The Pandemic and Municipal Credit Trouble Spots and Transformations Presentation to MSMA February 3, 2021 - The Public Purse

The Pandemic and Municipal Credit
Trouble Spots and Transformations
      Presentation to MSMA
         February 3, 2021

                Natalie Cohen
         National Municipal Research
       ncohen@nationalmunicipal.com
         https://thepublicpurse.com
 https://www.linkedin.com/in/nataliecohen/   Courtesy of National Municipal Research, copying or redistributing prohibited

                @munianalyst

Introduction

• Known troubled obligors
• Fiscal pressures
• Pandemic accelerated trends
• What changes will stick and what will revert to pre-pandemic levels?
• Whither Infrastructure?? What about the market?
• Other elephants in the room
   • climate, unfunded pensions and OPEB, cybersecurity
• Questions and discussion

                        Presentation for MSMA 2.3.2021, National Municipal Research   3

Known Troubled Obligors
• Senior living: nursing homes, CCRC’s
• Toll roads
• Transit
• Theaters, sports arenas
• Entertainment, leisure destinations: Florida, Nevada
• Hotels, airports, long-distance trains
• Small districts and communities with retail concentration
• Economic development districts with multi-use approach, including retail,
  restaurants, bars, tax increment
• Prisons
• Higher education: student housing, auxiliary enterprises, tuition disputes
• School districts
    • Safe to re-open? State aid cuts? Broadband, wifi and equipment for remote learning
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Fiscal Pressures
• At the state level, unemployment insurance, Medicaid costs, under-funded
  pensions and OPEB
• Revenue losses, spending increases
• Slow and confusing rollout of federal help
   • Municipal Liquidity Facility
       • Helped calm market but less impact on other places experiencing liquidity pressure
       • Restricted to larger places; continuous revisions
   • Coronavirus Aid, Relief and Economic Security (CARES) Act Coronavirus Relief Fund (CRF)
       • Targeted at entities with larger populations
           • Federal government punted to them to determine redistribution
       • Lack of clarity on spending eligibility
           • Pennsylvania previously used casino monies for schools to relieve property tax pressure;
              federal government denied using COVID aid to replace casino revenue loss (Later, PA took
              unused funds to help its budget)
       • Spending limit was to end December 31st
           • There was a rush to spend before cutoff – deadline was subsequently extended
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The Pandemic Accelerated Trends
• Retail real estate – both malls and small businesses at street level
• Commercial real estate
• Ecommerce
    • Heavy port traffic
• Remote work and learning
    • Changing composition of places
        • “the new migration”
        • Retail malls become last mile warehouse and distribution
    • Re-consideration of worker compensation
        • i.e. cost of living differentials (Silicon Valley workers)
        • new appreciation of front-line workers
             • nurses and other medical staff
             • grocery stockers and checkout workers
        • Interstate taxation: New Hampshire vs. Massachusetts lawsuit
    • Higher education

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What Changes Will Stick and What Will
Revert to Pre-Pandemic Levels?
 • Short-term – pent up demand
    • People want to connect in person
          • Restaurants and bars that were able to survive will reopen
          • Sports arenas, theaters
          • Travel and vacations will return but consider the “supply chain” for vacations – booking
            services, transportation, hotels, and destination entities. The fiscal “wellness” of each part of
            the chain matters for smooth transactions
 • Longer term
    •   Migrants that bought property likely to remain
    •   Office space is costly and time-consuming to re-configure for health and safety
    •   How will senior care be transformed?
    •   How will higher education transform?

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Whither Infrastructure?
               What About the Market?
• Municipal market is ok; high level of new money borrowing in 2020 despite
  pandemic. While the municipal capital markets cover much of the infrastructure
  spend, they do not cover full infrastructure need.
• Taxable refundings soared due to low cost of taxable bonds.
   • “Scoop and toss” refundings to ease COVID fiscal pressure
• Yet traditional areas of federal funding (e.g. highway trust fund) that was routine
  has now become part of the political football, despite former president’s promise of
  $1trillion
• Congress may pass some version of infrastructure help… but will come after current
  relief package, if at all.
• Municipal market key issues:
   • Advance refunding
   • Bank qualified
   • SALT deduction caps
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Other Elephants in the Room
• The green factor
    • Opportunities to build back better
    • Climate change isn’t going away and likely to continue to produce:
        • Hurricanes
        • Wildfires
        • Earthquakes
        • Extreme flooding
• Underfunded pensions and OPEB
• Cybersecurity

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Questions? Discussion?

           Thank you

                  Natalie Cohen
           National Municipal Research
         ncohen@nationalmunicipal.com
           https://thepublicpurse.com
   https://www.linkedin.com/in/nataliecohen/
                  @munianalyst
       Presentation for MSMA 3.2.2021, National Municipal Research   10