Media and various professional organizations have recently made much of the lack of new funding for the nation’s infrastructure and in particular, for the Highway Trust Fund. Last month, as reported in The Bond Buyer, the specter of cutbacks in federal reimbursements for highway and transit projects has once again become a congressional concern: “States may see a cutback . . . as early as June unless Congress passes a multiyear transportation bill by the end of May.”
In 2013 the American Society of Civil Engineers (ASCE) reported that the cumulative report card grade for America’s infrastructure was D+, and nothing has occurred in the intervening months to suggest to me that this grade is any different. Yes, stopgap measures have kept the funding solvent, but in a December report the Department of Transportation released a brief detailing the following:
“Based on current spending and revenue trends, the U.S. Department of Transportation estimates that the Mass Transit Account of the Highway Trust Fund will have a balance of approximately $1.1 billion at the end of FY 2014.”
With the cost of replacing the Tappan Zee Bridge in New York coming in at approximately $4 billion, the federal share alone is about $1.6 billion, which exceeds the estimated balance of the Highway Trust Fund. The ASCE has estimated that by 2020, investment of $3.6 trillion will be required to maintain our infrastructure, raising the question of how to finance such massive rebuilding.
Dollars aside, transportation financing is a critical sector imbedded in the structure of muni portfolios. For instance, the Barclays municipal transportation sector classification currently accounts for 23% of the Barclays Municipal Revenue Bond Index. Current transportation sector weights in the Van Eck Global investment grade ETFs: Market Vectors Short (SMB), Intermediate (ITM) and Long (MLN) Municipal Index ETFs are approximately 13%, 15%, and 19% respectively, suggesting to me the sector’s significance as a potential contributor or detractor to the total returns of these portfolios.
Whatever the outcome, the performance of muni portfolios will likely, in a significant way, rest upon the considerable contribution of transportation infrastructure in the months and years to come.
Past performance is not representative of future results. Data regarding holdings and sector information is not intended to represent any past or future investment recommendation.
The indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in any Fund. An index’s performance is not illustrative of any Fund’s performance. Indices are not securities in which investments can be made.
The Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt municipal bonds with a maturity of at least one year. Barclays Municipal Revenue Bond Index is a sub-set of this broader index.