California, Texas lead big bond referendum slate

State and local voters will face an estimated $162.4 billion of bond referendums, led by California and Texas, according to a Bond Buyer analysis.

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Voters in 16 states will vote on tax questions affecting state and local government income and property tax revenue, according to Ballotpedia.

California’s Proposition 40 would impose a one-time 5% tax on taxpayers and trusts with covered assets valued over $1 billion. Florida voters will consider a referendum that would have a profound impact on local governments if approved.

In total, voters in seven states will decide on 12 statewide ballot measures regarding property taxes: Florida, Georgia, Louisiana, North Carolina, Oklahoma, Tennessee, and Wyoming.

The outcome of the state and local elections could introduce credit dispersion, said Pat Haskell, head of the municipal bond group at BlackRock, in the firm’s Q4 fixed income outlook.

“Some state and local tax proposals have implications that extend beyond how much revenue municipalities collect to how predictable those revenues may be,” Haskell said.

Property tax reform could shift traditionally stable school funding toward “more cyclical state income and sales taxes,” increasing “budget volatility and dependence on state fiscal health, political priorities and the reliability of replacement revenues,” he said.

Proposals for one-time taxes on wealthy residents may provide near-term revenue but may not address structural deficits and could create risks for permanent program funding, he added.

“These dynamics reinforce our preference for revenue bonds supported by stable cash flows over general obligation credits that may be more exposed to changing tax and political conditions,” Haskell said.

Muni investors could move quickly after election results are in, said James Pruskowski,  managing director at Hennion & Walsh, Inc. 

“A lot of investors right now are sitting on cash waiting for November 3,” he said. “The moment clarity arrives it is likely they move simultaneously into a market that is already oversold and underowned. Bid wanted activity dragging on this market for weeks would reverse fast. New issue concessions would also tighten fast. Ratios that look cheap today would compress quickly. Given where we are right now I think the pricing happens in days not weeks like it used to,” he said.