Public facilities, environmental facilities grew most in 2021

Public facilities and environmental facilities were the municipal sectors showing the most growth in 2021.

Public facilities expanded 41.8% and environmental facilities increased by 38.5%. The housing sector came in third, with 32.8% growth. These increases compare to an overall 0.9% decline in overall volume across all sectors.

All data is from Refinitiv and all percentages are for changes in dollar issuance volume in 2021 from a year earlier.

John Hallacy

John Hallacy, president of John Hallacy Consulting, said expected the transportation, education, and health care sectors would grow this year.

Bloomberg News

Public facilities had a 50.8% increase in new money and a 5.3% decline in refundings. Environmental facilities grew by 73.9% in new money and shrank 5.7% in refundings. The numbers for housing were 40.9% of new-money growth and a 48.9% drop in refundings. Across all sectors there were a 15.8% increase in new money and a 25.9% decline in refundings.

Public facilities is always one of the most active sectors,” said John Hallacy, principal at John Hallacy Consulting. “When rates are low these projects are more affordable since they are generally being funded from tax dollars.

“The environmental category keeps growing because of federal funding and a need to replace lead pipes,” Hallacy continued. Housing “activity now is being driven by the acute needs for affordable housing, especially in high-priced markets such as California and both coasts.”

The sectors with the greatest increases in terms of dollar volume were housing ($9.7 billion), transportation ($6.1 billion), and public facilities ($3.7 billion). The transportation sector saw some large projects start in surface transportation, Hallacy said.

The sectors with the greatest declines were education with 16.1%, utilities with 6.3%, and healthcare with 3.3%.

Education’s decline from 2020 “is very much due to the unusually high issuance by education issuers in 2020, particularly public and private colleges and universities,” said Erin Ortiz, managing director of municipal research at Janney Montgomery Scott. In 2020 there was an increase in higher education liquidity borrowings.

“The attractiveness of rates from the second half of 2019 into 2020 spurred large taxable debt issuance by large and/or wealthy institutions that came to market in 2020 with mega-sized deals,” Ortiz said.

Healthcare declined because “long-term capital facilities considerations were way down the priority list and masks and proper staffing were of the utmost concern,” Hallacy said. “Utilities have accomplished a lot of refinancing already and there are not many large generation projects being undertaken. Alternative energy projects to date have not required quite as much capital.”

In the education sector, the cities and towns subsector issuance increased 36.5% and from 54 to 59 sales, even as the education sector declined 16.1%. “Population growth continues to be strong in the South,” Hallacy said. “If you examined the data, you would find that a lot of that volume was in small entities in Texas and other Sunbelt states.”

The environment sector increased 38.5%. However, the pollution control subsector increased 65.3% and from 29 sales to 33 deals. “Air quality is a keen focus across the nation especially with the environmental, social, and governance emphasis of today,” Hallacy said. “Mitigation efforts are back on the table since the U.S.A. rejoined the Paris Accord [on climate change].”

In the health care sector, the life care/retirement subsector increased 123.4% and to 75 sales from 43.

“Given the headline risk and the negative impact of the pandemic on the continuing care retirement communities sector generally, this was likely the driver for a more robust calendar in 2021 compared to the initial year of the pandemic,” Ortiz said.

In the public facilities sector, the civic and convention centers subsector grew 161.9% and to 38 sales from 15. “It is easier and faster to do the construction when there are no live events going on,” Hallacy said.

In the transportation sector, the bridges subsector increased by 395.8% and to 26 sales from 10. “There is considerable focus on substandard or deficient bridges around the nation,” Hallacy said. “They are capital intensive projects and low-cost financing presents a great positive factor in the plan of finance.”

In the utilities sector overall issuance declined 6.3% but the gas subsector increased 192.6% and to 28 sales from 21. “Gas is a more favorable energy source due to a lower adverse effect on the environment versus other sources,” Hallacy said. “Gas technology has made advances over the years that has created more efficient and lower polluting generation plants.”

Hallacy spoke of his expectations for the current year saying, “The larger the project the more sensitive it will be to changes in interest rates. I fear that some plans may be delayed or deferred.

“However, federal funding has a great influence on what will be done. Transportation issuance will increase. Education and healthcare will return to trend due to the waning influence of the pandemic.”

Ortiz said, “States and other large municipal borrowers … have newfound incentives from the federal infrastructure bill that will likely necessitate bonded debt to supplement federal grants, in areas like highways, roads, and bridges and new infrastructure needs.”


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