US Municipal Issuers Not Immune If Inflation Persists Beyond 2022
Municipal issuers have recently bolstered finances, but will grapple with rising expenses and even a revenue fallout if high inflation persists
Amidst rising inflation, we expect most US public finance issuers will navigate through cost increases without a material erosion of their credit quality. But if high inflation persists into 2023, US public finance issuers will grapple directly with rising expenses. While some revenue streams have built-in inflation protection, an economic scenario with slower real growth due to inflation may nevertheless add to a budget crunch.
- Base case scenario assumes moderating inflation and relatively muted credit effects, though some sectors face more operating pressure
- High inflation extending into 2023 would be more challenging, as municipals face direct budget risk from rising wages, procurement and construction costs
- Even with revenue mixes including protection against inflation, negative credit effects would increase in the event of slowing real economic growth.
- Rising interest rates pose a risk to state and local government pension assets, and to capital plan affordability to a lesser extent
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SpeakersTimothy Blake Managing Director, Public Finance Group Moody's Ratings
Thomas Aaron Vice President - Senior Credit Officer Moody's Investors Service
John Medina Senior Vice President, Global Project and Infrastructure Finance Moody's Ratings
Madhavi Bokil Senior Vice President, Credit Strategy and Research Moody's Ratings
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Tim Blake is a Managing Director in Moody’s Public Finance Group responsible for US state ratings as well as local government ratings in the Eastern region. He also oversees ratings for US transit systems and a specialist team on government pension analysis. Tim has thirty years of experience in the municipal market.
Prior to joining Moody’s, Tim was a credit risk manager and ratings advisor at Goldman Sachs, and a credit and liquidity facility specialist at NatWest Markets.
He is a graduate of the State University of New York at Albany.
Tom is the dedicated public pension specialist for Moody’s Investors Service US Public Finance Group. He has held this role since 2013, in which he authors pension-related research and facilitates pension risk assessments across the group’s ratings. Tom originally joined Moody’s as a ratings analyst in 2011, where he covered local government credits throughout the Midwest. Prior to joining Moody’s, he served as Deputy Chief of Staff to a member of the San Diego City Council. Tom holds a Master of Science degree in Applied Mathematics (Actuarial Science) from DePaul University in Chicago and a Master of Arts in Economics from San Diego State University.
John is a Senior Vice President in Moody’s Global Project and Infrastructure Finance Team covering a diverse portfolio of project financings, public private partnerships (PPPs), and municipal infrastructure issuers in the transportation, energy and social infrastructure sectors. John chairs Moody’s Global PPP Task Force and is the sector lead for US toll roads, PPPs and generic project financings. John authors research across multiple sectors and annually leads several new rating assignments for new PPPs and project financings in the US and Canada. John was selected as one of the Bond Buyer’s 2017 Rising Stars. Before joining the Infrastructure and Project Finance Team in 2010, John spent two and a half years as a lead analyst for local governments and enterprises in the Eastern Regional Local Government Ratings Team where he was the lead for municipal issuers in Pennsylvania and New York while also covering New Jersey, Virginia, and Florida. Prior to joining Moody’s, John worked as a risk management analyst, a property and casualty insurance account manager, and a health care claims auditor. John is a founding member and was the first co-chair of Moody’s NY Multicultural Employee Resource Group and is a founding steering committee member of Moody’s NY LGBTA Employee Resource Group. John earned his BA degree in Health Care Economics and Policy from Stanford University and his MPA in Health Care Public Finance from New York University’s Robert F. Wagner Graduate School of Public Service.
Madhavi Bokil is a Senior Vice President, heading the Macro Research Team of the Credit Strategy and Standards Group. She is a member of Moody’s Macro Board and the lead author of Moody’s Global Macroeconomic Outlook.
Before joining Moody’s Ratings Madhavi held positions as Senior Economist at AIG and GE Capital, undertaking global macroeconomic analysis, forecasting and CCAR stress testing. Prior to that she held a faculty position in the Department of Economics at Clark University, where she pursued research in and taught International Macroeconomics and Monetary Economics. She holds a BA in Economics from Fergusson College, Pune, India, a MA in Economics from the University of Mumbai, India and a PhD in International Economics from the University of California at Santa Cruz.