Opening Remarks and Opening Keynote

Transcription:

Michael Ballinger (00:10):

Good morning. Good morning. I'm Mike Ballinger Publisher at Bond Buyer. It's my pleasure to welcome you to our 11th Annual National Outlook Conference. This conference will address key issues and trends that will impact the municipal bond market in 2025 and beyond. Coming on the heels of a record bond issuance in 2024, our market now faces new risk and opportunities amid adjusting to a new administration and Congress in Washington. Many in this room feel the threats to the tax exemption in various sectors of the market are more severe than the years past. That coupled with macroeconomic uncertainty and geopolitical tensions make for a challenging beginning to 2025, but also provides the industry with an opportunity to highlight the resiliency both the market itself and the infrastructure it builds. The missile market is integral to the providing growth at home and making our communities competitively globally. Hopefully this conference will help us navigate through these difficult, challenging marketing conditions.

(01:09):

We're particularly delighted to have such a strong lineup of keynote speakers, including Robert Rodriguez, President and CEO of the Dormitory Authority of the State of New York, and John Drake, Vice President Transportation, Infrastructure and Supply Chain Policy of the US Chamber of Commerce. Before I get started, I'd like to take this opportunity to thank all of our sponsors and speakers of this conference, especially our conference co-chairs, Kevin Murphy of Hawkins Delafield & Wood, and the Natasha Holiday from RBC. I'm pleased report this year we have over 300 registered attendees, which is a record for this event. I also acknowledge a few Bond Buyer employees who outstanding work in this conference, including Lynne Funk, who's responsible for this excellent agenda, as well as Dan Hoskins, Dina Piccolo, Kimberly o' Carra, and Sarah Barringer have handled all the marketing and conference logistics for the conference. Please join me in a round of applause for their efforts.

(02:03):

Mikes Scarelli, Editor in Chief and members of the York editorial team, including Jessica Lerner, Christie Baker, and Kathy O'Donnell will be at the conference. I urge you to reach out to them during the course of the day. Before I introduce the conference co-chairs, I'd like to take a moment to recognize two members of our community. We lost in a tragic accident in Washington last week. Moody's rating analyst, Chris Collins and Melissa McAndrew were among the 64 passengers and crew aboard American Flight 53 42. On behalf of the Bond Buyer, our hearts go out to their families, friends and colleagues, and to all those were lost in the crash.

(02:41):

It's now my pleasure to introduce our conference co-chairs. Natasha Holiday is Managing Director and Co-Head of Infrastructure East for RBC Capital Markets, which he manages a 40 person banking team and structures debt and sells bonds in the public and private markets to raise capital on behalf of large city and state governments to fund public infrastructure. Natasha's a member of RBCs municipal Finance Operating Committee and serves as a member of the MSRB and also co-chairs RBCs, US Capital Markets Diversity Leadership Council. Natasha was recognized by the Northeast Women of Public Finance and the Bond Buyers of Trailblazing Woman Public Finance in 2019 and the Bond Buyers Rising Star Award in 2016. Kevin Murphy is a Partner at Hawkins Delafield & Wood. He has served as Bond Council Disclosure Council, underwriting Council on a variety of revenue financings with particular focus on issuers in New York state and state and local housing finance agencies. Kevin's Resident Hawkins, New York City office is a member of the firm's management committee. Prior to joining Hawkins, he served as US Department of Housing and Urban Development Office of the General Counsel. Please join me in a warm welcome for Natasha Holiday.

Natasha Holiday (03:52):

Well, good morning everyone. It's a pleasure to be here. Thank you to the Bond Buyer for continuing to bring our industry together in ways that are informative and help advance our knowledge base as well as our business. I'm Natasha Holiday. I bring greetings from RBC and really thank you for the opportunity to co-chair a second year with Kevin and Hawkins. And we have, as Michael mentioned, an excellent roster of talent of leaders of topics to discuss today ranging from the market outlook, resiliency, tech, investor, landscape, IA technology, and the ever-changing legislative environment. So thank you so much and we hope that you all have an enjoyable conference. Thank you, Kevin.

Kevin Murphy (04:48):

Thanks Mike and Natasha, thank you all on behalf of Hawkins Delafield & Wood for braving the weather today and coming out. It's a great venue, especially cozy feeling today. I joined by a number of my partners here who are either here now Sam Litton, our 2024 Rising Star, and a number of my other partners who work across various industries and bond and underwriters council roles, as well as our P three public contracts group. And I know to echo what Natasha said, all of us at Hawkins rely on the Bond Buyer in serving our clients to all that they do in bringing us the latest views from industry experts and leaders, whether it's through their daily coverage or their great webinars or their conferences. Today is no exception. So I'm looking forward to all the panels. It was a great record year. I think everyone seems certain that we're going to have an even at least as good of a year issuance wise next year. There's uncertainty how much better it's going to be, and no one's really happy about the potential reasons for that. So that tax policy topic will obviously be front and center. I look forward to hearing from all our panelists. And with that, I will ask, we will bring up Rob Pattison from Morgan Stanley. He's the Co-Head of public sector and Managing Director there who will be introducing our keynote speaker. So thanks again for coming and welcome Rob and our keynote speaker.

Robert Pattison (06:32):

Thank you Kevin. So our public sector group at Morgan Stanley. We have many of our colleagues here today. We are responsible for state and local government issuance nationwide. So this morning is my pleasure to formally introduce to you all this morning's keynote speaker as well as president CEO of the dormitory of the state of the New York, or as we call it, Dasny, which was the number two issuer of municipal bonds in the country this past year. Robert Rodriguez. I've been fortunate to know Robert for more than 15 years, having first met him when he and I caught up for lunch in Albany. And he was during his brief downtime when he was meeting all of his public sector clients to most currently working with him and Porsche on the authorities 2.15 billion state sales tax revenue bonds series 2024 B and C issuance. So as you can all see in the Bond Buyer National Outlook Conferences website page of our 2025 speakers, and for those who do not, Robert is located in the upper right on the page.

(07:34):

Robert has been committed to public service his entire life, having prior served in the public sector as New York Secretary of State, as well as for 11 years, he was the assemblyman representing East Harlem as well as Randalls and Ward Islands in District 68. He was committed to the public sector even when he was in the private sector, having served as a financial advisors to many issuers in the northeast while he was at PFM as well as at AC advisory. So now for those wanting to know more about Robert beyond his provided bio that he gave us today, I performed additional research for you all from the list, reliable source social media.

(08:20):

So did you know that on Facebook, Robert's page has over 2,800 followers, over 325 of his friends wished him a happy birthday on April 11th last year. And during the eclipse, his game base included wearing ISO certified solar eclipse glasses. So then on LinkedIn last I checked, which was about 15 minutes ago, Robert has over 500 connections as well as 3,277 followers. Robert also has 31 skills ranging based on his endorsements from fundraising where he has over 99, which is tied with leadership, which is over 99 to nonprofit organizations, which is two. So Robert, you can thank Tom Hogan and Sergio Valenti Valentin for those two endorsements. And I hope everybody in the room boost up his nonprofit organization endorsements this morning. I would say he has 80 nonprofits, but endorsements but only two on nonprofit organizations. And then lastly, his recommendations state the following, Rob is the most able lawmaker, negotiator and mediator. No one anywhere matches Rob's outstanding organizational and people skills. And finally, regardless of whether it was early in the morning or after hours, I felt comfortable reaching out to Robert knowing his door was always open. Without further ado, I welcome Robert Rodriguez.

Robert Rodriguez (10:08):

Thank you Rob for that kind and fun introduction. I do a lot of those and I am sure no one has done as much research on me on my social media account as you have even my comms team no less. But thank you so much for that and it's great to be here with you. And I look forward to chatting a little bit about some of the interesting trends and things that we have seen collectively here. But as I look at on the room, I see so many friends and just the collective group of experience and expertise here that's gathered here today and recognize that that's a pivotal moment in our industry and it's great to have so many dedicated professionals here. I want to recognize Porsche Lee, who's our Managing Director of Public Finance at Dasny and has been a stalwart for our municipal issuances.

(11:02):

And as we find ourselves at this fascinating intersection with record breaking market activity as well as unprecedented uncertainty, creating both challenges and opportunities, hopefully for all of us that none of us could have predicted over a year ago, we recognize that in order to know where we're headed in 2025, it's worth taking a step back and looking at where we have been. So to understand where we're going, let's talk a little bit about what 2024 looked like. I'm privileged to lead Dasny the dormitory of the state of New York, which gives me a unique vantage point into some of the market trends and is one of the largest municipal issuers in the nation. The nuances of the market are very important to us and getting the best value for our clients is critically important. So let's speak a little bit about what drives our work at Dasny.

(12:04):

Being the second largest issuer in 2024, according to the Bond Buyer is a statistic but only tells part of our story. When I came to Dasny, it's driven by a deep commitment to public purpose and public service. And every day I see how that mission transforms the lives of people and communities across New York state. So let's chat a little bit about what we did in 2024 from a 2.875 billion pit transaction. That of course keeps our state's capital program moving forward to a deal as small as $10 million for the Charlton School. And for those who are not familiar with that organization, that nonprofit, it creates safe spaces for young women who face mental health challenges in upstate New York. And with each project, whether we're talking about a large mega deal or just a small transaction, we recognize that those represent real people, real communities, and real impact.

(13:03):

So many of you know us from our work in bond issuance in the nation, but we're also one of the largest public builders with a $12 billion construction portfolio. And beyond our core financing and construction work, we administer 25 capital grant programs that provide critical financial resources to local governments, not-for-profit organizations and other eligible entities. So looking back at our 80 year history, we rarely even use dormitory authority of the state of New York anymore because we have moved so much further from where we were originally as creating dorms for GI Bill students 80 years ago to where we are today where we provide growth and capital for colleges, universities, hospitals, not-for-profits, and the state itself. So while our mission remains constant, the environment that we operate is anything but that. So let's take us through the year that rewrote market records. Let's talk a little bit about 2024.

(14:09):

It is one of remarkable growth and adaptation. The storied SMA separately managed accounts have continued their tremendous asset growth and transformation of our retail market with their strong activity extending further out the yield curve to 20 years. And this growth has propelled us to 507.6 billion in volume. And we know that that's been shaped by a number of factors including pent up infrastructure needs that are emerging post pandemic as communities moved from planning to action and the strategic transition from pandemic federal aid that's moving borrowers to return to more traditional financing methods. And then also notable are three pivotal fed rate cuts totaling a hundred basis points. September 18th, significant 50 basis point reduction signaling the Fed's confidence in economic stability and the outlook for inflation. November 7th followed with another 25 basis point cut reinforcing the downward trend. And then December 18th rounded out the year with another 25 basis point cut completing a long awaited year for rate cuts and volume. The story of the year last year was volume, and we saw that as a result of a pre-election surge, as issuers move to secure funding ahead of potential political shifts as well as accelerated activity around build America bonds and refunding activities and the continued growth in tender offerings demonstrating an evolving market sophistication.

(16:01):

And while the F the Fed cut rates in 2024 were significant, we also saw significant movements in the muni and treasury rates from the beginning of 2024 to the new year. Just the recap, MMD in the one year rose, 21 basis points 10 year MMD rose by 78 basis points and 30 year MMD moved up 47 basis points and treasuries continued that trend except for the one year. The one year was down 64 basis points. The 10 year treasury climbed 63 basis points and the 30 year treasury climbed 70 basis points. So those are the rates. I will leave it up to the economists and the underwriters to speak more about that later. But what are the significant events that correlated with much of those movements? When we talk about significant and impactful events, we have geopolitical tensions that persisted with the continued conflicts in Ukraine and between Israel and Hamas, the latter sparking campus protests across the nation.

(17:10):

The American political landscape shifted dramatically as Biden ended. His campaign endorsing Kamala Harris, followed by Donald Trump's victory. In both the electoral college and the popular vote, global political upheaval saw incumbent parties facing losses worldwide and in South Korea there was a short-lived declaration of martial law and subsequent presidential impeachment and nature reminded us of its power, a spectacular solar eclipse. As was mentioned, the category four hurricane Helene battered both Florida and North Carolina with 140 mile per hour winds and devastating floods in Spain's Valencia and Andal Lucia region. Just to name a few of the climate events that impacted us in 2024 and technology, it continued its march forward with AI development, reshaping our work and home life and the crypto market reached $3.7 trillion. And then there's TikTok. When you talk about 2024, we can't mention those world events without recognizing some significant federal initiatives that shaped our domestic investment policies.

(18:33):

And let's talk a little bit about three landmark pieces of legislation that certainly impacted our market when we're talking about our future, but also our interconnected impacts across infrastructure. The infrastructure investment and Jobs Act charted a comprehensive course for modernization by investing in roads, bridges, and rail networks that connect our communities, ensuring that clean drinking water access is available for all Americans and expanding high speed internet to bridge the digital divide. And finally, addressing the climate crisis through sustainable infrastructure. The Chips and Science Act, which strengthens America's technological foundation, provides funding and tax credits for domestic semiconductor research and manufacturing and spurs significant activity right here in New York State. Positioning us in the forefront of technological innovation. And I'll repeat it for maybe the hundredth time micron and the hundred billion dollar transaction investment that we have in Central New York is one that we expect will continue to drive our economy into the next decade.

(19:41):

And then the Inflation Reduction Act, which takes a three-pronged approach towards economic stability, focusing on advancing clean energy initiatives that create jobs and reduce costs, working to reduce healthcare costs for families and seniors, and then implementing measures to increase tax revenues while ensuring fiscal responsibility. So these federal initiatives hopefully provide the framework, but we do expect them to have real impacts in our state and on a state level into the future. And let's talk a little bit little about the future. What does 25, 2025 hold for us? And I think the governor has moved forward with priorities that really focus on trying to make our state more affordable, really focusing on initiatives that impact working class families pocketbooks. And that's why enacting a middle class tax cut that benefits 8.3 million New Yorkers is an important priority for us in this budget cycle. Also, looking at inflation reduction checks up to $500 for over 8.5 million households offering immediate relief to those who need it most.

(20:51):

Expanding the child tax credit up to $1,000 per child for 1.6 million families while supporting our working parents making subway safety a priority through increased NYPD presence, ensuring that New Yorkers can travel with confidence, opening the doors through free SUNY and CUNY Community College for adult students in demand careers, creating pathways to opportunity and meeting important areas of our labor workforce into the future. Strengthening Kendra's law for more effective mental health treatment and supporting our most vulnerable residents who need that help and support and ensuring that our children are ready to learn with universal free school meals so that no child faces hunger in the state. Additionally, investing in community infrastructure including playgrounds, community centers and pools. And then finally, the MTA is a key priority, which we recognize as a vital component of our state's economy and making sure that it is on sound financial footing is going to be the issue of the day for our legislators in negotiations.

(22:16):

And while we work to make New York more affordable, we're keeping a watchful eye in Washington wherever evolving tax policies could fundamentally reshape our work. And the story here isn't just about the numbers, it's about the tools that we have available to serve communities effectively. So let's think about the economic forces that are looking to shape 2025 and as we look to the future, let's talk about trade policy. We recognize that tariffs remain a policy tool and a negotiating lever. And while looking at their potential impact on inflationary pressures tax policy, the potential to extend the tax codes and job act beyond 2025 and possibly lowering corporate tax rates. We have the exemption of tips over time and social security from federal taxes, and we have tax changes that are expected to be used as part of budget reconciliation, which means that these proposals cannot increase the deficit.

(23:23):

Looking at potential offsets for these measures will be needed and tax exemption, which we'll talk about a couple of times more maybe targeted. So during this conversation, we've recognized that congressional staff have a 51 page document looking at options that the house weighs and means committee can impact the tax debate through legislation. One of those which is of particular interest was on page nine, eliminating the exclusion of interest on state and local bonds at a potential 250 billion in 10 year savings. There's also the ending, the tax preference for other bonds, the private activity bonds, Babs and other non municipal bonds, which is listed at $115 billion in 10 year savings. There's salt deductions in both directions. The options list are listed at the possible elimination or repeal of the SALT deduction for a trillion dollars in 10 year savings relative to the TCJA extension. Or we can move in the other direction, which is make the salt cap permanent and double it from married couples and increase the salt cap, both of which would cost monies anywhere between a hundred to $200 billion to make the salt cap permanent or 500 billion for the increase.

(24:48):

There's an option to eliminate the nonprofit status for hospitals at a cost of $260 billion in 10 year savings. Excuse me. And then the option to expand the endowment tax for private non-for-profit colleges and universities with endowment assets exceeding 500,000 from 1.4% to 14%. There's the questions around immigration policy and deportations and stricter border controls and what potential impacts those may have to the labor market. There's monetary policy with the fed signaling two more possible rate cuts in 2025, and I think that's less than previous expectations. The question around fiscal policy and the federal debt limit, which must be raised, and that will be of course, I'm sure, a source of contention and energy and environmental policy, the rollback of IRA loan programs and tax credits for electric vehicles and electric vehicle infrastructure and the rollback on wind energy development and jurisdictions also provides challenges for us in that space.

(26:01):

And before we turn to our market outlook, let's pause for a moment to acknowledge how 2025 in terms of current events is already proving to be as unpredictable as its predecessor. Just in the opening weeks, we've had wildfires in Los Angeles reminding us of significant climate challenges. The Israel Hamas phase one ceasefire offers a glimmer of hope in a complex geopolitical situation. And the TikTok banned has been lifted, I think for 75 days. And deep seek reveals cost effective AI technology showing how innovation continues to reshape and influence the world and that sector. And as we process these developments and stay alert from what comes next, let's turn our attention to what's lining up as being the large issues in the municipal bond market for 2025. So it was already briefly mentioned, bond volume and the range of estimates is enormous, anywhere between 400 billion to 700 billion.

(27:08):

It's quite a spread and I think that's symbolic of the uncertainty about where we're going for so many different reasons. One of the things that we are expecting is the continued strength amongst the SMAs and continued growth in ETF funds. Back to the federal tax exemption, one of the most closely watched issues is affecting volume, and those estimates is really the future of the federal tax exemption. If tax exemption is threatened, it could speed up issuance in early 2025. And tax exemption is critical for the nation's infrastructure including and especially in New York State. We as an industry certainly need to be on high alert and be prepared to talk about our best stories and find those with the relationships to be able to tell these stories to Congress. And while the federal government will need to find a way to keep its tax policy and tax exemption ideas, it's critical to the nation that tax exemption remained for us. People still need roads and bridges, schools, hospitals, and housing that has not changed. And according to a G-F-O-A report, there are $4 trillion in bonds outstanding. And if we assumed a 220 basis points spread between tax exemption and taxable, that's 823 billion in savings.

(28:44):

So New York is absolutely an important part of the market. I as well as many of you, and thank you to the Bond Buyer and many of the advocacy organizations are prepared to make that case in DC an urge, many of you to be aware, active in advocating for our industry and with respect to rates while projections vary as the number of rate cuts that may be coming in 2025, if any. There's a recognition that many of the expected policies that I mentioned earlier will have an inflationary impact. So the rise in rates since September, absolute levels of rates and the more tempered outlook in rates seems to suggest that there should be continued demand by investors. And the credit picture, it's been generally solid with more upgrades than downgrades and the end, the pandemic era and the budgetary pressures will surface for sure for certain credits.

(29:47):

State and local governments, our reserves and rainy day funds are in place and many are at record levels. Obviously for the state of New York, our ratings, AA plus, AA plus AA one and AAA are something that we have worked hard to maintain. We have 21 billion in reserves, $14 billion of PayGo funding has been used in lieu of issuing additional debt for the state. We've used $11 billion for debt prepayments and are planning another $2 billion before the end of the year. Our state debt outstanding today is the same as it was 10 years ago, and our debt is standing as a percentage of personal income is at 3.3% and it's at the lowest levels that it's been since the 1960s. And I think that fiscal stewardship has been front and center as a priority for our administration. And the bulking up of those reserves is and continues to be an anchor for our access into the municipal market space.

(31:00):

In terms of higher ed in healthcare, we have 37.84 billion in higher education issuance in 2024, this was a 70% 73% increase from 2023 demographic declines and challenges for small liberal arts colleges continue 29.5 billion in healthcare issuance in 2024. This was 139% increase from 2023. And there we see labor costs increases, presenting the biggest challenge to operations, diversity, equity inclusion. While the assault on DEI programs ramps up, I can say for certain that New York is committed to our MWBE and S-D-V-O-B participation. We have goals of 30% for MWBEs and 6% for S-D-V-O-B, and we expect to maintain and exceed those goals at Dasny. We pride ourselves on our leadership in that area for decades and we'll continue to make strides in those areas. In the ESG, front public finance projects are almost by definition ESG, and while there may be a move away from labeling it, there are many investors that are doing their own work to analyze the ESG qualities and characteristics of bonds, whether designated or not.

(32:30):

And Dasny will continue to recognize that we are ESG friendly, that we have transactions that are both green and socially recognized and will continue to do so and expect that the market will continue to present value in this space. All of these trends, all of these numbers, all of these initiatives bring us back to one fundamental truth that our industry's resilience comes from our unwavering focus on public purpose. That is the thing that joins us together. And when we come back to talking about public purpose and public service, what we do and the projects that we fund in public finance, they're critical, critical to affordability for many of our communities and the wellbeing of the people in this country and certainly in this state. And while there are many challenges ahead and we keep talking about TikTok, and while it's still with us for another 75 days, we can note that the word of 2024 was demure.

(33:38):

But given what we've discussed today, that's not going to hold for 2025, the market dynamics and the policy challenges are definitely too tough for that. So we need a stronger word for 2025. Let's make resilient the word for 2025. And as long as we can still post on TikTok, and as we know Rob has been all over social media, so we know he can do that, we want to start making that trend and say resilience. Resilience will be the theme and the word for 2025. So thank you all and please enjoy the rest of the.