Munis are tax-exempt bonds whose proceeds finance projects for the public good. That is a broad definition, and what qualifies can mean different things to different investors. This month we take it a step further and look at munis doing something even more specific: helping those in need. MainLine calls them “Feel Good Munis.”
Munis kept their winning streak alive for the second straight month, outperforming year to date by roughly 1% with more room to run. Demand continues to grow and is holding its own against an expanding supply pipeline. Rates remain in a favorable spot and uncertainty (Fear Index) levels are stable and low.
Muni Market Review
Munis continued their winning streak, outperforming two months in a row. Demand continues to grow, supply manageable and yield levels are relatively attractive. For the month Munis were up .37% (year to date 1.34%) versus US Treasuries, up .12% (YTD .18%), and US Corporates up .28% (YTD .44%). MainLine feels Munis have room to continue to lead the way in total fixed income returns.
Additional May highlights:
- Muni yields were close to unchanged while taxable yields were higher from 17 to 7 bps. Best Muni performance came from the 17–22-year maturities at up .64%, while +22 and longer up.59%, and shorter maturities up .2-.3%.
- Housing and hospital bonds were top performers with higher education and CTF’s underperformers.
- Supply remains above 2025 by 3.1%, led by new money, and remains on track for another year of record issuance.
- Muni demand has been impressive, trailing only one year on record: 2021, a great year for muni returns.
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Market News & Credit Update:
- To complement last month’s review “Munis Got Gas”, MainLine highlights the power crunch in Lake Tahoe due to AI’s growth in the region. Electric bills are up 77% since 2022 as the sole provider Liberty Utilities is straining to keep up with demand. It is estimated they will need to increase their energy load 40 times current peak demand. It would help if Liberty was part of California’s electric grid, but it remains dependent on Nevada’s transmission system which is stretched thin. Liberty will need to build new infrastructure and identify new suppliers of energy to keep the lights on in Tahoe. In the meantime, local small businesses are struggling to stay open as AI drives the price of their electricity bills up to $1,500 a month. Tahoe’s situation may be a little more stressed due to its power grid challenges and tight AI connections, but the theme of higher electric prices due to AI and data centers is not going away.
- Florida is going down the uncharted road of no property taxes for 90% of its residents. The proposal would raise the property tax exemption threshold from $50,000 to $250,000, with a path to eventually reach $500,000, effectively eliminating property taxes for the vast majority of Florida homeowners. Sounds like a great idea to help lower income residents by taxing the rich, right? But it comes at an extremely high cost, as lower income counties no longer receive the tax revenue. How do the small localities make up for the revenue difference? The State is not giving them resources or additional aid. Look for the counties impacted to charge higher fees on more items and to reduce services provided. Not sure how this will play out if it passes, but it could create a fiscal mess for small Florida counties and their credit quality.
Feel Good Munis:
Introduction:
The municipal bond market has long been synonymous with financing projects for the public good. But MainLine thinks the story goes even further — munis are also helping those most in need.
This month, we review Muni deals that not only finance public needs, but also make us feel good inside. MainLine calls them “Feel Good Munis”.
Background:
The definition of “for the public good” has been loosely defined at times, and what can be defined as essential and not essential, can vary by person. MainLine thinks the four muni bond deals we share below qualify as for the public good, essential and deserve a big hug.
1) Providing Workforce Housing to Essential Municipal Employees
City of Telluride, Colorado 2024:
The Need:
The gap between teacher pay and housing costs was a major deterrent in hiring good quality teachers for the Telluride School District. Housing costs themselves exceeded the average teacher’s salary and required the school district to pay teachers a higher salary than it could afford in order to make up the difference.
The Solution:
The city increased taxes to support a bond deal to build housing for teachers working for the school district. The measure to increase the tax was strongly supported at a 64% passing vote. These bonds allowed for tax-exempt financing to build housing that was then rented to the teachers at a below-market rate.
The Muni Hug:
Munis helped save the Telluride School District money on teacher salaries and provided housing at a cost so teachers could afford to live and work there.
Telluride isn’t alone, as other municipalities across the country have gone the same route. For example:
- Vail Colorado
- Nantucket, Massachusetts
- Middlebury College, Vermont
2) Providing Family and Healthcare Support:.
Village of Boys Town in Omaha, Nebraska 2026
The Need:
Founded in 1917 by Father Edward Flanagan, to provide care, education and healthcare for at risk youths. Boys Town needed money to update facilities, expand operations and continue to fulfill his vision of helping children in need. The facilities allow six to eight boys or girls to live in a home with a married couple and receive assistance from a full-time family teacher. This is all designed to provide a safe family and community environment, giving these children a new start in life.
The Solution:
Boys Town issued a tax-exempt bond deal to finance the expansion and capital improvements to the village. These improvements were to allow for more assistance and to upgrade current facilities. Boys Town also provides healthcare services and has a hospital to serve its residents. Bonds are backed by the foundation and operations of Boys Town.
The Muni Hug:
Munis helped Boys Town finance the projects with tax-exempt rate borrowing, lowering the cost and providing the ability to help more children in need.
3) Provide Essential Service to Native Americans
The Navajo-Gallup Water Supply Project 2024
The Need:
The Native American Navajo and Apache Nations were suffering from depleted water sources and poor water quality, which were inadequate to meet current and future essential water needs. Their water sources have been drying up over the last ten years, causing the Nations to haul in water to meet daily needs.
The Solution:
The Nations, together, sold tax-exempt bonds to fund a project that will divert over 37,000 acre-feet of water annually from the San Juan River and Cutter Reservoir, treat it to meet drinking water quality standards, and deliver it to the Nations. Bonds are backed by Federal aid, appropriations from State of New Mexico and the Navajo Nation Siha sin Fund (the tribe’s own capital fund).
The Muni Hug:
Tax-exempt bond financing gave the Navajo and Apache Nations a reliable, long-term water solution, delivering treated, clean water from the San Juan River and Cutter Reservoir to communities that had been hauling in water just to meet daily needs. A decade-long water crisis, solved through the muni market.
Recently, Alaska Native tribes issued bonds to finance schools and water and sewer systems.
4) Affordable Housing for the Low Income:
Philadelphia’s Neighborhood Preservation Initiative “Social Bonds” 2021/2026
The Need:
Philadelphia issued these ‘social’ bonds in alignment with International Capital Market Association standards, which recognize investments in affordable housing, access to healthcare and education, and socioeconomic advancement. Like many major cities, Philadelphia continues to grapple with a shortage of affordable housing for low-income residents.
The Solution:
These tax-exempt bonds are backed by a 1% development impact tax on residential construction and a reduction in the real estate tax abatement for commercial construction. This project invests in programs that expand and protect affordable housing options, keep Philadelphia owners and renters in their homes, improve housing quality, and promotes homeownership. It fulfills an explicit social justice mandate the city has committed to.
The Muni Hug:
Tax-exempt bond financing gave Philadelphia a dedicated, self-sustaining funding stream to protect and expand affordable housing, keeping owners and renters in their homes, improving housing quality, and opening a path to homeownership for low-income residents. A social justice commitment backed by real capital.
Philadelphia is one of many cities looking for ways to provide more affordable housing for its residents, issuing tax-exempt bonds to do so.
Conclusion:
Munis have long been known as the ‘for the public good’ market, and they are living up to that name. From housing teachers to delivering clean water to Native American nations, they are helping solve real problems. They may not fix everything, but they lower borrowing costs and connect worthwhile projects with a ready investor base. For that, they deserve a big squeeze.