(Adds next week's debt issuance outlook, Lipper data flow and
municipal market return statistics)
By Karen Pierog and Hilary Russ
CHICAGO/NEW YORK Feb 3 U.S. President Donald
Trump's agenda to repeal Obamacare and punish 'sanctuary cities'
for resisting him on immigration is making its presence felt in
the $3.8 trillion municipal bond market.
Municipal bond sales next week from New York City, the state
of Oregon and a California healthcare provider worth nearly $1.7
billion include warnings to potential buyers that Trump's
policies could pose a financial risk to these issuers.
The Republican president signed an order on Jan. 25
directing the U.S. attorney general and Homeland Security
secretary to withhold federal money from cities that adopted
sanctuary policies for undocumented immigrants.
Trump is also pushing to repeal and replace the Affordable
Care Act also known as Obamacare, reform the tax code and
rollback some or all of the Dodd-Frank financial regulation
New York City on Tuesday told potential investors for its
upcoming $800 million bond sale that its sanctuary city status
should not result in a substantial loss in federal funding due
to Trump's recent executive order.
While sanctuary city is not an official designation, it
represents policies adopted by municipalities where local law
enforcement refuse to report undocumented immigrants they
encounter to federal authorities. Municipalities have said this
does not apply in the case of an undocumented immigrant involved
in such things as violent crimes.
Self-proclaimed sanctuary cities say they have identified
legal holes in the Trump Administration's arguments saying it
cannot cut funding for healthcare and education.
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In the preliminary official statement for the general
obligation bonds pricing through Citigroup, New York said
federal grants related directly to immigration enforcement
comprise a small portion of its budget and that grants
supporting law enforcement in general would be exempted from the
"If implementation of the executive order results in the
reduction of federal aid to the city, the city expects that it
would mount a vigorous legal challenge," the disclosure said.
"However, there can be no guarantee that implementation of the
executive order will not result in a significant reduction or
delay in receiving such aid."
In addition to New York, other major cities offering some
form of protection to illegal immigrants include Los Angeles,
Chicago, Philadelphia, Boston, Denver, Washington, and Seattle.
Another sanctuary city, San Francisco, filed a legal
challenge to the order this week. Billions of
dollars in federal aid to those cities could be at risk.
Trump and the Republican-controlled U.S. Congress also have
the repeal of the Affordable Care Act (ACA) on their agenda.
Oregon, which is selling $491 million of GO bonds through
Citigroup, pointed to uncertainty surrounding the ACA and its
financial support for expanded numbers of Medicaid recipients.
Any kind of repeal or replacement of the act "could have a
material adverse effect on the financial condition of the
The California Municipal Finance Authority also warned
investors in a $405 million conduit debt offering prospectus for
a non-profit health care provider, Community Medical Centers.
The document said federal tax reform, the rollback of
Dodd-Frank, or replacing the ACA "could have a material impact
on the Obligated Group's operations and financial results."
Overall, next week's issuance calendar contains $8.4 billion
of U.S. municipal bond and note sales.
Total issuance for January was $33.6 billion, 37.6 percent
higher than the same month last year by par amount, with
increases in both refundings and new money, according to Thomson
Lipper inflows, though tepid, continued for the fourth
straight week following a dramatic 8-week investor pullout that
resulted in $16 billion of outflows between November and early
Munis' January total return was 0.66 percent, according to
the Bloomberg Barclays Municipal Index. That outperformed the
U.S. Treasury index, which generated 0.23 percent returns in
January, Barclays analysts said in a research note on Friday.
(Reporting By Karen Pierog and Hilary Russ; Editing by Daniel
Bases and Andrew Hay)