Dive Brief:
- U.S. cities and states are capitalizing on low interest rates to help finance their backlogs of critical infrastructure projects, according to Bloomberg.
- Borrowing costs are at record lows, and more public entities are choosing to finance new projects rather than pay off or refinance old debt. Barclays Plc predicted that municipal bond issues might reach $400 billion this year.
- As a result of the rush to take advantage of low rates, the municipal bond market is nearing 2010 levels, a time when state and local governments were under pressure to take on public works bond debt.
Dive Insight
A Barclays representative told Bloomberg that "the story for the year" will be "rebuilding infrastructure." Included in this year's major bond issues is the new $4 billion LaGuardia Airport terminal, a 1.3 million-square-foot, 35-gate facility that public-private partnership head Skanska USA called its biggest project ever.
The country's infrastructure is in dire need of upgrade and repair, and even presidential candidates Donald Trump and Hillary Clinton have promised significant investment in the nation's highways, bridges and other publicly funded construction projects. According to According to an American Society of Civil Engineers report, the U.S. must figure out how to make up a coming $1.44 trillion infrastructure funding shortfall. The ASCE cautioned that if the financing issue isn't resolved, the shortage will create a job deficit of 2.5 million and a gross domestic product loss of $4 trillion over the next 10 years, pushing the shortfall to $5.18 trillion by 2040.
The infrastructure money-grab is so fierce that lawmakers in several states are at odds with each other as to how to spend their limited cash. In May, Minnesota Republican succeeded in voting down a proposed $1.8 billion bonding bill to fund more than 300 state infrastructure and other public building projects, declaring that the spend was even higher than the governor himself requested. In addition, the Illinois legislature was forced to enact stopgap measures to avoid a shutdown of transportation projects and other state services when it could not agree on a satisfactory budget.
In New Jersey, an impasse between Gov. Chris Christie and state Democrats over a gas-tax-funded proposal to the state's infrastructure problems led Christie to shut down all of the state's non-essential, transportation-related projects. After the order, Christie rejected a revised Democrat proposal because he said it didn't offer taxpayers adequate relief as a counterbalance to the gas-tax increase. Christie has since issued an executive order to take money from the state's general fund and pay for only critical transportation projects.
