The American Rescue Plan and Its Impact On Municipal Credit Quality
We expect the recent passage of the $1.9 trillion American Rescue Plan to be an extremely positive impulse for municipal credit stabilization and underlying fundamental improvement more broadly. State and local governments, schools, colleges, and communities, across the country, will be receiving a combined $495 billion, a truly extraordinary sum by any measure. Prior to the passage of the stimulus plan, states had already begun to recover from the nationwide stay-at-home orders and the corresponding, pandemic induced, economic recession. It is worth noting that many states experienced minimal economic impact from the pandemic, as evidenced by tax collections for fiscal 2020 that were largely in line with the prior year’s collections. A number of states actually saw tax collections increase, year-over-year. We have included a number of other important data points to consider below.
- $325 billion in Federal, pandemic relief funds will be going to State and local governments, over 50% of which will be in the form of direct payments. This financial windfall is expected to more than cover any previously expected budget deficits.
- States had already received over $200 billion in pandemic relief funds from CARES Acts 1, 2, and 3.
- K through 12 schools will receive $130 billion, while colleges and universities will receive $35 billion.
- Over $30 billion will be allocated to transit agencies, $14 billion for airline support, together with $8 billion for airports, and $3 billion for aviation manufacturers.
- This wave of Federal support has already begun to positively impact municipalities as ratings agencies have begun to lift their credit outlooks for a number of higher risk issuers.
- We have upgraded our own outlook for lower investment grade and below investment grade municipal issuers.
- We are the most constructive we have been in years on broader underlying municipal credit fundamentals.
- Lower investment grade yields and spreads remain higher and wider than pre-pandemic levels, presenting opportunities for investors seeking to maximize yield and total return, now and in the future.
If you should have any questions regarding the best way to capitalize on emerging credit opportunities, please feel free to contact us directly.
