Labor shortages, aging infrastructure, and affordable housing rank as the primary challenges facing public entities, according to respondents to HilltopSecurities' 2024 Public Entity Survey.
The survey, conducted between May and August, contains responses from more than 1,200 public sector employees and municipal market participants. Of those taking the survey, employees of cities, counties, and school districts accounted for 75% of the responses, with the most significant number coming from Texas, Florida, California, and Massachusetts, according to HilltopSecurities.
"As a leading municipal investment bank, it was really important to our senior leadership to get a sense of some of the priorities that were driving our public sector employees," said Yaffa Rattner, senior managing director at HilltopSecurities and co-author of the report. "As a result, we decided to create the survey, and we anticipate that it will be the first of many annual surveys to come."
The report makes clear not only the most pressing fiscal concerns, resource management issues, and strategic planning efforts impacting municipalities, but the context of such challenges. With labor and staffing being the primary concern for states nationwide, Rattner and co-author Tom Kozlik, head of public policy and municipal strategy, delved into the various tactics used by municipalities to retain employees.
"Labor is now exceeding where municipal labor was prior to the pandemic, with the public sector employees recognizing that it's still a challenge," Rattner said. "We've seen opportunities for some childcare provisions, different types of work, and innovative arrangements that are being utilized by some local units of government to attain and retain important staff. And what we're seeing now is the average age of the last five hires on teams being in their 30s, which shows that public service entities are trying to build a workforce that can sustain them through the next decade."
While the primary concerns were consistent nationwide, the ranking of each challenge varied by state. Rattner highlighted how labor and aging infrastructure were clearly the top issues driving Texas, while in Florida and California, aging infrastructure and affordable housing were tied for second place.
In terms of issuing debt, respondents said water and sewer, roads and bridges, and schools would be the primary reasons for issuing debt within the next year. Nationally, these priorities were nearly tied. Public safety and affordable housing were almost equally prioritized, coming in fourth and fifth, respectively. Investments in broadband internet, emergency preparedness, and renewable power were minimally recommended.
Hilltop Securities' findings mirror those of other researchers. In its 2021 Report Card for America's Infrastructure, the American Society of Civil Engineers assigned U.S. roads a D rating, U.S. drinking water a C-minus rating, and U.S. infrastructure overall a C-minus rating. Rattner pointed to ASCE's reports as confirmation of the concerning state of infrastructure.
Yet Hilltop pointed to a seeming incoherence between the needs expressed by public sector employees and federal policy.
"I'm not surprised that infrastructure was generally the number two issue that public entity employees in every state noted as being an issue," Kozlik said. "But what I think is interesting is that we're a little less than five weeks before what could be one of the most impactful elections in decades, and it hasn't been an issue discussed by candidates."
Kozlik extended his point to the fate of the municipal bond tax-exemption. As outlined in the report, the rising U.S. debt to GDP ratio poses an increased threat to the municipal bond tax-exemption. The authors cite the Tax Cuts and Jobs Act of 2017, which eliminated the ability of public entities to use tax-exempt bonds for advance refundings, and the sunsetting of the TCJA of 2017 at the end of 2025.
Of those surveyed, only 21% believe their legislative representatives understand the value of the municipal bond tax-exemption.
"Our findings reinforce the importance of public entities talking about and addressing the importance that the tax-exemption can play in funding infrastructure around the U.S.," Kozlik said. "The tax exemption is one of the primary financing tools used by state and local governments and public entities in general. There needs to be an ongoing conversation with those in D.C."
As the year progresses, HilltopSecurities looks to continue taking stock of the most pressing issues facing municipalities and broadcasting the thoughts of public sector workers.
"We were excited to have over 1,200 responses to our first annual survey," Rattner said. "And we look forward to being able to produce a survey next year and in the years to come that continues to represent the country and provide really important information to our public sector partners."
