Majority of Municipal Finance Professionals Anticipate Muni
Defaults Will Stay the Same or Be Fewer This Year, RBC Capital
Markets Survey Finds
State and Local Government Revenues Recovery Expected in Near Term
NEW YORK, April 28, 2011 — 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, 2011.
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."
Local Challenges
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 infrastructure projects.
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 visit www.rbccm.com.
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Contacts:
Elisa Marks, RBC
Capital Markets, (212) 618-2057
Kristina Ferrari Baldridge,
CJP Communications, (212) 279-3115 x235,
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