Infrastructure in 2025: optimism tempered by uncertainty

The outlook for the public infrastructure market next year is a mix of optimism and uncertainty as municipal market participants look forward to a rush of projects amid threats to financing tools from Capitol Hill. Only about half of outgoing President Joe Biden's 2021 Infrastructure Investment and Jobs Act legislation has been spent, and the remaining billions could see a shift in priorities from the incoming Trump administration.

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The 2025 budget that passed the Chicago City Council this month will not materially alter the city's credit profile, Moody's Ratings said. Moody's rates Chicago Baa3 with a positive outlook. "The fiscal 2025 budget favorably continues the city's substantially improved pension funding practices," said Moody's Vice President David Levett. "The city's increase in pension funding levels has been a key driver of its improving credit profile."

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A flurry of first time and repeated technical bond defaults by Colorado metropolitan districts in December is raising concerns about the debt, which finances public infrastructure such as roads, sewers, parks, and recreation centers for housing developments through property taxes levied on new tracts.

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The California Supreme Court agreed to an extension for filing briefs in San Jose v. Howard Jarvis Taxpayer Association, the primary case challenging cities’ use of pension obligation bonds. “We expect oral arguments to occur near summertime,” said Allison Burns, a partner with Stradling Yocca Carlson & Rauth, the firm representing San Jose in the lawsuit. The Jarvis association, an anti-tax organization, had filed challenges against nearly a dozen cities’ validation lawsuits in which the cities seek a court seal of approval on plans to issue POBs. 

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Municipals were steady to slightly weaker Tuesday as U.S. Treasuries closed the session a bit stronger while equities were in the black. In the remaining days of this year, "taxable rates continue to be pressured but munis are finding a stable, even supportive, bidside," said Kim Olsan, a senior fixed income portfolio manager at NewSquare Capital.

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