Cities, states anxious about impact of politics on capital plans

Amid another record year for bond issuance, cities and states are acutely aware of the potential impact of politics on their borrowing plans.

"In my 34 years of being a banker in the business, I've never seen this level of hand wringing at the issuer level," said Matt Boles, managing director at RBC Capital Markets. "There is lots of anxiety and consternation about when you access the market. It comes down to the political pressures we see at the state and local government levels and then nationally [as well]."

Boles' comments came Tuesday during the Government Finance Officers Association's "Mini Muni" conference.

The political uncertainty facing cities and states under the Trump administration and the fast-rising cost of capital projects are driving what's expected to be another record year of municipal bond issuance this year. The threat to tax-exempt municipal bonds during the One Big Beautiful Bill Act negotiations prompted many issuers to hit the market as soon as possible.

State-level politics are also affecting issuers. In Texas, there's "an incredible movement" toward reducing property taxes, limiting debt issuance and other "fiscal controls that can lessen the burden on taxpayers," Boles said.

"The evolution of the political environment with regard to infrastructure .... has driven the issuers to recognize they always have to consider the political winds of what is going on," he said.

Year-to-date issuance as of September totaled $433.4 billion, up 11.8% from $387.8 billion over the same period in 2024. While supply dropped in September and may be slowing in the fourth quarter, 2025 is set to be another record year, falling somewhere in the initial range of issuance forecasts between $525 billion to $600 billion.

Historically, weekly volume total around $7 billion to $8 billion range, said Patricia McGrorry, a managing director at Ramirez & Co., during the GFOA conference. "This year is certainly north of that," with just under $11 billion for weekly volume, McGrorry said.

The rising cost of capital plans accounts for some of the increased new-money supply, McGrorry said, a trend that she expects to continue next year.

"The anxiety is really driven by the notion that projects could be priced out," Boles said. "We quite often get the question, 'Do we accelerate our plans? Do we take a different approach to market access than we have in the past?'" he said. "The answer is different from one sector to another," he said. But generally, "issuers should issue debt when they need debt. Develop a plan and stick to that plan."

Tom Kozlik, head of public policy and municipal strategy at Hilltop Securities Inc., said next year's pace of economic growth will help determine the level of new-money issuance and interest rates will drive refunding levels.

"The last thing ... that has really driven issuance in the last two years is that overall municipal credit quality has been very, very high," Kozlik said.

With federal pandemic stimulus running out, issuers will likely be more focused on "balancing their revenues with ongoing spending," he said.

"I don't think credit quality is going to fall off a cliff like in 2013" after the Great Recession, Kozlik said. "But I do think there's going to be a little pullback because of the fact that folks are going to be more careful about their balance sheets," he said. "Approaching 2026, I'm really questioning if we're going to see another record year next year."