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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

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Elisa Marks, RBC Capital Markets, (212) 618-2057

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