Democratic control of House will likely benefit tax-exempt municipal bond demand as risk of tax cuts and repeal of ACA is lessened

Increased possibility of bi-partisan infrastructure program

36 newly-elected governors will determine the 2019 budget cycle

Municipal market technicals show strength post-election and into year end

MacKay Municipal Managers feels the outcome of the 2018 Midterm Election will be overall positive for the municipal market.

As the market digests the outcomes from federal and state and local elections, as well as numerous ballot measures, uncertainty and volatility which the market experienced in the weeks leading up to the election will now be replaced with relief going into the year end.

The split of Congress with a Democratic-controlled House and a Republican-controlled Senate adds stability to the municipal market as risks of a Republican majority in the House and the Senate implementing another round of tax cuts (“Tax Cut 2.0”), which could have lessened demand for municipal bonds, have been eliminated.

The split in Congress leads to more likelihood of bi-partisan support for the development of an Infrastructure policy which has been promoted by both parties. Funding of an infrastructure program remains uncertain, particularly given the growing deficit following tax reform in 2017, however, possible new funding programs including some sort of revival of the 2010 Build America Bonds program, which provided federal tax credits to state and local issuers, could be a consideration.

At the state and local levels, MacKay Municipal Managers believes the 36 Governor elections will provide new leadership to state governments who must navigate numerous budgetary demands, including rising pension costs, with increasing revenue collections from the strong US economy.

State budgets should benefit from Democratic control of the House as the risk of the repeal of the Affordable Care Act (ACA) and the potential reduction of Medicaid payments to the states will be lessened. Municipal market technicals going into the year end, which see a limited new issuance calendar and negative net supply, could present improving performance into the year end.