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Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market movin news.
Find the Bloomberg Markets Podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot Com slash podcast. We're to join right now by Sean McCarthy, CEO at Build America Jews. Shawan, thanks so much for joining us. Thanks much for putting us up in your building.
Here you Jen and Paul. It's really great to have you here. We're thrilled to be the host.
One of the big stories today, Charlie Munger passing any experiences, any thoughts there. You've been in this business a long time, you know.
Charlie Munger was one of the great credit thinkers really in the history of credit thinking. Last night I actually reread an essay that he gave. He wrote in when he was in his late sixties, and then we wrote when he was eighty one. It's called the Psychology of Human Misjudgment. He essentially articulates twenty five ways that people convince themselves to make the wrong decision. It's excellent. I'd
I recommend. I'm sure you can get it right online, but I mean it just it shows how brilliant an individual he was.
Absolutely.
Yeah.
But the stories we're seeing in the reporting today is really I think bring that to life for.
A lot of people.
All right, Build American Mutual here, tell us about your business. Tell us about really explain to our listeners kind of really what you do. How you guys are integrated into the municipal bond market in this country.
Sure so. Build American Mutual is an insurance company that guarantees municipal bonds. And so essentially what we do is we act like a parent. If you you know, if you have your kids and they get a student loan and you need to co sign for that student loan, you want them to get a job and pay it back. Our job is if they fail to make that particular payment,
that we make that payment for them. So our job is to sort of make bonds more secure by being double A rated or we're double A rated by Standard and Poors, and in doing that, we create greater stability in the market for the bonds, less volatility in terms of how they fluctuate. And we provide credit diligence which
we share for free on our website. They're called credit profiles, a description of each deal that we underwrite, and we update that annually and it's just available as a service because we're a mutual insurance company.
I love that analogy the parents of the bond market and keeping all the kids in line. But now let me ask you what's the demand for insurance in this particular type of market.
So if you think about what the insurable market would be, it's not you know, for the Great Recession, municipal bonds were guaranteed up to about sixty percent of the total market, which would have been about over eighty percent of what could be insurable. So if you look at the market as a whole and you think that, you know, triple A bonds won't use bond insurance, and there are certain credits that are non investment grade or outside of the
underwriting appetite of ourselves or the industry. What's left in the middle are insurable transactions. And in that area, about twenty five percent of the bonds are insurance. So that's quite a bit. That's quite a big growth. It's about a thirty percent growth since COVID started in terms of how much market penetration there is.
And so does that change pre COVID the post COVID yeses. So investors demand more insurance, more guarantees, more stability.
Now they're using bond insurance more than they did before. And so there's a number of things that bond insurance really does. It provides. Not only is it providing the default protection which I described as you, you know, standing behind your children and their student loans, but it also provides a stability in the market, and it provides a security so that you may not have the time to
understand small or complex credits. We're guaranteeing them and then essentially what that means is we're promising to pay timely payment of principle and interest on that bond when it's due. So there's different than other forms of insurance, which once you file a claim and there's a negotiation, we pay immediately and then we mitigate later, which is one of the strengths and why in individual investors count on the strength of a financial guarantee.
Can you give us a sense of what the sentiment is that you're experiencing in this market, and it's kind of like a pre and post COVID question, but also is there some key lesson about investor psychology as we started off talking about at the beginning of this segment, that you'd want to say that you've noticed.
So I'd say two things. One is interest rates have gone up a lot, so the primary market, meaning the overall volume in the market for new issue has been lower for the last two or three years. That being said, the new money portion, the portion of the market that's just building new projects, new schools, new roads, this year will be its second highest year ever twenty twenty two was the highest, but there are no more refinancings if
you just think about it. With interest rates going up, the concept of saving money by refinancing that bond has gone away. And that was about a third of the market historically. So that's one thing. But if you look at the sentiment in the market overall, a good example would be this last election in twenty twenty three, there were seventy percent of all bond issues that were on the ballot were approved, So that was sixty billion dollars worth of new transactions that are going to come to
the market just from the twenty twenty three elections. So now we look at the credits generally and we think ourselves. Two things have happened since COVID. One is the federal government stepped in and gave an awful lot of money to all kinds of communities, and some of that money
still is being spent by them. It sort of explains in one way why the bipartisan Infrastructure Bill has not actually been drawn on a lot, because the really most municipalities survived well through that crisis of the pandemic, and part of that was that they went into the pandemic being strong. I mean, you know, so you think three or four years ago, there was lots of you know,
all the coffers were filled at most municipality. So now what we're looking at is to see what happens as the rest of the money that they've been given runs out, and what is the real environment for what's going to happen to municipal credits going forward. In terms of an operational standpoint.
Who decides whether a bond is insured? Is it the issuer the underwriter who decides it.
So nobody uses us unless we save the money. So so when when you're issuing your bond, the underwriters on the desk first, the financial advisors who advise the municipalities, we'll say you should consider bond insurance. We'll underwrite the transactions as the market. As the time comes to bring the deal to market, they'll look at it and say, well, how much is BAM charging and how much are we
going to save as a municipality. So that's really the decision that's made right at the time in the market. So when markets are more volatile, bond insurance is used more. When markets are more more stable and people have the time, or when volumes are lower and more time to take a look at the credits and may say I'll just take take that bond without the insurance.
It's interesting because one thing I'm wondering is about how the election next year, the US presidential election, is going to impact demand for this kind of insurance. I mean, already we're expecting maybe to market volatility with the FED shifting direction, but how does the election figure into that.
So, so two things to remember. First of all, you know, people look to the federal government's role in infrastructure and it's it's the big stuff, you know, So it's you know, it's I ninety five and the Hoover Dam and big things that are done at a federal level. But you know, eighty ninety percent of what you think of as infrastructure is done at the state and local governmental level. So these things are issued by you know, towns and cities,
and that's really the fundamental component. So if you look at what's going to happen in the election next year, it's really a function that resides at the state and local governmental level in terms of how the markets are going to move, and you know, what happens to interest rates overall will affect you know, volume, and whether there's a prospect of refinancing says interest rates start to decline as our prior a speaker was advocated.
But I've been told by municipal bond folks that municipalities issue when they need to, not when the market's great.
So I mean that's that's true.
So think about what's happened. They have a lot of money volume spin down because they have had they haven't had to issue. But remember there's this whole incredibly pent up demand for rebuilding and creating new projects. And so the things to really watch for if I was an investor on the other side, is to say, Okay, what's going to happen to interest what does high interest rates do to municipalities? Well, what is it due to mortgage rates? What is it then do to commercial real estate values?
What is it due to residential mortgage values? Those are some of the key underpinning issues that are that that move credits good batter indifferent.
Okay, great stuff, Shan, Thanks so much for joining us. Sean McCarthy, he's the CEO of Build America. Uh, these are the offices we're hanging out in today, so we appreciate, Uh you hosting us here Sean McCarthy, CEO of Build American Mutually.
You're listening to the teenth Ken's our live program, Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcasts.
Let's go right now to our next guest.
Pria Misra, Portfolio Manager, JP Morgan Asset Management, joins us here via zoom Nor. I mean, Priya, what do you make of what's happened in the rate market just in the last you know, I'm gonna say just a month in November. Boy, we've had you know, most of the yield curve was sitting right around five percent, and now we've got the ten year you know at four and a quarter percent.
That's some move. What do you make of it?
Sure, it's mean very volatile, pretty vicious. So I think if you go back a little bit September October, we saw a pretty big move higher in rates right from that four and a quarter all the way up to five percent. I think it was a perfect storm of stronger data, hawkish fed, more supply. I actually think the buyers got nervous. What we've seen over the last month is a reversal of all of this. So you had the US Treasury saying, well, maybe not as much long
in supply. You had economic data which is slowing. I think we are going to debate for a while whether softlining or hard landing. But it's clear that the economic data is moderating, both inflation as well as growth. And then importantly in the last few weeks we've heard from the FED, and I would say in the last two days we've heard from the Fed very clearly that the hiking cycle seems to be behind us. Were end of cycle, and I think the market's now running ahead with what's next.
When do the cuts start to come. So I think that the move in rates, you know, it was a technical lead move. I think beyond four forty on tens, that move was very fast. Up to five I think we've retraced it now. I think we're going to settle into a range, you know, three and three quarters or maybe four percent to four and a half or three and three quarters to four and a quarter. I think that's the ten year range as long as we're in
a soft landing. If things deteriorate some more, and we're talking about the FED having to cut a lot sooner or a lot more than what's priced in, and I think there's a decent chance of that at that point, then the tenure could absolutely go closer to three percent.
But I think that the data right now suggests more soft landing, and I think that's essentially what has gotten priced And so it's been a very quick move because it was a very quick move up to five percent, and I think now we can sort of consolidate in this you know, close to four percent range.
You know, I want to ask you about the speed of this move. I mean, it really is breathtaking. And one question that niggles at me is what's the risk that people have got it wrong here?
So I think there are a few assumptions in the market right now. Things are slowing, and I think the assumption is that we're slowing to trend and we won't slow any further. I think it's an open question. There are cracks we're seeing. These cracks could absolutely deepen. So when you talk about the you know, what could go wrong, Well, things could slow into a recession. And that's why I'm looking at every data point and digging into all of
the details. I think aggregate data is useful, but we have to look at the distribution because I think, you know, when the cost of capital is high, there's a big difference between the haves and the have nots, and I think it's going to be important to look at all of that. So I think that could be one assumption. The other assumption in the last few days has has become when does the FED start to cut can they?
I think the soft landing predicates on the FED easing soon, and the assumption there is that inflation is has declined and it's going to decline to two percent quickly. I think that could be a big assumption. That could be that the actual data could show that inflation may be stolen.
I think the last mile of inflation is you know, there's there's some FED rhetoric that could be hargh and so I think even if things start to slow down and inflation stalls at two and a half or two and three quarters and the FED says, well, we're not at target and so we can't cut rates preemptively, I think that could be an assumption which puts the soft landing narrative at risk, so there's a lot, and then your financial conditions ease a lot, which they've been easing
in the last few weeks. You could have the FED saying, well, we didn't want them to tighten too much, but now they're easing too much. So I think this dance between financial conditions and the Fed that also can go the other way if the Fed thinks the easing is too much.
So it's a bit tenuous. I do think we're in the midst of the former year end rally, but I think as we start next year, we have to say your questions well put, because I think a lot of these assumptions could come could be challenged.
So pre on the yield curve, here where do you see the most opportunity?
So I have to say, as much as I like to position for a steepener, and we have a bit of a steepening bias in our portfolio, I think it it does depend on the FED starting to cut rates soon. So I think the curve actually need not do a whole lot in the near term. I think duration might be a better trade than the curve. I think longer turf the curve. Longer term the curve should steepen as the FED cuts rates. You know, you should have a
more normal uput sloping yield curve. But we're not close to the FED target on inflation, and I think they're going to be reluctant to cut rates soon, so I think the steepening is going to run out of steam. It's s deepened a lot in the last couple of days. I think if we get we have key data points coming up in a FED meeting, so the next few weeks could steep and then I think we'll stall out. And I would prefer being long duration here. I think
tens north of four percent are cheap rail rates. Ten year rail rates above two percent, I would argue that's a better risk reward than you know positioning for the curve one way or the other. But longer term, I think it should steepen.
You know, we're looking at some price data coming out tomorrow, and I wondered if you could talk a little bit about what your own expectations are and then what are the risks that inflation doesn't come down as quickly as the FED would like?
Sure, So I mean when I decomposed the move in inflation higher, they were supply issues and they were demand issues, the supply ones. I have a lot of conviction those issues have largely been resolved time. I mean, people spend a lot of time thinking about supply chain issues, and so I think that the base effect commodities are coming off, and so I think we have conviction that inflation's coming
down from the supply side. Even labor force participation, which is a labor market supply technical has you know, did move positive on the demand side. You know, I think there has been some improvement on the demand side. Growth is absolutely slowing. Fourth quarter is probably in a one percent type GDP range, and that should put somewhat downward
pressure on inflation. But there are other components. Housing it's a well documented lag in terms of how quickly housing inflation can come down, and the labor market is still tight. So I think while I do expect over the next year or two inflation to head closer to two percent, I think the speed in which it has declined this year, we might be a bit disappointed. To your question on what's the risk, I think the risk might be not so much for tomorrow. I think we probably see another decline,
But I would say the risks are really asymmetric. The market is not going to like any upside risk to inflation because that puts this whole question of the FED easing, you know, making policy less restrictive. It throws that into question because the FED is very clear they want inflation close to two percent or not at two So any upside risk to inflation I think will not be taken
kindly by any market. Frankly, and I think with a tight labor market, with wages still above levels that would be consistent with two percent inflation, I think the risks are still somewhat to the upside, more from a demand, you know, rather than a supply perspective.
On relation.
Super you mentioned the labor market's still tight. Here we have a unemployment rate of three point nine percent. Where do you think that FED would be comfortable seeing that go?
So the Fed's forecast for inflation at the end of next year is four point one, which is actually very close to nahru or their estimate of the long run level of unemployment. But you asked about comfort, which I think what you're writing to get at is at what level do they get nervous about a recession or too much of a slowdown and they start to cut rates, and I would say it needs to be somewhat higher
than that four point one percent. I think closer to five percent would make them uncomfortable because that's far off away from nehru. It would put downward pressure on inflation, and they certainly don't want to overshoot on inflation below two percent. And so, you know, I think if we get north of four and a half, you'll start to see some nervousness building and the FED that the labor market may be slowing faster. But again, I would look at details. If it's a rise in the unemployment rate
because of participation, that's actually good news. I means people are coming back to the labor force. If it is a rise in the unemployment rate because payroll growth is slowing and we're running negative payroll growth, I think that you know, a number in that four and a half to five range, I think what is something the FED would be concerned and I think then they might be more open to cutting rates.
You know, it's interesting to talk about a little bit more about the labor market because it's been through such an enormous ride this year, not just the persistently low levels of unemployment, but we're seeing so much union activity, activity amongst labor groups to look for higher wages, winning those winning those fights, as Norah was pointing out, and talk about GM earlier, and you know, I wonder if these higher prices are really just going to start to
get entrenched, how quickly you know, how easy it'll be to, you know, convince people that the inflation is really going to be headed in the right direction when we've seen so many victories in the labor market, right.
I think when the labor market is tight, you start to see wage pressure. We saw it in certain industries in the last two years. You're seeing it in others. As you brought up through the union side, I will say, as inflation comes down, real wage growth for the household
sector has improved tremendously this year. In fact, I think that's behind why the consumer's been that resilient, that wages were not able to keep up with inflation this year, and they have, and in fact, depending on your consumption basket, you could argue that wages have been higher than inflation. But I think you hit the key point. I think for the FED to have comfort that inflation is the inflation genie is back in the bottle, and two percent
is where we're headed. They'll want to see wage inflation come back down. So as important as tomorrow's number is going to be on PC, I think that wage number a week from now, average our earnings or the Atlanta Fed wage tracker, we look at ECI, We look at many measures of wages, and unless you see that heading closer to I would say ECI in the three percent year over year range, which we're above that, it's hard
to see how you get inflation back down. And I do think the Fed having lost some credibility on inflation, they're going to want to make sure that they're getting all signs that inflation's heading back to two percent before they can sort of bless the market pricing of rate cuts. So yeah, wages is going to be absolutely key, and more union activity or a continued strong labor market will put that, you know, we'll have that upside risk to inflation from the labor market side. I think then that
can just last longer. So it's absolutely critically.
All right.
Priam Miser, thank you so much for joining us. We always appreciate getting your thoughts, your perspective. Pria Misra, portfolio manager at JP Morgan Asset Management.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
So we are here at the Build America Mutual HQ down and Lower Manhattan. Jennifer Ryan, Paul Sweeney here with you. We're also streaming live on that internet thing. I think it's Bloomberg TV, the kids call it. So we're talking a lot of focus here on the municipal bond market. And boy, we've got a great guest coming up. Tremendous educational pedigree. She went to some place up in Cambridge for college. I can't remember the name, but she is a graduate of the Lawrenceville School, So I fellow a
lum of Lawrence. Also, we appreciate Alex Patron joining us, a director of Fixing income at Rockefeller Asset Management. She's been on the street a long time so knows this municipal bond market.
I would start with volatility.
Like I don't know the trading day to day trading the municipal bond market, like I know the treasury market, but the treasury market is just all over the place. I'd never seen swings like this, I mean, and I attributed to you know, my former fixed income Like I worked at Salomon Brothers. It'd be like five hundred people on the floor trading government bonds. Now there's like three, you know, So I blame the investment banks who are because of the regulations. But talk to us about the
volatility in the municipal bond market. What do you guys have to deal with day to day as investors?
Yeah, absolutely, Paul, great question, and you know, shout out to Lawrenceville, Alum. It's great school as well.
Love that.
You know, the liquidity has been much more challenged in today's environment, and it's really across the board. It's looking at treasuries, it's looking at corporates, and municipals are not unski there. So we've seen much more pronounced bouts of
munis market illiquidity and volatility in twenty twenty two. And the key difference today versus when I started is the dealer desk community has shrunk in a number of ways, whether it's reducing headcounts, whether it is firms that are shutting down their desks, or ongoing m and A in the space, or just simply put, the amount of capital that's committed to being long UNI risks today is lower
than it was PREGFC. That number over the last year has averaged call it somewhere between, call it twelve billion or so. We've had moments this year where it's about seven billion. We've had moments where it's closer to nine. In that environment where the municipal market has grown to four trillion, and you have tremendous rate volatility that at times might spook retail investors and lead to an outflow
cycle out of call it open end funds. At that moment in time, when you have a number of investors that are looking for liquidity and really limited mount sheets in the dealer community, it creates more pronounced volatility. Add In factors there are such as as insurance and bank capital that previously might have been a backstop for the
municipal market in these periods of volatility. The community to treasury ratios that you have to start to hit these days becomes a little bit higher because banks are not long as much of that risk. We saw that post SVB where banks started to really reduce their commitment to being long munis, and so from our perspective, it creates a tremendous amount of volatility, a tremendous amount of opportunity.
It's really kind of interesting when you look at how both predictable the municipal market can be in periods of liquidity, but also how unpredictable, and what we're seeing right now is actually a shift in that trend. Right now, if you look at performance over the course of November, munis have outperformed. The dealer community has been stepping up and going long risk here, and you get that seasonality every
single year in which calendar starts to dry up. Rates have stabilized a bit, which is really help to influence demand for risk. There's a view that maybe we're nearing the end of this rate hiking cycle, and now we've gotten to this point where it seems that liquidity is quite president this moment in time, we think that that lasts through January. But from our perspective, you know, the message is simple. There will be periods of illiquidity, there
will be elevated volatility. That is an opportunity for investors.
If you could talk a little bit more about the opportunity, I mean, where, broadly speaking, do you see this And I'm not just talking about you know, what sorts of issuers, what sorts of states or municipalities, but also on a relative fixed income basis.
Yeah, absolutely so when we look for when we look for opportunities, we think about a couple of key things. We look at the yield curve dynamics. Where are people net sellers? Where is their best value? If you look at the shape of the municipal yield curve today, it is really interesting. I think this plays into some of what we see in the rise of separately managed accounts, maybe the decline in demand from open end funds. The municipal you'll curve, the shape of it looks like a
soup ladle. That's what many of my colleagues like to call it. I typically lean towards the Big Dipper, but what you see, quite simply is the curve is inverted. You get tremendous flatness in the curve from three to ten years, and then it steepens back out a little farther out the curve. Well, what's driving that that is certainly the rise in separately managed accounts we've seen over
the course of my career, the democratization of SMAs. When I started the business at Morgan Stanley, it was brokerage. It was buying and selling bonds direct out of your inventory at the bank. So that's not the case today. Fees are much lower, minimums are not slower, ladders are much more prevalent, prevalent within the market. That's what I have there. You go, we should talk about this maybe after.
I tell every government New JERSEYM the largest credit or private creditor, so you better be nice to me.
Perfect perfect, Well, you know they're doing much better yes, these past few years, so that's wonderful. But what it's really meant for from our perspective is it creates active It creates the opportunity for active managers to really be thoughtful around the yield curve and trying to maximize around
steepness around yield, around income. On the flip side, it also means that issuers are probably going to try to think through how can we best issue in the market today, And maybe that means an increase, and we've seen some of that in the last year or two of the zero to five year issue in space as well as thinking about ten to fifteen years as trying to optimize both if you're the issue but also if you're the investor, what are.
The sectors that you guys like these days.
Yeah, so when we think about credit risk, we need to be mindful of the fact that credit risks are forming here. We are heading into a period of a slowdown. For me, I think we go back to the muniplaybook and what is the uniplaybook through a cycle? As you start to see economic contraction, you want to stick to high quality, large geos that have managed through, have rainy day reserve funds that have built up through through this. Now we know that sixteen states are already signaling that
their economies are contraction in contract. New York is one of them. Yes, Midwest, there's a number of stats. New Jersey seems to be okay for now, so we'll keep a close eye on that. But what it tells us quite simply is we know a slowdown is coming. Essential service revenue bonds. Right, how many times have we talked about water sewer alacks through these points in the cycle, trying to stay to areas where you have steady revenue streams, where you have the ability to raise rates as needed.
We know that housing is well supported here, so being mindful that in large cities, in large states, they should fare well, albeit with some structural imbalances, as rising employment costs certainly are putting pressure on budgets today.
All right, great stuff, Alex Patron, thank you so much for joining us. Alex Pratrone, director of Fixed Income at Rockefeller Asset Management, A proud graduate of the Lawrenceville School in Lawrenceville, New Jersey, and I can't remember where she went to college. I think that was probably pretty good too, So we appreciate getting that.
You're listening to the take kens our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, just Say Alexa playing Bloomberg eleven thirty today.
We've talked to bankers who issue this stuff, get the deals done. We've talked to investors who invest in this stuff. How about the people who actually spend the money. Now we're joined by one of those folks today, Eric Russell. He's a Treasurer of the State of Connecticut. He joins us here in our offices here of Build American Mutual. He was elected Connecticut State Treasurer in twenty twenty two, so we appreciate him making some time for us.
Eric, thanks so much for joining us here. What is a baby bond?
So thank you for having me. It's a pleasure to be here with you.
So, Connecticut Baby Bonds is a first in the nation program that we passed in Connecticut and fully funded this show year. And the goal is really about addressing generational
poverty in the state. And so for under the program, for every child born into poverty in Connecticut, it'll be thirty two hundred dollars invested in a trust on their behalf, and that money is managed by my office, and that money will grow over the life of that child, and between the ages of eighteen and thirty, individuals will be able to access those resources for initiatives that are all
about helping to build wealth. So they can use those funds to help purchase a home in Connecticut to start or invest in a Connecticut business to help pay for post secondary education or job training, or to roll into a retirement account. And we know one of the biggest indicators for someone's ability to build wealth over time is to have some capital to start with. That is a piece to this puzzle, but it really fits in with Connecticut's bigger picture as we've made a lot of progress
in addressing our overall fiscal health. It's also about looking to making investments in people and investing in the future.
So you sold bonds to the public and took those proceeds to find this program.
We actually did not, So the program was initially proposed that it was going to be bonded, so we were going to issue fifty million dollars a year for twelve years to fund the program for twelve years. In total, it was going to be a six hundred million dollar investment, and we passed the legislation back in twenty twenty one.
There was some pushback to funding the program that way, and when I came into office, my main goal was to look at ways that we could fund the program and keep it viable, but also do so at a way that was most cost effective to tax payers. And so what we ended up doing, as we had a debt service reserve fund that was actually there to back
bondholders from a previous bond issuance. With much of the progress that we've made in terms of our fiscal health, we were actually able to issue a surety and release the funds from that account. We actually did that through Build America, and we were able to take those funds and move them directly into the Baby Bond's Trust to fully fund it. And the benefit there was one because we are we put four hundred million dollars essentially into
this Baby Bond Trust. We have a longer runway to invest that money now that we're not issuing over a twelve year window, so we're actually able to cut two hundred million dollars off the overall cost of the program as well as eliminate the interest and carrying costs for doing so, and we're.
Really proud of it.
We actually just received the Bond Buyer's Innovative Deal of the Year or for this transaction, and so you know, it was a really collaborative effort, but it's an exciting opportunity for our state.
How easy do you think it would be for other states to replicate that. I mean, you've got to have the political will for it, but also you mentioned that to go through an unusual sort of financing moved in order to get it done. And also have you had any states call you up and inquire about it.
Definitely, So we've been having conversations with several states. There were states that replicated our legislation that was passed in twenty twenty one, and some had moved that through their legislature and out of committee, but there isn't any other state that's actually fully passed the legislation or funded it.
Yet.
We certainly have been helpful, I am going to be I've been in touch with so treasurers that are looking at this program, and I think different states are going to look at different ways of funding it. Nevada, their proposed legislation was to bond, as we had initially contemplated. Massachusetts has a similar program that they're going to be
moving through their legislature this session. But I think at its core, I think people understand that there is a really significant wealth gap in most states across the country, and it's a gap that's continued to widen, and so as we look at ways to continue to invest in people. It's about really thinking at looking at some of these more unique ways of creating more fairness and closing some of these really large wealth gaps we have across the country.
All Right, stepping back as a treasure gives just kind of the state of the state in terms of the financial position of the great State of Connecticut.
Sure, the state is doing well. The state's doing very well.
We were able to kind of withstand the pandemic well, and it was a challenge. Obviously, we're in a place now where we've recovered all of the jobs that we lost.
During the pandemic. In twenty twenty two, we've had a.
Net fifty seven thousand people that moved into the state of Connecticut. And in just in terms of our overall fiscal position, I mean, we've made a lot of progress in terms of paying down long term debt and building up our rainy day fund, which we have at its maximum threshold right now at fifteen percent of our budget. And so you know, and with that we've been able to lower costs. We had the state's largest tax cut this last session. And so I think it's the state
overall is doing well. There's certainly things that we are very mindful of in terms of work that we need to continue to do a big picture in our state. But I think there's been really strong support for the direction we're moving in.
You know, as it's a Muni show today, I wanted to ask you about your thoughts on infrastructure investment. I mean, can you talk a little bit about what are Connecticut's needs and what are the big projects that you want to push through in the near.
Term ninety five?
Yeah, come on, let's be honest, for sure.
So I think in looking at Connecticut, one of the big pieces is how for sure, as we're not alone in that, but I think both in terms of building more housing and bringing down the cost of housing.
In our state is really a big priority.
I know this is a strong commitment of the governors, and I know it's something that I think the legislature knows would be really big for us. But I think to your point, I mean transportation obviously everything up and down the nine ninety five corridor and across the state, but really, you know, improving times in terms of rail I know that we've received a lot of federal money to really improve to get more trains on the tracks
and to really improve time. But I think we have to think bigger picture about these investments too, and try to look at ways to marry transit with community renewal and really investing in communities bigger picture, and so I think that's what we're going to see moving forward from an infrastructure perspective.
You know, from the pandemic, we had so many companies and so many individuals leave the greater metro New York area for Florida, Texas or Tennessee. How does the state of Connecticut think about attracting and retaining companies to the state. Is it all just about tax breaks or how do you think about that?
What's your strategy?
So I think it's about continuing to invest in our state. And I think in we've had to look at ourselves and really address many of our kind of long standing fiscal issues as a state. I think that is really important to business. I think in our ability to lower cost long term, and so you know we've done that. I think if you look at our fiscal guardrails that were put in place in twenty seventeen, which have you know, they created caps around what we can spend, what revenue
we can really count on coming in. We've been able to pay down nearly eight billion dollars in additional contributions to our pension debt under those fiscal guardrails, and so I think folks on the outside are looking at that knowing that this is a commitment for us big picture.
But I think at the end of the day, we have to stick.
True to our values and why we are strong as a state, and I think it's the quality of life, it's education in our state, and those are all things that we've continued to invest in.
You mentioned that you mentioned the tax cut. Is there room for another tax cut something to attract companies and indeed ticket families and consumers and households of break.
I think, you know, the governor is certainly looking at ways to lower cost as a whole. You know, we're in a time right now where we see revenues softening. I think this is happening across the board. What's great is that our fiscal guardrails and the budgeting measures we've put in place have us in a really sound position that even with some of these softening revenues, we are projecting surpluses. We will have the end of next fiscal year will be at about eighteen percent, so nearly four
billion dollars in our rainy day fund. So I think there certainly are going to be looking at opportunities to lower cost for families.
Eric, thanks so much for joining us. Really appreciate you taking the time here.
Eric Russell, he's the treasurer of the State of a Connecticut, joining us here talking about the state of Connecticut and financing some of the growth initiatives in the state.
We appreciate getting your time.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
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