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Municipal Perspective published on November 7, 2018

Quick Post-Election Thoughts on Munis

As widely predicted by nationwide polls, the Democrats took control of the House and the Republicans kept hold of the Senate in Tuesday’s midterm elections.

The main takeaways are:

  • Increased potential for an infrastructure bill, as Democrats in the House may work with President Donald Trump to push legislation. (Credit Positive)
  • Expanded Medicaid in focus, and states that voted for it could serve as a springboard to further nationwide Medicaid expansion. Citizens voted in favor of Medicaid expansion in Utah, Idaho and Nebraska. In addition, a rollback of the Affordable Care Act is now less likely with a Democratic House. (Credit Positive)
  • Tax changes affecting munis are likely to be modest, although lawmakers may tweak private activity bond financing rules and/or propose a new Build America Bonds-like program in conjunction with an infrastructure bill. (Credit Neutral)
  • Deficit likely to increase modestly, as Democrats will likely seek some new revenue to pay for additional federal funding, perhaps for road improvements. (Credit Neutral)

For state races:

  • Democratic gubernatorial wins could lead to increased spending in states such as the following:
    • Pennsylvania
      Gridlock likely, but incumbent Democratic Gov. Tom Wolf may continue efforts to raise severance taxes1 (see Light at the End of the Turnpike in Pennsylvania).
    • Colorado
      The win by Democrat Jared Polis and the flip of the Colorado legislature to Democrat suggest more progressive initiatives. How will they be paid for?
    • California
      The market will be monitoring whether Democrat Gavin Newsom, the newly-elected governor, continues the pattern of fiscal restraint established under Democratic Gov. Jerry Brown.
    • Illinois
      As the new governor, Democrat J.B. Pritzker is expected to raise taxes and pass on-time budgets, which could help but isn’t a long-term solution for the state’s problems.
    • Connecticut
      A win for Democrat Ned Lamont in the governor’s race suggests that higher taxes will be on the table to close the state’s $2 billion deficit in FY20.
  • Republican gubernatorial wins could lead to tighter deficit controls in the following:
    • Florida
      Newly-elected Republican governor Ron DeSantis could curb spending. Notably, Amendment 5 passed, which requires a two-thirds vote in the Florida legislature (rather than a simple majority) to raise taxes.
    • Georgia
      Spending could be reined in if Republican Brian Kemp is elected governor. Also notable in the state, the School Sales Tax Referendums Amendment was approved, which will make it easier for counties to call for a referendum to levy a sales tax for education.

For more detail, we discussed potential election outcomes in our blog post last week (see Midterms and Munis: Issues to Watch).



[1] Severance taxes are taxes on the extraction of natural resources (including oil and gas), per the Tax Policy Center. 

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