Transcription:
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Mike Scarchilli (00:05):
Hi everyone, and welcome to The Bond Buyer Podcast, your go-to source for everything, municipal finance. I'm Mike Scarchilli, editor in chief of The Bond Buyer, and today we're honored to feature two extraordinary leaders in public finance, and respectively, the public sector and private sector winners of the 2024 Freda Johnson Awards. Stephanie Wiggins, CEO of the Los Angeles County Metropolitan Transportation Authority, and Vivian Altman, head of Public Finance at Janney. In this episode, executive editor Lynne Funk sits down with these trailblazers prior to the December 3 Bond Buyer Deal of the Year award ceremony at which they'll receive their awards from Frida Johnson herself courtesy of Northeast Women in Public Finance. In this conversation, there's exploration of a wide range of topics, including the current state of the municipal market, the implications of federal policy shifts and their insights into addressing the growing infrastructure needs across the nation. They also dive into the critical role of mentorship in public finance and share advice for the next generation of industry professionals. It's a timely and inspiring conversation for anyone interested in the future of public finance. So without further ado, let's jump into this engaging discussion.
Lynne Funk (01:24):
I'm so excited to welcome Stephanie and Vivian, welcome to you both to the show.
(01:30):
So congratulations again to you both. We're so excited to have you here to have a great discussion today about the market, about issuance expectations and about the award that you're receiving and why you're receiving it, which really is mentorship. But let's start with just the market. Looking at the past year, the muni markets really fared quite well amid some macroeconomic and policy uncertainty, global geopolitical turmoil, and a federal presidential election. The asset class has definitely seen a turnaround in issuance, pushing closer to the $500 billion mark. The market itself is in the black, and in the past few weeks, munis have been outperforming broader fixed income markets. So let's talk about the market for a minute. From your seats, what is your sense of the industry heading into year end and into 2025? Maybe both challenges and opportunities? So Vivian, would you kick us off?
Vivian Altman (02:28):
Certainly. Thank you, and thank you for having me, and again, congratulations to Stephanie on an amazing career and for your mentorship and support of women throughout your career. I'd like to start, I guess, with the uncertainty regarding what will change in 2025 in tax policy. The Tax Cuts and Jobs Act in 2017 had a large impact on the municipal bond market. It eliminated the ability to do advanced refundings and it had three provisions which are expiring in 2025, the state and local tax deduction cap of $10,000, which affected the market for municipal bonds in high tax states like California where Stephanie is or New York and New Jersey where I am. The reduction of the corporate tax rate from 35% to 21% and the maximum rate for individuals is likely now that we've had a Republican sweep in Washington, that those tax rates are likely to become permanent, and I think it's unlikely that the SALT deduction changes.
(03:39):
In addition, the TCJA increased the individual AMT exemption, and that is expiring at the end of 2025, and the possible legislative effect of that could be to keep that exemption at the higher phase out. So there's a number of tax implications for next year, including what may happen broadly with tax-exempt bonds. On the other hand, issuance is way up. There have been a number of projects that were deferred and they're now being financed post-covid stimulus and with rates more moderated than they were in 21 and 22, 23. So 2025 should continue this trend of high volume and strong demand depending on interest rate levels. There also should be a fair amount of refunding opportunities based on the volume that there was in 2015, which was a very high issuance year. It was a lot of volume in that year. So though tax exemption could be on the table, it's probably more likely that private activity bonds in the form of either higher ed healthcare or other qualified private activity bonds are more likely to be affected. And then lastly, the proposed higher tariffs that have been discussed would probably be inflationary influencing bond prices. So interested to hear what Stephanie thinks.
Stephanie Wiggins (05:11):
Well, thanks Vivian, and again, congratulations to you on really being an incredible role model in public finance for women and the barriers that you've broken as well. So just like you shared, we also saw higher volume from issuers, but we've been well positioned, at least as LA Metro. We had some easier access to the capital markets. We recently did one of our sales tax measures, a bond refunding where we saved our taxpayers a little over $9 million by that refunding this year. The market was volatile, but we still found it very receptive to high-quality credits like Metro's. We've got a AAA S&P rating and a Aa1 from Moody's, and that has really helped us, particularly as we were trying to monitor the ebb and flow as to whether interest rates were going to be lowered this year. So we're hopeful for 2025.
Lynne Funk (06:08):
Excellent. Thank you both for that overview. I think Vivian, some of the points that you have pointed out in terms of tax policy are really going to be very interesting, and I think it's a good segue into, with this new administration coming in with a new Congress, how do you both see state and local governments playing a role in moving ahead? Financing infrastructure specifically, we've had these two major legislative efforts laws in the IIJA Infrastructure act and the IRA, the Inflation Reduction Act. So I'm kind of curious if either you, Stephanie or you clients Vivian have participated in either of those and kind of where you see infrastructure finance ahead specifically. Maybe Stephanie, would you want to kick us off with that?
Stephanie Wiggins (07:02):
Sure. Fundamentally, we see infrastructure and particularly transportation infrastructure as bipartisan, right? We all need infrastructure regardless. And so that's how we approach it. IIJA, the name is in the title, 'bipartisan.' We benefited from it, particularly in a climate of covid-induced cost escalation. It really helped us keep major infrastructure projects moving and advancing and also helped us accelerate some of our major projects. So they were critically important. And we know that the bipartisan infrastructure law has a couple more years left, so it expires in 2026, and our expectation and hope is the new administration will actually be positive towards infrastructure and look at how we can optimize what has worked well to advance that as they look to a reauthorization bill. At the end of the day, from our perspective, we think we should remain in a policy space where good ideas and not partisan ideas win the day. So that's what we're hopeful for.
Vivian Altman (08:11):
Well said. So yes, I have had several clients who were actively taking advantage of those legislative bills. I will say though, that I think that there's been a trend for some time to push more financial responsibility for infrastructure to the states and local governments and include in that authorities such as Stephanie's. I recall hearing former Mayor de Blasio speaking at Muni Forum about Superstorm Sandy and how he had come toward the realization that the cavalry wasn't coming and that the city was going to have to handle the cleanup and then build resiliency projects that would follow to protect lower Manhattan from other severe storms by itself. That looking ahead, this proposed federal Department of Government Efficiency is going to be charged with dismantling, which refer to as government bureaucracy reducing excess regulation and eliminating wasteful spending restructuring federal agencies. And that's according to the President-elect.
(09:25):
It's actually not going to be a federal government department, but an advisory body because only Congress can create a department. But one of the leaders of this Department of Government Efficiency, Elon Musk, has suggested that the commission could cut the U.S. federal budget by up to $2 trillion. So should any of that actually happen, I think that state and local governments and governmental entities, such as Metro, would bear the cost of the relocation of those services that are either reduced or discontinued. So I think as you asked Lynne, a new administration in Congress taking office, I think the impact will be a furtherance of that trend.
Lynne Funk (10:10):
Yeah, it's interesting. On the one hand, you have what Elon Musk has talked about, but then I think, and maybe in some positive news for the muni market and for public finance industry is the transportation secretary who's been nominated. Sean Duffy, who was a former congressman from Wisconsin, seems to have worked across the aisle in terms of infrastructure. So that I guess will be an interesting thing to watch how that transpires. But Vivian, what you bring up I think is something that is important for, as this market really we're on pace to potentially break an annual record that was in 2020, just shy maybe of $500 billion. It remains to be seen. But I think one of the things that I am hearing so often is that the infrastructure needs are perhaps double that on an annual basis, $1 trillion or more annually. I guess I'd ask Vivian to start there with from your seat. Do you think that is a real figure? And what does that mean? Then how do we, can this market handle it? I'm asking way too many questions all at once, but let's talk about that number though, right? The issuance itself.
Vivian Altman (11:31):
I don't think that that number seems impossible when you're given the escalating cost of construction and materials. And I think we have a dichotomy of aging infrastructure, which needs replacement and significant repair, but then you also have the necessary expansion for growth and development. So I think you could easily get to that number. In either case, we need to spend much more money on infrastructure, and in my opinion, I think the time where the federal government is going to be helping to sponsor that is shrinking significantly. So I think it's going to be dependent on the infrastructure providers, whoever they may be, whether it's water, public power, transportation, it's going to have to come from within and at least where we are right now. I mean, there's just tremendous demand in the marketplace. Stephanie just referenced her transactions that were very recent and how well they were able to fare, of course, their highly rated issuer, and they're not the most frequent issuer either. So there's an access to an infrequent borrower, but I think that that's not something out of the realm of possibility in my mind. I mean, interested to hear what Stephanie thinks.
Stephanie Wiggins (12:55):
Well, I agree with your assessment, Vivian. I mean, the demand for infrastructure will not go away anytime soon. So as rates fall, or at least they settle down, issuers will take a bit of a receptive market. We see that investors continue to have an appetite for infrastructure related debt, particularly high quality California issuance. And in California at least, and we are calling these America's games, but 2028 and hosting the Olympic and Paralympic games, we're going to be looking at the markets to assess how we can help fund and finance some of the infrastructure that's needed to support the games, but also create a legacy that Angelenos and residents can benefit from well beyond the game. So the demand is there, and I think the supply will continue to grow if we can get additional revenues.
Lynne Funk (13:50):
Really, really compelling points there. I think this market has its work cut out for the issuers that everyone involved. But right now, we're going to take a quick commercial break, but we'll be right back with Stephanie Wiggins and Vivian Alman. And we're back with Stephanie Wiggins and Vivian Altman, the public and private Frida Johnson award winners of 2024. I kind of want to shift over, we talked about the nitty gritty with the market. Part of the reason you're both Frida Johnson award winners is really your ability to engage and mentor a younger generation of public finance professionals. I guess, what have you both learned from working remotely during Covid to maybe now a hybrid environment? Has this changed the dynamic for working with younger people to you both, of course, but maybe Stephanie, would you want to kick us off here?
Stephanie Wiggins (14:45):
Well, sure. I think man, working remotely, particularly during Covid, I think there were a lot of lessons in terms of how to be more effective in the workplace. I think on one hand, I think it has normalized a little bit of an ability to reach out and achieve work-life balance a little bit because you can be more flexible when you have the ability to work hybrid. What I've found, though, is that there's no substitute for in-person connections and relationships, and particularly when my team or within an external third party, if there are conflicts, there usually are because they're trying to resolve them virtually, and we need to be in person. And increasingly with younger folks who are in the public finance space, while they may think and demand that they want a hybrid work environment, what they're finding, particularly the ones who seek me out for mentorship, is they want that in-person connection. Because I think that's really when you thrive and understand that at least during my career, success is really driven by the relationships you have with people, and there's only so much you can accomplish through our virtual hybrid space. Vivian,
Vivian Altman (16:13):
What's it been like
Stephanie Wiggins (16:13):
For you?
Vivian Altman (16:14):
That was so well said, and I totally agree with everything you said. It's very challenging, but not impossible to mentor remotely. I have a mentee who's in Atlanta, and I see her very infrequently, but we do speak often, but that's different I think, than the work the day-to-Day work environment. There are definitely benefits to the hybrid environment. I think there's some work I do more effectively at home because there's fewer interruptions. But I do agree with you that particularly for younger professionals who are first learning the business, it is really beneficial to work together with others in person. Of course, being in the office doesn't make sense if others aren't there. So being in person, hearing the conversations, having that direct interaction, whether it's running the numbers, working on deals and pitches, it's far better to do that, or even in groups than trying to do that over Zoom or over the phone. And I do think also that you miss out on the, and you were alluding to this, the comradery apparent in our work, our industry is so collegial, and I think not being in person, you lose a lot of that connectivity, which you made a reference to as well.
Stephanie Wiggins (17:47):
Now we're still struggling with the balance of that, how much in person versus not, but I definitely think hybrid is here to stay. We've just got to figure out how to optimize it.
Lynne Funk (18:01):
Thanks so much. That's definitely, I really kind of agree with both of you. I know I even struggle with it with younger reporters. They miss out when you don't even hear other editors or reporters speaking on the phone, just how we interact with one another, and it's so important. I know when I was young, I really appreciated it. So I guess the next thing I kind of want to ask you about in Vivian, I'd ask you this from your seat, particularly in your role with the Northeast women in Public Finance. How is equity in public finance industry, where are we now? What still needs to be done?
Vivian Altman (18:38):
Well, there has certainly been a lot of progress over my tenure in the industry when there were very few women anywhere, but for a few in banking and probably in the rating agencies and almost no people of color. And now there are both in really all levels of public finance and across sales trading and on the buy side. But there's always room for improvement. And I think we could definitely see more diverse representation in upper management, for example, I think I don't see a lot of diversity in upper management, people running fixed income or even higher up than that. And I think it has been proven, and I think there's been definitively shown through studies and data that greater diversity leads to better financial results. I mean, it's very clear and it's repeated over and over again. So I think there's more that can be done, for sure.
Lynne Funk (19:43):
Yeah, I think when we spoke earlier this year, Vivian, when we were on our leaders panel together, that was right after there became four women heads of public finance being one of them. So still some work to do there, I'm sure. Well, what do you all think about, and I think this is what we want to leave the audience with, right? What advice do you have for young women and young men coming up in this industry? Because I think one of the things truly that I think about often is you hear about the struggles that in hiring younger people, getting them interested in public finance, making them aware of what I think is a really fun industry to work in, but how do you entice them in? What do you do? What do you tell them? Stephanie, what do you want to kick us off with that one?
Stephanie Wiggins (20:36):
Well, I think two pieces of advice I would give young men and women who want to break into the industry. First of all, I think the work that organizations like the Northeast Women's Public Finance Group provides in terms of networking and mentoring, those are so important. Opportunities to really help people and the entry level getting into the industry or even middle management, really helped them grow professionally. I've found those organizations very fundamental from the public sector side. I know, given the importance of those types of organizations, that I would encourage everyone to join them, number one. And secondly, I would just encourage my younger self, so to speak, to not let anyone dim your light and really raise your hand, ask questions, volunteer for the risky assignments, because when you move outside of your comfort zone, that's really when you grow, and those are the best opportunities to learn.
Vivian Altman (21:52):
So true. I will say there's always going to be a need for what it is we do. The opportunity and the benefit of tax exemption, a tremendous economic development tool, but I'm kind of afraid to say it, but even if there wasn't tax exemption, it would have to be done and the financing would occur then on a taxable basis. But we're not giving up. But just saying there's always going to be a need for what we do. How we do it varies with changes in the tax code and regulation and market forces, which makes it such a creative industry. And it's a business with many different ways to participate. You have issuers like Stephanie who are so accomplished. You have bankers, credit analysts, council issuers, advisors, many other reporters, many other careers that are all associated with municipal bonds. And many people move in between roles to find the right fit for them. And so what I would say to the young people who are coming up is look for and pursue those opportunities that are of interest. I agree with what Stephanie said. Look for those opportunities. Put yourself out there. Raise your hand, and don't necessarily wait for them to come to you. You need to advocate for yourself.
Stephanie Wiggins (23:22):
Here, here.
Lynne Funk (23:23):
Excellent. And I'll add, I think this is a very friendly part of finance in my opinion. I want to thank both of you so much for joining me today. I think this has been a great conversation. Much more to come for sure in the coming year. I know there's a lot of uncertainty, but I, there's a lot of opportunities too, and you both laid them out there in a real way. And as long as we keep working hard, I think that this is going to be the future of public finance is strong, and it's leaders like you two who make it so. Thank you again so much, and congratulations. We'll see you in December in New York City to celebrate your win.
Vivian Altman (24:08):
Thank you very much, Lynne and Stephanie. I really look forward to seeing you. Thank
Stephanie Wiggins (24:13):
You. Likewise. Look forward to meeting you. Thank you, Lynne.
Mike Scarchilli (24:18):
We hope you enjoyed this episode of The Bond Buyer Podcast. A big thank you to Stephanie Wiggins and Vivian Altman for joining us and sharing their invaluable perspectives on the challenges and opportunities facing public finance today. Here are a few key takeaways from this episode. One, Stephanie and Vivian highlighted, the ongoing demand for infrastructure financing fueled by aging systems and climate related challenges, and how state and local governments are stepping up in the face of federal funding uncertainties. Two, the role of mentorship is evolving in a hybrid work environment. Our guests emphasize the importance of in-person connections while adapting to new flexible ways of working. And three, Vivian and Stephanie underscored the need for young professionals just starting out in public finance to embrace opportunities, build strong networks, and advocate for themselves as they navigate this dynamic industry. Thanks again for tuning into The Bond Buyer Podcast. This episode was produced by The Bond Buyer. If you enjoyed this conversation, don't forget to subscribe to our podcast on your favorite platform and check out more content at www.bondbuyer.com. Until next time, I'm Mike Scarchilli signing off.