How changes in D.C. are affecting municipal finance

ByStewart Bowling, Courtney Hoff Dockerty

February 13, 2024 10:16 AM

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The prospect of three consecutive negative total return years, a GAO ruling giving congress the power to review the DoT's multimodal discretionary grant funding opportunity, and a proposed new tax on electric vehicles are among the latest developments in the Capitol that the industry is watching.

Read our roundup below for more on these stories and other muni finance news coming out of D.C.

Rates hold steady, but bond market faces run of negative return years

The likelihood of the Federal Open Market Committee increasing rates once more before the end of last year was dismissed by most analysts at the time.

But while a 12th consecutive rate hike did not materialize, the bond market continued to face the possibility of three consecutive negative total return years. And if the July increase was the last in the current cycle, the 10-year Treasury will have had its day.

"Usually when the Fed funds rate peaks, the 10-year yield has already peaked," said Matt Miskin, Co-Chief Investment Strategist at John Hancock Investment Management.

Read more:

No November hike, but atypical USTs, consumer habits muddy December picture

GAO ruling empowers Congress to review DOT grant spending

A U.S. Government Accountability Office ruling will allow Congress to examine the U.S. Department of Transportation's multimodal discretionary grant funding opportunity, a decision backed by Texas Sen. Ted Cruz.

"President Biden and Secretary Buttigieg should allocate grant funding by implementing the law as written instead of trying to direct taxpayer money to favored projects and constituencies," said Cruz.

Initiated by Cruz's request for GAO review of the multimodal NOFO, the ruling highlights the continuing partisan perspective on federally funded projects.

Read more:

Major transportation grants newly open to Congressional review under GAO ruling

Per-mile user fee alternative to federal gas tax moves forward

An IIJA-funded project looking into replacing the federal gas tax that finances the Highway Trust Fund with the popular alternative of a per-mile user fee has moved forward after a two-year delay.

"We need to work together to reform the Highway Trust Fund to ensure that the users who benefit from the system pay into the system," said Rep. Rick Crawford, R-Ark.

But, as a result of the delay, Congress may not have sufficient information to assess the feasibility of a national per-mile user charge by October 2026 when the next transportation reauthorization bill is due.

Read more:

U.S. per-mile pilot exploring gas tax replacement finally advances

Proposed electric vehicle tax aims to bring EV drivers into line

The well-established practice of all road users paying their fair share is the driving force behind a new bill entitled the Stop EV Freeloading Act, which would mandate that EV owners also pay to use the nation's highways.

"It's not fair to force the millions of Americans who don't drive EVs to foot the bill for those who do," said Sen. Deb Fischer, R-Neb., the sponsor of the bill.

The revenue raised would go directly into the Highway Trust Fund, which received $118 billion in IIJA funding in 2021, but is still projected to go bankrupt by 2027 without further investment.

Read more:

Senate bill would tax electric vehicles to support highways, mass transit

Continuing House polarization bodes ill for bond market

Last year's change in House speaker did little to assuage bond market concerns about the impact of conflict in government on the industry, but rather reinforced them.

"With the political dysfunction, it's very difficult to have a triple-A credit that seems to continually jump from crisis to crisis — and ones of their own making," said Lisa Washburn, managing director of Municipal Market Analytics, referring to Fitch's decision to downgrade the U.S. government.

With the polarization in Congress looking set to continue, the result is likely to be lower government investment in state and city projects, higher borrowing costs and more wrangling over muni market-related legislation.

Read more:

House political dysfunction carries costs for municipal market