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Municipal Bonds
Munis in your community: Scorecard
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Municipal bonds are a foundational element in Nuveen’s proud heritage of investing to support public purpose – and an asset class that touches the everyday lives of all Americans. Munis fund essential facilities and functions such as state and local governments, K-12 schools, colleges and universities, roads and airports, hospitals, water and sewer utilities, housing, and more.
Nuveen’s muni credit analyst team – one of the industry’s largest and longest tenured – constantly assesses the impact of the trends that influence muni credit quality across all market sectors.
Our research identifies what we believe are attractive investment opportunities, and much more. It also yields practical insights into what individuals can expect when it comes to the availability, operation and cost of services used daily – things like the price of an airline ticket or a hospital visit, the health of their regional transportation options, the quality of their local school system, or the dependability of critical utilities.
The Nuveen munis in your community scorecard presents a broad range of such insights and explores the connections with effective muni investment as well as Americans’ lived experience.
We also dive deep into various sectors as we update the scorecard.
Our sector focus: data centers
- States and municipalities have competed to attract the rapidly growing number of data center operations, offering generous subsidies and long-term tax incentives.
- The initial impact can be positive, with a high number of construction jobs created by a new data center. However, ongoing employment numbers can be significantly lower.
- Local governments also dole out generous tax incentives to attract data centers. More than half of states have some form of tax incentive for data centers to locate in their states, and local municipalities also negotiate additional tax incentives.
- The municipal market is well-positioned to meet the growing demands of data centers, and the electricity they require, though careful credit selection is required to discern winners and losers.
Overall sector views
Our broad sector views are below. We look forward to commenting on our insights in future editions as our views evolve.
Nuveen Muni Monitor informs our discussions
| Positive | Neutral | Negative |
| Sector | Factors | Assessment | Sector Momentum | Takeaway |
|---|---|---|---|---|
| State and local governments (cities/counties/school districts) |
State and local tax collections: Total tax revenues up 4.6% in 2024 vs 2023. Revenues may be pressured by slower economic growth in 2025. | Credit quality expected to remain stable despite anticipated revenue and economic slowdown. Tax collections are still well ahead of pre-pandemic levels and most states are seeing FY25 revenues come in aligned with budget. Balance sheets and liquidity remain strong and reserves are projected to remain stable in FY25. Stable property tax collections are positive for most local governments and school districts. |
Positive | Budget stability should temper tax increases. |
| State rainy day funds: Median reserve balances have grown every year since FY11 and this streak is expected to continue with states projecting a median reserve balance of 15% by the end of FY25, based on enacted budgets up from 8% in FY19. |
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| Unemployment: The U.S. unemployment rate was 4.2% in March 2025. |
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| Rating changes: Rating upgrades continued to top downgrades for the 4th consecutive year 2024 by a margin of 2.5 to 1. | ||||
| Economy: Real GDP grew 2.4% in Q4 2024. Pressure from evolving tariff policy expected to constrain economic and tax revenue growth in 2025. | ||||
| Higher education | Enrollment: Fall 2024 enrollment grew 4.5% YOY, rebounding to levels seen before the pandemic. Favorably, first year student enrollment increaed 5.5% YOY. | While countercylicality of enrollment and the presence of endowments have made the sector resilient during past economic downturns. The sector is facing pressure on multiple fronts that may accelerate the gap between haves and have nots. Changes to federal support for universities - in the form of student loans and grants - may impact key revenue streams at the same time that reliance on endowment support is pressured due to potential taxes and declining returns. Unlike in past economic cycles, inflationary pressure from tariffs, which reduce disposable income, could outweigh any lift in enrollment from a potential recession. Those universities with the resources and flexibility to withstand the pressure are expected to be resilient during this time while others will struggle. | Negative | School closures and consolidation of smaller regional schools expected to become more common. |
| Demographic trends: National decline in high school graduates projected to accelerate beginning in 2026. | ||||
| State funding: State fiscal stress precipated by tariffs and a potential recession will likely result in cuts to higher education, as it has in past recessions. |
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| Endowment returns: Endowment returns average 11.2% for FY24 but 3-year average return was 3.4%. Further hits to market in FY25 could extend returns below 5%, challenging annual spending for operations. |
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| Federal policy: Dismantling of DOE and potential cuts to federal loans will further heighten affordability issues, making college unattainable for many students. Cuts to federal grants threaten a secondary source of revenue to higher education. Increases in endowment tax will dilute returns and spending power of endowments. |
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| Water and sewer utilities | Liquidity: 559 days cash on hand (DCOH) median higher than pre-pandemic. Debt service coverage median rate holding steady. |
Stability expected given the monopolistic nature and rate setting ability of most systems. Strong liquidity exceeding pre-pandemic levels should lead to outperformance over the next credit cycle. Capital investment required for PFAS mitigation and lead pipe removal will require significant capital investment. However, relaxed environmental regulations and enforcement may alleviate near-term cost pressures. | Positive | Upward pressure on utility rates may impact homeowners. |
| Regulatory framework: New EPA drinking water rules may increase treatment costs. Lead pipe replacement mandates are costly. |
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| Housing | Strong demand: Need for more affordable housing in expensive markets support ongoing construction. |
Housing financing, construction and rehabilitation will continue to benefit from strong political support at both federal and state levels. | Neutral | Strong housing demand supports household balance sheets but high interest rates keep homeowners in place. |
| Increasing supply costs: Tariffs are anticipated to increase construction material costs. Builders are confident supply chains should hold up in the near-term, though at higher costs. Longer-term supply chain disruptions may lead to construction delays. | ||||
| Interest rates: Higher rates and slow movement as current homeowners are reluctant to give up low cost mortgages. Delayed fed rate cuts keep housing market sluggish. |
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| Healthcare | Staffing shortages: Demand for nurses led to a spike in labor costs, pushing steep expense growth. Pace of labor inflation began to subside in 2023 and margins have begun to recover in most hospitals. |
Healthcare expenses remain elevated due to current and future staffing shortages. As labor inflation subsides, rate expense growth will begin to normalize. M&A activity will continue as systems attempt to achieve scale efficiencies. | Neutral | Upward healthcare cost trajectory will continue as providers struggle to meet demands of aging population. |
| Threat of material cuts to Medicaid: Proposed federal budget discussions likely to adversely impact federal Medicaid payments. Medicaid is administered (and partially funded) by the individual states so the impact on individual providers is likely to vary widely. |
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| Demographic trends: Aging population guarantees demand for services will grow. Sector will struggle to serve older, rural populations. |
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| Transportation (planes, trains & automobiles) |
Airport strained capacity: passenger traffic growth expected to be constrained by flat airline capacity and potential geopolitical and macroeconomic risks. |
Airport cash balances remain robust and domestic air travel has recovered back to pre-pandemic levels. Capital investment needed to expand capacity will drive infrastructure borrowing. | Neutral | Air travelers should expect higher ticket prices and airport construction to be the norm. |
| Airport passenger volume: Air travel demand was robust in 2024 and in early 2025, but economic uncertainty is anticipated to slow demand. | ||||
| Toll road traffic and revenue growth normalizes: Traffic demand has returned to pre-pandemic levels, but growing inflation and shifting trade patterns may limit revenue growth. |
Many toll roads annually adjust rates by the consumer price index (CPI), which led to peak revenue growth in the last two years. But a slowing economy in conjunction with higher inflation may lead to a decrease in traffic volume. Higher tariffs and supply chain disruption may result in operating and capital cost increases. | Neutral | Drivers could become more sensitive to toll rate increases later this year and heading into 2026. | |
| New tax revenue for mass transit: Ridership not expected to return to prepandmic levels. New financial support will likely need to come from state and local governments. |
Well functioning public transit systems are essential for urban areas. Facing a fiscal cliff as federal support potentially wanes, systems are seeing increased support and tax subsidies from local and state sponsors. Systems may see stronger oversight from government partners. | Neutral | Fare increases should be less common, but new dedicated taxes will support transit. |
| Positive | Neutral | Negative |
Related articles
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Data sources: US Census; NASBO; Fall Fiscal Survey of the States https://www.nasbo.org/reports-data/fiscal-survey-of-states; BLS.gov; national unemployment rate and payroll employment data; Moody's (over 80% of rating changes are in tax-backed sector making this a relevant metric here); BEA.gov; https://www.bea.gov/news/blog/2024-03-29/gross-domestic-product-state-and-personal-income-state-preliminary-2023-0; National Student Clearinghouse Research Center; WICHE – Western Instate Commission for Higher Ed – Knocking on the College Door, 2020; State Higher Education Finance; SHEEO.org; Grapevine Report; https://shef.sheeo.org/grapevine/#about-grapevine; NATIONAL TABLE 1. STATE FISCAL SUPPORT FOR HIGHER EDUCATION, FY 2019-2024; Inside Higher Ed article https://www.insidehighered.com/news/business/financial-health/2023/11/21/universities-see-sluggish-endowment-returns-fy23; Various news articles; Merritt data; US EPA; Transportation Security Administration (www.tsa.gov); Federal Aviation Administration (faa.gov); Federal Transit Administration (transit.dot.gov)
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