Attendees of The Bond Buyer National Outlook Conference 2024 will have the opportunity to vote in a live market survey at The Athletic Club in New York City on February 8th, 2024.
Transcription:
Arlene Bohner (00:08):
Welcome back, everyone. Take your seats. We're getting ready for the most fun panel of the day, the live market survey. I'm Arlene Bohner and I head up the US Public Finance team at Fitch Ratings and I'm happy to be joined today by an impressive team of Muni market experts who will share their insights with us this afternoon. But the real stars of this panel are you all, so we really need you to come and take your seats. Great. So as I said, the real stars of this panel is the audience. Normally when you go to a conference, everyone asks you to put your phones away. At this panel, we ask you to take your phones out, so please get your phones out so you can scan the QR code that's up on the board so that you'll be ready to vote on our questions. Before we begin, I want to offer a brief introduction to our panelists and I will note that you can find their full bios on the conference webpage. Patrick Landers is the treasurer of the Massachusetts Bay Transit Authority Applause for Pat. He manages the authorities bond program of over $6 billion as well as its 1.7 billion investment program. He previously worked as an investment development officer at Sustainability Partners and has extensive investment banking experience. He also served as the Massachusetts Assistant Treasurer for Debt Management and served seven terms as an elected Massachusetts State representative.
(02:09)
Tom Kozlik is the head of public policy and municipal Strategy at Hilltop Securities where he publishes regular must read commentary and is a regular presence on both social media and traditional media. See him on TV all the time. He has two decades of investment banking experience. He's a member of the Society of Municipal Analysts and a graduate of the Fells Institute of Government at the University of Pennsylvania, where he also teaches graduate level public finance courses. My alma mater also, Chris Valentino, is a managing director at Stifel Nicholas. He has more applause. He has more than 18 years of investment banking experience, particularly in the areas of states, transportation, SRFs, and renewable energy. He's also worked closely with New York State Energy Research and Development Authority where he was one of the initial architects of the Green Jobs, green, New York residential energy efficiency and residential solar loan programs.
(03:22)
And Rick Kolman is a managing director and a head of municipal securities group at Academy Securities. He has 35 years of experience and he applause for that. Yeah, of experience across the Muni market, including managing the new issue desk at Goldman Sachs, working with Macquarie Bank, developing a startup financial guarantee company and head of municipal securities at US Bank Corp. He is served on the MSRB as well as the executive committee of SFA, where he was chairman of the Municipal Securities Division. It's not on his bio, but he's also an alum of Villanova where I am also an alum, so I have to put in my plugs when I get him. Okay. So hopefully everyone has scanned the QR code and has access to our questions. So our first question we're going to ask you to vote on after a series of rapid rate hikes, do you expect the Fed to start cutting rates and if so, what do you expect to see over the next six to 12 months? Please vote.
(04:57)
New little jazzy music. Okay. So we can see that most people are expecting the Fed to cut by the end of the second quarter and also a fair number of people think they will cut by the end of the third quarter. Rick, what are your thoughts on this?
Rick Kolman (05:33):
Sure. Actually, it's an appropriate time for you to ask Marilyn because I was talking to Chairman Powell this morning about next steps, and to go back to an earlier panel when they were talking about SFA, the volatility in the rates market. I think really a good way to look at that is I've been in this business as we pointed out a long time, and I think of the focus on Arthur Burns. I think of the focus on Chairman Volcker, but I've never seen quite such intensity as we've seen with what Chairman Powell has to say and what his thoughts are. And when you talk about volatility in the rates market, if you go back two weeks ago and you look at Fed Funds forward curve, you look at comments from strategists, maybe Tom, maybe others, there was probably a 70% probability that you might see a rate code as early as end of March last week after some comments came out from the chairman, maybe that dropped to 50%, maybe less.
(06:31)
And then after the unemployment data Friday, probably it's fair to say now we're down to 0%. So the point of it is clearly this focus on the chairman has created a lot of volatility and this seems to be more a consensus. I've spoken to folks including our strategists at Academy Securities, Peter Chair. People are looking more like maybe June, July, but again, I've never seen such an emphasis on the verbiage from a chairman as I've seen during this period. The one thing I want to add to just get away from the Fed for one minute is I get a lot of questions from issuers. People I've known a long time that said, should I wait on the Fed? Should I not issue debt? I have certain needs and I personally, it's tough to call markets and what I say to a lot of folks, I say, look, if you look investment grade corporates in the month of January, it was a record January, a record January for new issuance, amazing number of issuers. And obviously CFOs are saying, we're just looking at average cost of funds. What does this look like historically? And still for a lot of folks, the average cost of funds like last week, MTA issuing debt with about a 428 yield in 40 years, that's a pretty inexpensive cost of funds historically. So it's not for people to focus on what the fed's going to say, make a decision on your own capital plan and not to worry about whether it's second or third quarter in terms of what the Fed is going to do.
Arlene Bohner (07:46):
Great point. Anyone have anything else to add to that?
Chris Valentino (07:54):
I think the Fed kind of meeting recently and telegraphing what they were going to do made this question a little easier to answer, but
Arlene Bohner (08:03):
They gave you the answers. Okay, great. Let's move on to our next question. Economists are mixed as to whether or not the US will enter into an economic slowdown or recession in 2024. What do you expect to see? Please vote. Dance. Okay. Results are in and 56% don't expect a significant slowdown or recession, and 20% US will enter into a slowdown recession by the second half of 24. Not too many people think we're already in a slowdown and some think that we will enter in the first half of 24. Tom, why don't you start off this conversation. What do you have to say about this?
Tom Kozlik (09:20):
I agree with that. I am not expecting a slowdown or a recession in 24 either. I think that this also feeds into that first question. I think that there's going to be a lot of time that's going to go by and the Fed is going to wait to see what happens on their macroeconomic landscape because we're in close to uncharted water and I think that they're going to take more time rather than less. But this, my opinion about the fact that I'm not expecting recession, that's changed to a degree. I was expecting that there was going to be a slowdown this year, but then when the economic data came in for November, for December, I really changed my mind about that in the first maybe two or three weeks of January.
Speaker 7 (10:05):
Anyone else? Nope. Okay. We'll move on to our next question, which is about issuance. Annual Muni issuance was 380 billion in 2023, slightly down from 2022. The rising rates throughout the year, further discouraged, borrowing, what volume of issuance will we see in 2024? I would call this the $64 million question. However, we don't actually have any prize money for you, so please vote anyway. Okay. Issuance will moderately increase in 2024, 400 to 450,000,000,00. Two thirds. Think that's the case. I like the sound of that. 20% think it will be about the same as 2023 and a small but hopeful percentage of people think it will significantly increase above 450 billion. And then there are 2% who are pessimistic. And Tom, I know you recently revised your forecast. What do you think about that?
Tom Kozlik (11:45):
Well, the reason that I revised my forecast just a couple of weeks ago, and it's common for me to revise the forecast, but it's not uncommon to revise a forecast as early as I did. Right? So that should send the message that the change that I was just talking about with regard to what it is that I'm expecting on the macroeconomic landscape this year, that is really what drove the fact that my issuance forecast was 330 billion, but now it's 420 billion. So it's very much aligned with what it is that a lot of the folks in the audience are thinking. And I think that if anything, just like from a macroeconomic perspective, I'm expecting that there variable could be some upside. I think there could be some upside as concerned as well.
Chris Valentino (12:35):
I think building on that, we had quite a significant rally in November and December where we were sort of stuck in that higher for longer rate environment. Now we're kind of in a more issuer friendly environment and there's not quite as much upward pressure on rates. So just by virtue of that kind of notching down in interest rates as well as January so far has ticked up from not just last January, but the average of the last decade in January, which is typically a pretty slow month. It's pretty encouraging to think that at the very least we'll be ahead of last year, maybe not over 450, but comfortably over 400, I would think.
Rick Kolman (13:17):
One of the questions that I get from folks in my taxable sales force is they really like taxable municipals. They like our credits. That hasn't been anything out there. And the one question I get, do you think we're going to finally see a little more taxable municipal issuance this year? And I think it's fair to say partly majority of that number that you're talking about, everybody's tax exempt issuance, and what I share with the taxable sales force at Academy is I don't see a big uptick in taxable supply. I see a lot of inquiry for it, but as I've shared with folks, the number you're hearing is primarily tax exempt debt.
Arlene Bohner (13:52):
Okay. Let's move on to question four. In light of UBS's exit from the negotiated underwriting and Citigroup exit from the Muni business, how do you anticipate the industry to adjust or evolve? Please vote. Okay. So all of the above seems to be a handy winner with close to half, followed by expect no major interruptions because business will be picked up by other bulge bracket regional and middle market firms. So people, at least half of the people also think the industry has faced businesses exiting in the past and will rebound, and that there may be secondary market liquidity challenges in the short term. So okay. Who wants to talk about this, Chris?
Chris Valentino (15:27):
Sure well, first of all, I think any good standardized test taker knows that when all of the above an option, you should always take it.
(15:38)
And that's the camp I'm in. I think made sort of a joke this morning, but it wasn't a joke. The number of firms on the front of their kind of shows you that when someone leaves, there's plenty of firms that are going to step in and take place there. And I should also echo his comments as well as Natasha's that I think throughout the industry, we're all really rooting for everyone who's out there now and who's looking, because you never like to see anyone separated from their jobs. And so hopefully everyone involved in those places as well as others who recently were moved around, we'll find some greener pastures. But with that, I think while these potentially opportunities exist for smaller regional firms to grow, the question on liquidity I think is key. I think we had some discussions earlier today about out CIFMA and the volatility there.
(16:46)
I think one thing you saw a lot of last year as well as so far this year is just really wild swings day to day and week to week and MMD and bval resets, and that's a function also of liquidity. Another area that I think, I don't think anyone really commented today so far on is large issuers selling competitive deals. The city and UBS were two of maybe six or eight banks that could bid competitively on deals of that size. And to now move that down to maybe four to six banks that can bid on those deals, I think will have a real impact. I think potentially the days of firms trying to steal those deals to win market share or rankings or to curry favor with issuers, you may not see so much of that anymore. I think even the larger firms are viewing this business.
(17:51)
I think the talking point from city leadership was Munis was more of an expense rather than a revenue. And so I think they're going to be a little bit more deliberate and that'll, I think have a trickle down effect for large issuers and everyone else. So it certainly presents challenges. I think when UBS left, there was a sense of they've done this before and maybe the folks in Switzerland weren't quite as keen on the US public finance market as a firm that's based here, but then cities, a bulge bracket, US firm that's been in the business forever and that's been a leader in the business forever. So wherever you stand as far as being one of their competitors or not, that can't be looked at as a positive for our industry. And I think that that was a little bit of a shock to the system for a lot of people no matter where they fit into the Muni market.
Arlene Bohner (18:53):
Yeah, really good point. On the competitive sales too, Pat, did you have some thoughts on this?
Patrick Landers (18:59):
I did. I just recently had a conversation with a former friend, a former, not a former friend, a former banker at Citi, a dear friend if you're out there. But we were recollecting about a deal I did when I was assistant treasurer in Massachusetts, and it was a day where the deal went off, it was going great. There was a rumor that jet fighters had scrambled over Israel and it just stopped everything. The decision to underwrite that deal happened in the office that was right next to the conference where we were doing our conference room, we were doing our pricing in. And he said, oh, no, no, that hasn't happened for years. The decision to commit capital now happened many chains up off of the Muni desk.
(19:54)
But you think about the value proposition and why that changed. I mean, those were days when we were paying $5 a bond, and those were days when if you stepped up and you're going to be a market maker, you could rely on interest rate hedges. Those indexes worked. So I think the, there's a theory, a game theory about Nash equilibrium and prisoner's dilemma whereby two guys get in trouble and they get in different rooms. And because they can't trust the other, they can't reach their NASH equilibrium, their best outcome. And I think that's very much what's happened in our industry is that it's a game that's best not played, but once it starts to play, it's very hard to control. And in a way, having been on both sides of that equation as a banker, as an issuer, I think we just have to recognize that things are really fundamentally changed and then you see these things happening where people leave the industry because it's no longer profitable.
Rick Kolman (21:08):
The one thing I would add, Arlene, is having bitten again in this industry a long time, I can tell you the conversations I've had with senior professionals is it's very hard for them to grasp the labor intensity of our business. It's difficult for them to understand. You have all these employees when they do a breakdown of revenue per employee, it's very hard for them to really get that. So when you have a new person coming in trying to evaluate your business, and again, having had these conversations many times in my career, that's a starting point. It's very hard for them to grasp the overall how this works. They look at what they do in other products and goes, geez, I have two people doing what eight people do over there, and I see somebody shaking your head. You understand that is very difficult and as what happens is, and I can't speak for Citi, but then when you bring in folks from another part of the bank, which is probably what started the conversation, it's a head scratcher to them.
(22:06)
And then when they find out, as Pat kind of touched on, I'm doing three quarters of a point on a corporate bond deal on an easy 10 year bullet, and you tell them you're doing it for like two 50, that does not resonate. It's extremely difficult. Again, having had these conversations for them to understand how that works. Now, wait a minute. You guys have serial bonds, you have this, you got that, you got this, and they're paying you two 50 and I'm doing a billion dollar corporate deal for Apple for three quarters of a point. It's very hard for them to get that connection. And that's going to continue to be a challenge as people think about how do I walk away and please shareholders and get good revenue per employee.
Arlene Bohner (22:52):
On that note, let's move on to our next question. What effect will the Basel three bank regulations have on the municipal market if municipal securities are included? Need our jazzy music? Thank you. This is a game show I do not recognize. Okay, so 54% think minimal impact and 42% think major impact. Oh, down to 40%. Okay, 2% no effect. That's crazy. Rick, thoughts on this?
Rick Kolman (23:50):
Sure. Nicole from US Bank talked earlier and commented on this briefly, and she said that she had not read the regs Well, I want you to know that I did. Okay. So I did not read them. However, I will share with you that I spoke to, and I was talking about this with Leslie Norwood. Lemme going to get away from the Muni world for a second. I was talking to a friend of mine who's a CFO of a Fortune 500 company and has been a CFO of a number of companies. And I kind of asked him, what do you think of whole Basel three discussion? And his word to me was ominous. And I was like, ominous. Wow, that's really extreme. And he goes, well, the way it is right now, he goes, I don't really borrow from banks, I use the public markets. But what's happened since the crisis, there's been a lot more financial stability, a lot more liquidity. Things are a lot better. And he goes, by the way, the derivative world that's very important to my businesses is a lot better.
(24:49)
And he goes, if some of this gets put into effect, that's going to create a lot of problems for the hedging part of my businesses. The capital charge could be 30%. I have to eat that. Where does that go from here? And he said, so for me in the corporate world, he said it would be if it was today. He says, we're fighting it very hard. I can tell you that because it would really be, again, going back to his first word, ominous. Now that might be extreme, but that's how he described it. Now, if you look at the municipal world, I mean obviously I find it interesting that minimal effect, I wonder how much people really have read this because depends on what is put in the end. The good news is when I talk to Leslie Norwood that you're probably now looking probably 2025 at the earliest, maybe in 26.
(25:35)
Now clearly you have a group of organizations recently, GFOA, national Treasurers, APPA, national Bond dealers, SIFMA. They put an organized letter together and they really very, they put a multi-page letter describing what the impact could be on the industry, whether it be loans, whether it be buying bonds, putting bonds into inventory. Clearly they painted a picture which shows a lot of the negatives that could occur to already a stretched industry, which we've talked about a few minutes ago. So I think there's a lot of optimism there. Regulators are acknowledging some of the comments, whether it be from the corporate side, municipal side. So I'm optimistic that things will be a lot better as it relates to Basel three because again, if it was put in effect the way it is today, it definitely would have an impact.
Arlene Bohner (26:26):
Tom, did you want to add?
Tom Kozlik (26:28):
I'd like to add that I think it's important to think about not just the potential regulation here, but a lot of the other things that have been coming out of Washington in recent years that oftentimes act as a barrier to getting either interest in debt or bonds. Emily, in the previous conversation was talking about some of the restrictions on the federal money that was making it more difficult for some state local governments, other public incentives to spend that money. So I think that this really falls into the category of things of there's blowback from the regulation. There's blowback from other fiscal policy that's already been enacted that's made it more difficult in this case for banks to participate in the market. And I think that if anything, lawmakers and regulators, one of the things that need to be considering and thinking about is how it does impact the attractiveness of the market if they want to help the public finance universe. So I think that the jury's still out about these potential regulations, but I think that it needs to be looked at as a whole of what it is that's been coming out of Washington for several years now.
Arlene Bohner (27:43):
Good point. Okay, let's move on to our next question. Refunding volume was up one and a 5% at 50.777 billion in 2023, over 2020 two's levels led by a late year increase during the market rally. As rates have somewhat stabilized, what do you anticipate refunding levels to be in 2024? Please vote. We should have a sub game of name that tune, because I don't know.
Rick Kolman (28:32):
This is. It sounds like it's a broken album or something.
Arlene Bohner (28:42):
Okay. Looks like about half of you think more than 2023 and about a third think about the same as 2023 and 18% less than 2023. Chris, what do you think?
Chris Valentino (29:01):
Yeah, my reaction to that question was I couldn't believe volume was up last year. It felt like.
Arlene Bohner (29:08):
Didn't feel that way, right?
Chris Valentino (29:08):
Yeah. It felt like every refunding I worked on was either getting downsized or put on day to day or shelved altogether. So you had basically from June of 22 for about almost 18 months of rates going up and people kind of backing away from plan savings going from a hundred say 20% to 5% to 3%. Are we within our policy to even do this deal now? And so from my standpoint, there's really nowhere to go but up as far as that volume goes. I think there's a lot of currently callable bonds that were not refunded last year that are still eligible to be refunded and assuming a more accommodative rate environment this year. I think it's a pretty safe bet that we should be higher than we were last year.
Tom Kozlik (30:11):
One of the questions that I get from a lot of folks is what is it that could drive funding higher, a lot higher? How is it that the overall volume could get closer to 500 billion like it was a couple years ago? And I think that one of the things that's happened over the last couple of years is that there just aren't as many refunding candidates that are out there anymore. So that's one of the things that's working against the refunding numbers and also rates are going to have to fall significantly for refundings really to come back. At least that's what it is that my numbers are showing.
Rick Kolman (30:45):
Just Tom, on your point, a recent report I already indicated for getting back to the taxable municipal question, you go back a couple of years ago in a lower rate environment, we were seeing taxable refunding, which maybe a lot of issuers are saying, why did I do them? But interesting report that they indicated that rates would've to drop over close to 150 basis points for taxable refunds to even work. Again, that's kind of the number that was shown to me, which is it kind gets back to your point of what's really refundable.
Tom Kozlik (31:14):
And it's going to take more than just the Fed to act once or twice or three times this year to get most likely close to something that is going to really move the needle significantly higher.
Arlene Bohner (31:26):
Pat, do you have a different perspective from the issuer side of things?
Patrick Landers (31:32):
I'm going to pass on that.
Arlene Bohner (31:36):
That's fair enough.
Rick Kolman (31:37):
You got that billion dollar refunding next week, right?
Patrick Landers (31:40):
We do, yeah.
Arlene Bohner (31:42):
Okay. Let's move on to our next question. Municipal bond mutual fund outflows hit record levels in 2022, 2023, saw more outflows as more investors moved into exchange traded funds and separately managed accounts. What do you expect from Muni mutual funds in 2024? Please vote. At least do name that decade. I know. Okay, so 43% think mutual funds will continue to see outflows, and 32% think mutual funds will see inflows rebound and 25% hedging their bets saying it's too early to tell Rick thoughts on this one.
Rick Kolman (32:58):
If you look at the timeline of the last couple of years, once you had obviously the Fed increasing rates 2022, now remember you have Lipper provides data in ICI, let's just talk Lipper for a second. I'm not taking aside, I'm just making it simple. Lipper showed at outflows in 22 of about 65 billion. And if you look at 2023, it continued, but it was a lot less. It was less than 10 billion, but for all the public finance banks preparing RFPs, et cetera for that client as shown these red lines of every day. And what also it did was getting back to the point Chris made earlier about liquidity, he also put a lot of strain on liquidity because the bid wanted volume, which is the other side of it, was just astronomical on certain days more than you might see in the new issue side for an entire week.
(33:44)
So that was another strain as you lost folks in the hedge unit, pat said was difficult. Now this year, year to date, it's been, it's up. It is up slightly up. Last week liberal was up a billion and a half and we'll see now that after obviously some concern after the fed meeting. But so I think there is a view that maybe it's going to start to be a little more positive. But I think the main point to me is when you have these discussions about investors, it's the other part of what you have Arlene in here, which is you've seen a growth in ETFs, a lot more activity there. Maybe Tom Earls love comments on that. But the real growth has really been in the SMA. I mean, if you look at what's happened, if you look at the last 20 years, you've had consistent growth and depending on what data you want to believe, some people feel it's a one and a half trillion dollars market.
(34:33)
Some people feel it's trillion 2 to trillion 3. But the point is that is where you've seen huge increases. We've seen it in the new issues. We've seen the SMAs, they're stretching out across the curve. It's no more one to five, some going out to 30. Now clearly the inverted curve, the higher rates have really helped that a lot. But to me it's more about what's going to dominate. And it looks to me like we all got to be thinking sma. And frankly for the issuers that are in the market and financial advisors, I would say you have to rethink these retail order periods because these are institutions, yes, these might be orders that don't go above 500,000 or a million, but you should look in total in aggregate. I know a lot of these SMA money, I've known them for years, and they'll say to me, Rick, the total is like 25 million, but no one order was maybe north of 500,000 or a million. So it ends up, so I think that's something that the issuers have to address. If the SMAs are going to dominate, do you really want to put them in the retail bucket going forward or do you got to reevaluate who really they are? In my opinion, they're really more like institution than should be viewed that way.
Chris Valentino (35:41):
I also think real retail mom and pop retail, there was such a runup in equities last year, a lot of those investors probably shifted a lot of their money trying to catch that wave. And you may need a little bit of a pause in the stock market before that money kind of flows back into Munis.
Tom Kozlik (36:00):
This is a real investor psychology question, and for the last year and a half, a lot of the individual investors that I've been talking to, they have been and continue to be, I mean, confused. They feel like they've been duped. They feel like the Fed and others. Even starting out this year, there were folks who were thinking that we could see a rate cut in March. And I think that there are a lot of individual investors that really feel like there's one message being said at one point and then another, and they feel like they're on the outside. And so in my mind, that's really what's happened. There's a lot of money sitting on the sidelines right now. So as we were just talking, there have been some positive flows for a couple of weeks now. I'm not yet ready to say that there's going to be a great rotation back into fixed income and municipals yet. I think that there's the potential for that to happen, but I think that the psychology yet it is just not there. I just don't think that the investors are, they're not certain yet. Great.
Rick Kolman (37:06):
I think Tom also, it's interesting if you look at money market funds and you look at these record levels, I think also kind of support your point. People saying, it's easy for me to park my money there.
Tom Kozlik (37:15):
And get a good return.
Rick Kolman (37:16):
A decent return. right? Exactly. Instead of thinking about should I go buy a 20 or 30 or three bond or 40 year bond? That's right. It's pretty simple. Some strategists feel the reason why they don't think we're going to have recession. They feel people are getting some nice money out of their money market accounts. So consumer spending is going to remain strong, which will be helpful to the economy.
Arlene Bohner (37:35):
That is a good lead into our next question. The operating environment for state and local government credits has worsened, but credit quality remains strong. Conservative budgeting and building of reserves have bolstered resilience. What will have the greatest impact on issuer credit in 2024? Please vote.
(38:25)
Okay, 47% think macroeconomic environment, 23% higher costs, 16% federal policy, and the rest under 10%. Pat, what are your thoughts on this one?
Patrick Landers (38:41):
It's interesting because back when I was in the legislature, I served on the Ways and Means committee and the taxation committee. I remember Massachusetts had 62 different tax categories, but there really the big three were income tax, were cap gains tax and sales tax. So think about those. We've had unemployment rates under 4% for the last 24 months. You'd have to go back to the 1960s to find that, right? Stock market's been doing quite well and we've had such inflation that have touched the cost of goods. But the caution is, and I've learned this, is that there's not often a direct line between that and revenue production because when you think about cap gains tax, you have to worry about loss carry forward.
(39:47)
When you think about some of these other categories, they don't always bear out in the manner that you're thinking about. For instance, sales tax cost of good solds are grown up, but it is basically big ticket items like cars and appliances. What affects that? Well, home sales affect appliances and what's happened with home sales, right? Interest rates are up, people are in mortgages that are hard to get out of, and so you're not having that sort of thing. So there's not often a kind of direct line into revenue. So that's one portion. And then let's flip for a moment to the federal policy higher cost thing, because we're just now all stepping off of three levels of federal Support Cares Act, krisa ARPA, and we had just tremendous need because of the pandemic states got into things that they hadn't been in before because it was a necessity.
(40:56)
So we're now standing on ground that really hasn't firmed up under our feet because still kind of coming out of that. And then we do have higher cost because inflation has affected it. A big portion of the higher cost has been labor cost. I know at our authority it's the largest line we have. And early in the pandemic, when bus drivers, if you think about this, remember how scary that was early on when those direct care workers were really putting themselves on the line, and many of them were of the age of retirement, but you might think about retirement a little bit differently when you have a bus full of 50 people. And so we did. We lost a lot of people and we had favorable balances in our budget. We've now hired about over a thousand people in the last few months. And so that's kind of whipsaw back the other way. We're not looking, we've been so successful at hiring that we're not looking at favorable balances anymore. It's pushed the other way. So I think those are just kind of some of the trends that tend to happen.
Arlene Bohner (42:17):
Yeah. Thank you. I think we're going to have to enter into lightning round mode here to finish on time. So with the growing divide, how do you expect the ESG discussion to continue to impact the Muni market? Please vote. Okay. Pretty split on this one. Pat thoughts.
Patrick Landers (43:00):
We do a sustainable bond program, and we've had an experience where we've had sustainable bonds and traditional sales tax bonds in the same maturity. And the whole premise here was that there'd be higher demand. And there is in a sense, and I come from a blue state, our congressional delegation is entirely democratic. And really we have some of the more progressive members of commerce, and I think that reflects in the people that buy our bonds and Massachusetts residents generally. So there is a demand, but what the struggle was, it's a separate CUSIP and there's better secondary market liquidity in the traditional sales tax bond. So we're fighting against that. Yeah, there are people that would like to invest that way, but the institutional investors are looking at secondary market liquidity, and I have not seen a pickup. Having said that, I'm very glad that we do it because there's a thing in quantum mechanics where the very active observing things, something can change. And we do. We observe these very closely, and you get into issues with our sustainable committee about is that really a green project? The construction manners say, well, it's environmental remediation. It turns out that it's an environmental remediation. We spilled something. So that's not necessarily moving the needle forward, right? Yeah. In the same way we get those sort of things that happen with handicap accessibility, is it just a braille sticker on a much more expensive thing?
Arlene Bohner (44:43):
Okay. Let's go on to our next question. What will have the biggest impact on the public finance industry in 2024? Please vote. Okay. Oh, a commanding lead for direction of interest rates. Tom, what do you think?
Tom Kozlik (45:20):
I Agree.
Arlene Bohner (45:21):
You agree? Okay. He took the lightning round advice to heart. Anyone disagree?
Rick Kolman (45:27):
Totally agree.
Arlene Bohner (45:28):
Totally agree. Okay. Let's move on then to our last and most important Question, Of the day. Who do you think will win the Super Bowl? Please vote. I thought you were going to say Taylor. We should have put Taylor Swift on there as a choice. Oh, look at that. People are going for the Taylor side of things. 65%. Oh, interesting. I forget who was going to, Chris, you were going to talk about this.
Chris Valentino (46:06):
Yeah, I mean, I think it's hard to believe that Vegas started San Francisco as a favorite when everyone wants to bet on the chiefs. So Taylor will be in the building assuming she gets back from Japan in time. I think people maybe are more interested in that than the game itself. But I don't know, I think they're both pretty good teams, and I wouldn't be surprised either way to see either team win.
Rick Kolman (46:29):
Hey, you have to love Patrick Mahomes, but I love the story of the 49 ERs having the last player selected in the draft. I think that's a great story. If the 49 ERs can win it.
Arlene Bohner (46:42):
Yeah, everybody loves an underdog. Okay, well, I think that wraps us up. Thank you everyone for your participation.
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February 16, 2024 1:57 PM
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