State and Local Government Revenues Recovery Expected in Near Term
NEW YORK, April 28 /CNW/ - Municipal finance professionals expect state
and local municipal debt default levels to be less or remain unchanged
in 2011, according to a survey conducted by RBC Capital Markets at the Bond Buyer's 2011 NY/Tri-State Area Public Finance Conference, held April 13-14,
The survey found that the majority (60 percent) of experts believe there
will be either the same or fewer defaults this year than in 2010. Of
those, the percentage of respondents who believe there will be fewer
defaults this year than in 2010 increased significantly to 28 percent
in this month's survey from the 11 percent who believed the same in a
February 2011 RBC survey.
Municipal finance professionals remain fairly optimistic about the
prospects for state and local government revenues to return to
pre-crisis levels in the near term, with just over half (51 percent)
expecting revenues to normalize in the next two to three years. This is
further supported by 63 percent of respondents who believe state and
local government officials are taking the steps necessary to address
their budget issues.
"We see government officials making the difficult decisions necessary to
address strained budgets and believe that the state of the industry
will continue to normalize over time," said Chris Hamel, head of
Municipal Finance for RBC Capital Markets.
Stabilization is a sentiment supported by the 77 percent of respondents
who expect market demand to be sufficient when issuance normalizes.
Tax Exemption Status
In response to the Wyden-Coats proposal which would make state and local
debt taxable after 2011, with bondholders receiving a tax credit of 25
percent of the interest earned respondents overwhelmingly said they do
not believe it to be a more efficient way to support public borrowing
than the existing tax exemption offered to investors.
"Tax credit bonds have a poor history of market acceptance and, in that
regard, would be a deficient substitute for tax exempt municipal bonds
as a financing vehicle for state and local governments," said Chris
Mauro, head of U.S. Municipal Research at RBC Capital Markets.
"However, we believe the market will continue to see various tax reform
proposals introduced over the next 18 months as Washington moves closer
to consensus on a broad deficit reduction plan."
Despite the positive outlook, survey participants acknowledged the
challenges that states and municipalities will face. When asked to
identify the greatest challenge for the New York and Tri-State area,
almost half (49 percent) of the respondents indicated pension funding
would top the list, with another 28 percent identifying infrastructure
as the greatest issue, and 17 percent citing education expenses.
Sixty-six percent of respondents believe that increasing commodities
costs were impacting state and local governments' ability to undertake
About the Survey
The survey of 92 municipal finance professionals was conducted by RBC
Capital Markets at the Bond Buyer's NY/Tri-State Area Public Finance Conference in New York City, held
April 13-14, 2011. Respondents included federal, state and local
officials, bankers and other municipal finance professionals who
attended the conference.
About RBC Capital Markets' U.S. Municipal Markets Group
RBC Capital Markets' U.S. Municipal Markets Group provides products and
services annually to hundreds of municipal issuers across a broad range
of sectors, including: healthcare, higher education, student housing,
education, public power, special districts, student loans and
transportation. The firm is one of the most active underwriters of
municipal bonds in terms of total number of senior managed issues,
underwriting hundreds of issues annually.
About RBC Capital Markets
RBC Capital Markets is the corporate and investment banking arm of RBC
and is consistently ranked among the top global investment banks. With
over 6,300 employees, RBC Capital Markets is active globally in fixed
income, foreign exchange, infrastructure finance, ECM, metals & mining
and oil & gas. Working with clients through operations in Asia,
Australia, the UK, Europe, and in every major North American city, RBC
provides capital markets products and services from 75 offices in 15
countries. RBC Capital Markets has major hubs in New York, Toronto,
London, Sydney, Hong Kong, and Tokyo. For more information, please
For further information:
Elisa Marks, RBC Capital Markets, (212) 618-2057, email@example.com
Kristina Ferrari Baldridge, CJP Communications, (212) 279-3115 x235, firstname.lastname@example.org