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Municipal Bonds
Munis in your community: Scorecard
Municipal bonds are a foundational element in Nuveen’s proud heritage of investing to support public purpose – and an asset class that touches the everyday lives of all Americans. Munis fund essential facilities and functions such as state and local governments, K-12 schools, colleges and universities, roads and airports, hospitals, water and sewer utilities, housing, and more.
Nuveen’s muni credit analyst team – one of the industry’s largest and longest tenured – constantly assesses the impact of the trends that influence muni credit quality across all market sectors.
Our research identifies what we believe are attractive investment opportunities, and much more. It also yields practical insights into what individuals can expect when it comes to the availability, operation and cost of services used daily – things like the price of an airline ticket or a hospital visit, the health of their regional transportation options, the quality of their local school system, or the dependability of critical utilities.
The Nuveen munis in your community scorecard presents a broad range of such insights and explores the connections with effective muni investment as well as Americans’ lived experience.
We also dive deep into various sectors as we update the scorecard.
Our sector focus: stadiums
- Municipal bonds play an important role in financing infrastructure, with a long history of funding professional sports stadiums. This support in turn helps with wraparound infrastructure such as roads, water and sewage expansion.
- Bonds issued to pay for professional stadiums are secured by a variety of revenue streams such as general tax revenues, tax revenues generated at the stadium, special taxes specifically approved for the project and tax increment financing.
- These projects are not without controversy, and economists question whether the overall impact falls short of optimistic to projections.
- Municipal bonds continue to offer a low-cost addition to the capital stack while providing long-term, high-grade investments for investors.
Overall sector views
Our broad sector views are below. We look forward to commenting on our insights in future editions as our views evolve.
Nuveen Muni Monitor informs our discussions
| Positive | Neutral | Negative |
| Sector | Factors | Assessment | Sector Momentum | Takeaway |
|---|---|---|---|---|
| State and local governments (cities/counties/school districts) |
State and local tax collections: Total tax revenues up 7.1% as of 3Q24 versus 3Q23. | Credit quality expected to remain stable despite revenue and economic slowdown in 2024. Tax collections well ahead of pre-pandemic levels (+28% over 2019) and most states saw FY24 revenues come in aligned with budget. Balance sheets and liquidity remain strong and reserves are projected to strengthen in FY24 and FY25. |
Positive | Budget stability should temper tax increases. |
| State rainy day funds: Median reserve balances have grown every year since FY11 and this streak is expected to continue with states projecting a median reserve balance of 14.4% by the end of FY25, based on enacted budgets. This is up from 13.2% in FY24 and 12.3% in FY23. |
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| Unemployment: The U.S. unemployment rate was 4.1% in December 2024. This rate has declined slightly since July 2024. |
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| Rating changes: Rating upgrades continued to top downgrades for the 15th consecutive quarter in 3Q24 by a margin of 3.5 to 1. | ||||
| Economy: Real GDP up 3.1% in Q3 2024 and personal income up 0.3% in November 2024. | ||||
| Higher education | Enrollment: Fall 2024 enrollment grew 2.9% YOY though first year student enrollment declined 5.0% YOY. | Higher ed sector historically resilient. Endowments provide a cushion against operating volatility. However, continued enrollment pressure will squeeze tuition dependent institutions that are not competitively positioned. Future student loan forgiveness policies at the federal level may bolster higher ed participation, but botched FAFSA form rollout unhelpful. | Neutral | School closures and consolidation of smaller regional schools expected to become more common. |
| Demographic trends: National decline in high school graduates projected to accelerate beginning in 2026. | ||||
| State funding: State budget are more restrained and states are warning universities to reign in costs. |
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| Endowment returns: Endowment returns expected to be up in FY24, however concern about a potential tax on endowments could dim favorable returns. |
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| Federal policy: Loan forgiveness efforts encourage attendance, but FAFSA form challenges frustrate students. |
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| Water and sewer utilities | Liquidity: Sector liquidity still strong with median days cash on hand (DCOH) at 550. Though still higher than pre-pandemic levels this is down a bit from FY22. |
Stability expected given the monopolistic nature and rate setting ability of most systems. Strong liquidity exceeding pre-pandemic levels should lead to outperformance over the next credit cycle. Capital investment required for PFAS mitigation and lead pipe removal will require significant capital investment. | Positive | Upward pressure on utility rates may impact homeowners. |
| Regulatory framework: Environmental regulation enforcement may ease. However, new EPA drinking water rules and lead pipe replacement mandates are may drive increased capital costs and borrowing. |
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| Housing | Strong demand: Need for more affordable housing in expensive markets supports ongoing construction. |
Housing financing, construction and rehabilitation will continue to benefit from strong political support at both federal and state levels. | Positive | Strong housing demand supports household balance sheets but high interest rates keep homeowners in place. |
| Interest rates: Higher rates slow movement as current homeowners are reluctant to give up low cost mortgages. Delayed fed rate cuts keep housing market sluggish. |
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| Healthcare | Staffing shortages: Demand for nurses led to a spike in labor costs, pushing steep expense growth. Pace of labor inflation began to subside in 2023. Margin erosion due to labor and supply inflation have been slowly recovering. |
Healthcare expenses remain elevated due to current and future staffing shortages. As labor inflation subsides, rate expense growth will begin to normalize. M&A activity will continue as systems attempt to achieve scale efficiencies. | Neutral | Upward healthcare cost trajectory will continue as providers struggle to meet demands of aging population. |
| Stimulus roll off: Federal pandemic aid compensated systems for lost revenues in 2022 and 2023. Federal support is now depleted with no additional funding expected. |
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| Demographic trends: Aging population guarantees demand for services will grow. Sector will struggle to serve older, rural populations. |
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| Transportation (planes, trains & automobiles) |
Airport strained capacity: passenger traffic growth expected to be constrained by flat airline capacity and potential geopolitical and macroeconomic risks. |
Airport cash balances remain robust and domestic air travel has recovered back to pre-pandemic levels. Capital investment needed to expand capacity will drive infrastructure borrowing. | Neutral | Air travelers should expect higher ticket prices and airport construction to be the norm. |
| Airport passenger volume: Leisure travel fully rebounded, but business travel may never return to pre-pandemic levels. | ||||
| Toll road traffic and revenue growth normalizes: traffic growth returns to pre-pandemic levels and slowing inflation limits revenue growth. |
Many toll roads annually adjust rates by the consumer price index (CPI), which led to peak revenue growth in recent high inflation environment. Slowing inflation may limit revenue growth, but sector would benefit from lower operating and capital costs. | Neutral | Drivers are likely to see some relief on toll rate increases, improving affordability. | |
| New tax revenue for mass transit: Ridership not expected to return to prepandmic levels. New financial support coming from state and local governments. |
Well functioning public transit systems are essential for urban areas. Facing a fiscal cliff as federal support wanes, systems are seeing increased support and tax subsidies from local and state sponsors. Systems may see stronger oversight from government partners. | Neutral | Fare increases should be less common, but new dedicated taxes will support transit. |
| Positive | Neutral | Negative |
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Data sources: US Census; NASBO; Fall Fiscal Survey of the States https://www.nasbo.org/reports-data/fiscal-survey-of-states; BLS.gov; national unemployment rate and payroll employment data; Moody's (over 80% of rating changes are in tax-backed sector making this a relevant metric here); BEA.gov; https://www.bea.gov/news/blog/2024-03-29/gross-domestic-product-state-and-personal-income-state-preliminary-2023-0; National Student Clearinghouse Research Center; WICHE – Western Instate Commission for Higher Ed – Knocking on the College Door, 2020; State Higher Education Finance; SHEEO.org; Grapevine Report; https://shef.sheeo.org/grapevine/#about-grapevine; NATIONAL TABLE 1. STATE FISCAL SUPPORT FOR HIGHER EDUCATION, FY 2019-2024; Inside Higher Ed article https://www.insidehighered.com/news/business/financial-health/2023/11/21/universities-see-sluggish-endowment-returns-fy23; Various news articles; Merritt data; US EPA; Transportation Security Administration (www.tsa.gov); Federal Aviation Administration (faa.gov); Federal Transit Administration (transit.dot.gov)
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