After The Voting: Municipal Credit Perspectives

Our Thoughts Concerning the Credit Implications of High-Profile State Ballot Measures and Election Results

In the aftermath of a historic midterm election, media attention has largely focused on control of Congress and its implications for federal policy. Yet the balance of power at the state level was also on the ballot, alongside referendums with meaningful fiscal implications.

We will leave interpretations of the electorate to others and instead focus on the municipal credit developments most relevant to issuer fundamentals, security structures, and portfolio positioning.

California

Referendum outcomes reduced wealth tax uncertainty and added transit funding support.

Propositions 40 and 42

Proposition 40, the one-time 5% billionaire’s wealth tax, was rejected by Golden State voters. The measure was pitched as a means of funding healthcare expenses compromised by last year’s federal tax changes.  

Measure RTM

Measure RTM, a 14-year sales tax levied in Alameda, Contra Costa, San Francisco, San Mateo and Santa Clara counties, was approved. It is expected to produce about $980 million in 2027 funding that will go to Bay Area Rapid Transit (“BART”), Alameda-Contra Costa Transit District, San Francisco Municipal Transportation Agency, and Peninsula Corridor Joint Powers Board (Caltrain).  

Washington

Voters retained the state’s incoming millionaire’s tax and future income tax flexibility.

Washington voters soundly rejected a ballot initiative designed to repeal the state’s recently enacted 9.9% tax on incomes above $1 million scheduled to take effect in 2028, as well as prohibiting state and local governments from imposing future taxes on individual income. The millionaire’s tax will affect fewer than 1% of households and is projected to raise $3 – 3.5 billion in its first year of collections in 2029.  

Colorado

A graduated income tax structure adds revenue while increasing the value of in-state tax exemption.

Amendment 87

By a narrow margin, Colorado voters approved Amendment 87, a measure changing the state’s flat 4.4% income tax rate to a graduated tax system with a top tax rate of 8.4% for incomes above $1 million beginning 1/1/27. Funds are statutorily pledged to K-12 education, health care and childcare. 

Massachusetts

The defeat of Question 5 preserves revenue flexibility and reserve-building capacity.

Question 5

In a tight vote, Bay State voters defeated Question 5, a ballot measure that proposed tightening the Commonwealth’s Chapter 62F revenue cap by tying annual allowable revenue growth to prior-year collections plus average wage and salary growth. The proposal would also have included revenue from the 4% surtax on incomes over $1 million when determining whether the state exceeded the revenue cap. 

Florida

A larger homestead exemption creates significant local government revenue pressure.

Amendment 3

Amendment 3 cleared the 60% supermajority threshold required for passage, the result being a significant expansion of the homestead exemption for non-school property taxes ($150,000 in 2027 and $250,000 in 2028, with future increases indexed to inflation). Any person moving to Florida after 2026 must wait five years to access the higher homestead exemption, although that element will likely face legal challenges.  

From a credit perspective, Amendment 3 will create significant revenue pressure for cities and counties as local government revenue is projected to decline by $4.6 billion in FY2027-2028 and $8.4 billion in FY2028-2029.  

Data Centers and Municipal Credit

Election outcomes may increase regulatory scrutiny without materially changing state-level credit quality.

Even in a municipal market brief, one cannot escape the subject of AI and data centers. Political analysts have emphasized the importance voters placed on this issue when casting midterm ballots, and although most capex funding lies outside of the municipal market, state and local governments also play a significant role in the buildout.  

While a host of other issues came into play, several high profile Democratic gubernatorial winners campaigned for tighter AI regulations and/or moratoriums on new data center construction.  

Sources: Ballotpedia, San Francisco Metropolitan Transportation Commission, Washington Secretary of State, Colorado Department of Revenue, Secretary of the Commonwealth of Massachusetts, Florida Revenue Estimating Conference, Bloomberg Data

This commentary reflects the opinions of Appleton Partners based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.  Specific securities identified and described may or may not be held in portfolios managed by the Adviser and do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed are, were or will be profitable. Any securities identified were selected for illustrative purposes only, as a vehicle for demonstrating investment analysis and decision making. Investment process, strategies, philosophies, allocations, performance composition, target characteristics and other parameters are current as of the date indicated and are subject to change without prior notice. Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen, or experience.