Municipal Bond Infrastructure Sales Near $250 Billion to Smash Record

(Bloomberg) — A new bridge in Lake Charles, Louisiana, a 26-story patient tower for the Children’s Hospital of Philadelphia and two high schools in the heart of Texas’ oil country are just a handful of projects financed by what’s poised to be a record year of municipal bond sales. 

Since January, state and local government borrowers have tapped investors for nearly $250 billion of debt sold exclusively for new infrastructure developments, the most since at least 2013, according to data compiled by Bloomberg. The sum is up 30% over the same period last year, the data shows. 

“We have major infrastructure repair needs and growth needs,” said Elaine Brennan, executive vice president of the public finance department at Roosevelt & Cross Inc., a broker-dealer specializing in municipal finance. Governments have more confidence in the economy and the trajectory of interest rates these days, she said.

“Just getting back to normal also helps a city planner say, ‘Okay well we’re back to normal now, we can fix the HVAC system in our town hall,’” Brennan said. 

Most of US infrastructure is financed through the $4 trillion municipal bond market where states and cities raise funds for public transit systems, highways, schools and a bounty of other projects. Such sales — known as new-money deals — have surged in 2024 as interest rates stabilized after two years of Federal Reserve rate hikes. Governments are also borrowing more for projects as pandemic-era stimulus aid runs dry, reducing available cash. 

“As federal dollars have now run out, issuers are returning to the market to fund their capital projects with bonds,” said Samantha Costanzo, senior managing director and head of public finance of Huntington Capital Markets.

Earlier this summer, an authority associated with Chesterfield County, Virginia, sold almost $300 million of bonds to help finance the expansion of a highway and road improvements, according to bond documents. The county followed that issuance with a $90 million sale in July to raise money for public school and library upgrades, among other uses. 

Matt Harris, the deputy county administrator for finance and administration, said projects are more expensive than previously thought given inflation. 

“It’s something that we face every single day — we have some big, big projects and they’re going to be way above where we’ve envisioned them being just a handful of years ago,” Harris said in an interview. For example, a high school project the county is working will likely cost closer to $200 million, compared to an initial estimate of $130 million or $140 million, he said. 

Higher inflation has raised the cost of construction, meaning governments have to borrow more than they’ve had to in the past to pay for projects that have become increasingly more expensive. 

“A dollar in 2020 is no doubt going to cost a $1.20, $1.30 now,” said Jeffrey Scruggs, head of public sector and infrastructure at Goldman Sachs Group Inc. “That’s a little bit of a negative hit for issuers because it just costs more to get things done.”

–With assistance from Shruti Date Singh.

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