CHICAGO, Oct 23 (Reuters) - U.S. states and local governments, wary of assuming new debt even as the COVID-19 pandemic blows holes in their budgets, have a far lower total dollar amount of bonds riding on the Nov. 3 general election than they did four years ago.
Shutdowns and stay-at-home orders to halt the coronavirus’ spread also cut down on the number of tax measures by making the process for putting proposals on ballots more difficult.
About $52.7 billion of bonds to fund capital projects are up for a vote nationwide, down from $70 billion in 2016’s presidential election and $76.5 billion in 2018’s mid-term election, according to IHS Markit data.
“It is an uncertain environment to take forward large capital projects,” said Dan Hartman, head of PFM Financial Advisors’ financial advisory practice.
Moody’s Analytics has projected states and local governments face a collective $450 billion budget shortfall through fiscal 2022 due to economic fallout from the pandemic.
Tom Kozlik, head of municipal strategy and credit at Hilltop Securities, said the pursuit of new bond authorization fell despite temptingly low yields in the $3.9 trillion U.S. municipal bond market. “We typically have seen high levels of bond approvals during presidential elections, but this election cycle is much different because of the generally negative economic circumstances,” he said.
Still, the virus is popping up as part of the argument to sway voters to approve new debt that is on the ballot.
Advocates for a $5.5 billion California general obligation bond measure for the state’s Institute for Regenerative Medicine highlighted the virus among the diseases targeted by its stem cell research efforts that would be able to continue with the new funding.
The Los Angeles School District, which has the largest bond issue this election at $7 billion mainly to fund an ongoing construction and modernization program, would tap some proceeds for air quality and other systems and structures to help keep students safe from the virus when they return to the classroom, according to Superintendent Austin Beutner.
“COVID has brought a new standard and a new set of needs for sure and my hope is many in the community understand it costs money to do it right and we will do it right,” he said.
California schools and governments account for the biggest share of bonds this election at $20.7 billion, followed by Texas at $10.9 billion.
The number of tax measures is also low, according to Jared Walczak, the Tax Foundation’s vice president of state projects.
“The pandemic cut legislative sessions short, which may have reduced the number of legislatively referred measures on the ballot this year, and made signature gathering difficult if not impossible, significantly cutting into the number of voter-initiated ballot measures certified this year,” he said.
In Illinois, which was already in poor fiscal shape before projecting big revenue losses due to the virus, a well-financed battle is raging over a constitutional amendment to replace the state’s flat income tax with graduated rates. The move would allow the state to tax high earners more, raising about $3.1 billion annually.
Higher income taxes for the wealthy is also on the ballot in Arizona, where the projected $827 million in additional revenue would largely go toward classroom hiring and boosting teacher salaries.
Colorado voters will decide whether to cut the state’s flat income tax rate to 4.55% from 4.63%, retroactive to Jan. 1, 2020. Arizona, Montana, New Jersey, and South Dakota would be able to generate new tax revenue from the sale of marijuana if voters legalize its recreational use by adults. (Reporting by Karen Pierog; Editing by Alden Bentley and Tom Brown)
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