $100 billion budget that’s due before the end of the fiscal year. What is going on is that the controller and the CBC are both saying that more budget reserves are needed and it’s time to put in some extra money now, rather than later. Additionally, we have what’s going on in Florida, which is Reedy Creek, the intersection of politics and public finance with the dual with Disney and DeSantis continuing. And how that’s going to end is anybody’s guess at this point in time. Additionally in Louisiana, you have fights over guns and the firearms industry where the legislature is saying we’re going to penalize firms that hurt firearms manufacturers and ammunition manufacturers. And the governor is saying, No, I’m going to veto that. So we’re gonna see what happens down there also. It’s also the start of the hurricane season. So it may be a wet and wild year in Florida and for some of the other Southeastern states. Turning to the Midwest, Yvette, what’s going on out there?

Yvette Shields: (05:59)
Thanks Chip. So here in the Midwest, on the state level, things have quieted down in many of the states with many of them who are on one year budget cycles, having adopted those budgets. And that includes Illinois, one of the biggest states in terms of a state that is the lowest on the rung of ratings and its spreads are the widest. So, one that investors really track pretty closely. So after the state approved its budget earlier in the spring, they wanna round up upgrades, right? So state officials are really still just basking, I think, in those upgrades that put them at the triple-B-plus level. So that’s three notches away from junk where, you know, the rating had hung around at for quite a while.

Yvette Shields: (06:57)
So we have an election coming up and the governor’s seeking a second term. And, I turn off the TV after a while because I’m so tired of campaign ads. But the upgrades are really being featured prominently in the governor’s reelection campaign. And in some of the Democratic lawmakers, many states, are on two year budgets in the Midwest. So this year is sort of the off year when they do their capital budgets, Ohio just passed one, In Minnesota it’s stalled, but that’s nothing new there because off most often, it seems since I’ve been covering Minnesota, their legislature is divided with one chamber held by the Democrats, Democratic farmer, labor party, and the other by the GOP. So they just have a much tougher time reaching any kind of agreement in Chicago.

Yvette Shields: (07:57)
Things are gonna heat up, because later in the summer, the city’s gonna hold its annual investors conference. And recently, so they’ll, you know, looking forward to sharing the information about their first casino and the plans for that since it just cleared a pretty big hurdle with the city council, approving it. I think investors will really be looking though for, you know, more detail from the city on how they plan to achieve structural balance next year and, and not just achieve it, but also maintain it. And then also, their longer term plans on pensions and violent crime. It’s up in many urban areas. Obviously we see those headlines all over, but, you know, here, it’s just a really big focus for the mayor. And she has an election campaign coming up the following year.

Yvette Shields: (08:53)
So it’s something that’s definitely on investors and the market and analyst minds just because of the impacts it can have on the tax base and on businesses moving here and staying here. And also, I think investors will really be looking for what, what the city’s plans are when the COVID money dries up and that’ll kick off a whole slew of deals the city has worth billions. Um, they’re doing a GO sale for airport, both our airports, Midway and O’Hare, and also they have water and sewer deals. And Michigan is one of the states that is still trying to hash out a budget, but they don’t start till their fiscal year is until October 1st. So they have a little bit of time. In Detroit, let’s see the financial review commission that was put in place after they exited bankruptcy.

Yvette Shields: (09:46)
They’re expected at their meeting towards the end of June to sign off on another waiver from direct state oversight. It’s been a few years now since they’ve gotten out from under oversight. And but if they, they have to tread real cautiously in terms of managing their budget, because if they do develop a structural imbalance, that could trigger a return. And, um, they sparked a couple upgrades earlier this year, but they’re still in junk. So they’re still really trying to climb their way out of there. And the biggest threat is really, is in a couple years, pension payments are gonna resume. That was sort of a posted bankruptcy plan that gave them some breathing room. And one of the, a big threat that could increase the already big increase they’re facing is,ne of the funds wants to change the amort amortization period and shorten it.

Yvette Shields: (10:42)
And the city does not like that. And the mayor, uh, has, you know, said and stands by that he plans to, um, challenge that legally, uh, something else. One last thing I wanna mention is, I, because I think a lot of folks will have their eye on it is in July. That’s when the defamation trial Preston Hollow Capital is pursuing against Nuveen begins, July 11th. Absent some ruling from the judge or some summary judgment motions or a settlement, there’ll be a trial. And so more of the arguments between the two will be aired out. Preston Hollow is seeking really hundreds of millions of dollars as they argue that Nuveen’s efforts to, to shut them out of the high yield business. Preston Hollow does private placements and, you know is very small shop, obviously compared to, you know, the mammoth, Nuveen, which is the big dog in high yield.

Yvette Shields: (11:52)
And so they, Preston Hollow says that the conversations that the municipal team had with various banks and broker deals, or a couple years back really damaged their business and those threats and really attacks on the firm’s reputation, were caught on recorded conversations that were required to be recorded for regulatory reasons. And those transcripts are really on the centerpiece of an earlier trial, that we’re the judge sided with Preston Hollow, that they had damaged their business and were in the wrong, but the Preston Hollow in that case had not sought any kind of damages was more of an effort to get them to stop. And although Nuveen counters that they never that they had not engaged in any kind of activity that was illegal, that, you know, comments that their municipal team had made was, um, that they were just within the realm of what a competitive business does, you know? So, that in, in that original case, the defamation charge had been dropped. And so that’s what this trial is now about.

Chip Barnett: (13:22)
Okay. And we’ll be right back after this important message. And we’re back talking with our Bond Buyer reporters. Looking to the Southwest, Karen can you tell us what’s gonna be going on out there?

Karen Pierog: (13:39)
Sure thing, Chip. So at the end of this week, the second batch, the second and the last batch of 158 financial companies are due to report about their treatment of fossil fuel companies to the Texas controller. And this is all part of a law passed last year that would prohibit companies that boycott energy companies from obtaining contracts for state local governments, and also has a disinvestment component as well. So, in the first batch, the firms that we’re kind of looking at obviously are the ones that do municipal bond deals. So JP Morgan UBS, Wells Fargo, you know, reported their policies to the controller. And this week in the second batch, we’ll have Barclay’s Goldman Sachs Morgan Stanley and RBC reporting their policies. And then it’s up to the controller to decide, and we don’t know exactly how he’s gonna decide, but who, who is boycotting these companies and who is not.

Karen Pierog: (14:57)
And again, this is important because this will control who can get on some of these bond deals. And even before this list was compiled, a Texas issuer last month, that priced an issue last month, removed Barclay’s RBC and Morgan Stanley from a deal just because they’re under review because of this process that the controller is doing. And interestingly, Morgan Stanley and RBC were tapped for a huge $3.4 billion natural gas securitization deal that’s supposed to price in August. So again, this list could determine if these firms are gonna be in the deal or not in the deal. You know, we don’t know. So Oklahoma also passed a copycat on these lines, but it doesn’t take effect until November. And, you know, it probably won’t get rolling until next year because the the current treasurer is not running for reelection.

Karen Pierog: (16:10)
So that’s gonna be the new treasurer’s thing to do. Also in Oklahoma, the turnpike has a $5 billion, 15 year plan to expand the turnpike. And now that has been the subject of two lawsuits filed in Cleveland County district court. One says that a 1987 state law limited the number of bond issues the turnpike could sell and it’s seeking a permanent injunction prohibiting the turnpike from moving forward, citing concerns that federal protected land will be harmed and thousands of homes and property will likely be destroyed or damaged. Then there was another lawsuit filed, also in Cleveland County court saying that when the turnpike was taking up at least one part of the extension program, they really didn’t communicate that publicly. And so this lawsuit is saying that they violated the open meetings act.

Karen Pierog: (17:27)
Neither of these lawsuits has moved any, but I expect there’s be to some movement this summer. In the meantime, the turnpike was able to get state approval for a revolving line of credit to kind of jumpstart the funding for the program, cuz they’re not gonna be issuing any bonds probably till early next year, but the, the state oversight board basically said, okay, you can use this money, but not for any of the projects that are being contested by litigation. So, that’s about what’s going on in the Southwest. I’m gonna throw it over to Keely Webster for the West Coast.

Keeley Webster: (18:21)
Thank you, Karen. The Western states, I cover that include the West Coast, Nevada, Hawaii and Alaska have either recently wrapped up budgets or nearing the finish line most are fiscally healthy, but worried about inflation, rising interest rates and the potential for recession. It remains to be seen whether economic fears will discourage states from fully capitalizing on the infrastructure bill to issue debt. It doesn’t seem like the big infrastructure push to get the us out of 2008’s Great Recession was fully realized because states were cautious about taking on debt amid financial woes history could repeat itself there beyond the lure of federal money. California has extra motivation to spend on infrastructure because that category is exempt from a mandated taxpayer refund. If the state hits a spending limit established by voters in 1979, the state has a $97.5 billion surplus though half of that will be spent to meet cons constitutional mandates.

Keeley Webster: (19:19)
The California legislature’s placeholder budget released Wednesday includes $40 million for infrastructure, the governor’s version of the budget refunds $6.2 billion in GOs, and would use cash rather than issue $2.7 billion in lease revenue, bonds for projects, the Democrat, the Democrat majority legislature and Democrat Governor Gavin Newsom disagree on whether taxpayers should get a cash rebate or a gas card as a refund to meet the spending limit requirements fit and S&P analysts, both lauded the governor’s version of the budget for its emphasis on one time, rather than multiple year spending the governor and lawmakers have a month to work out their differences and agree to a budget by the July. First signing deadline elections should shake things up this year in Oregon, where they’re selecting a new governor, former house Republican leader, Chris Christine Dron is pulling at 30% slightly ahead of former house speaker, Tina Kotech, a Democrat, Betsy Johnson, also a Democrat running unaffiliated trails with 19% of the vote, a win by Republican Dron could change state dynamics giving, given Democrats have held the governor’s office and had majorities in both houses for a decade co tech defeated treasurer to bias Reed in the primary while Drayson invested a packed field of Republicans, reelected treasurer in 2020 Reed has another two years in that office in Idaho, Republican, governor Brad Little beat fellow Republican and Trump pick Lieutenant governor Janice McGinn in the May primary.

Keeley Webster: (20:48)
He will face Democrat Steve Steven height in November. Idaho hasn’t had a Democrat as governor since 1995. Hawaii also has a governor’s race this year as Governor David Edgy turns out in December, there’s a crowded filled with multiple candidates on both sides of the aisle who will be ding it out in an August primary Alaska, likewise has an August primary for governor Republican incumbent. Governor Mike Dunleavy faces at least three challengers from his own party in California. Governor Newsom is up for reelection, but he won a recall election in September and a poll released Friday by the Berkeley Institute of governmental studies has Newsom leading with 50% of likely voters. His closest competitor, Republican Brian Dolly has 10%. The poll didn’t weigh in on who was leading between treasurer, Fiona ma Democrat, who was running for a second term and Andrew DOE and orange county supervisor, but said income and appeared to be favored generally in state races in Los Angeles, us representative, Karen Bass and billionaire mall developer, Rick Russo are running neck and neck ahead of Tuesday’s primary each with more than 30% support from likely voters.

Keeley Webster: (21:55)
According to polling, if no candidates secures 50% of the vote, the two top vote getters will face off in November. California has no voter propelled statewide bond measures slated for November’s election. Two lawmaker originated measures a $12 to $15 billion school construction bond and a $25 billion bond for an innovative first time home buyer program still have life. There will likely be many local tax and school bond measures on the ballots. And every state as midterm and presidential elections are generally considered a good time to go to voters. The Western states haven’t implemented underwriter bans based on political issues as has been a trend in Southern states. But lawmakers in some cases have chosen to make political statements through to investments in California, Senate bill 1173, a bill that would require the state’s two massive pension funds, CalPERS and Calsters to divest from oil and gas companies by 2027 still has life Nevada treasurer announced Friday that the state would divest from companies that manufacture or sell assault weapons.

Keeley Webster: (22:58)
The policy which took immediate effect in the treasurer’s office will go up for a vote in an upcoming state board, a finance meeting California’s governor announced in may that businesses fleeing from anti-gay or anti-abortion states were welcome to relocate to the golden state in contrast, Oregon Treasurer Reed, and the other members of the Oregon investment council have pushed back against lawmakers who want them to divest from fossil fuels saying they have a constitutional mandate to make investment decisions solely based on what makes the monies as productive as possible. June also marks the historic start of wildfire season with most of the west suffering. The third year of drought states are marshalling their resources in preparation. That’s the wrap up for The Bond Buyer’s Western region. This is Keely Webster. I lead coverage for the area. Thanks for listening.

Chip Barnett: (23:46)
Thank you, Keely. And thanks for everybody being here today and the special thanks to our listeners of this latest bond buyer podcast. Special thanks to Kellie Malone and Kevin Parise, who did the audio production for this episode. Don’t forget to rate us, review us and subscribe at www.bondbuyer.com/subscribe. For The Bond Buyer, I’m Chip Barnett and thank you for listening.