Infrastructure Necessity or Credit Warning Sign? By DANA SPARKMAN, CFA, Executive Vice President-Municipal Analyst, The Baker Group Municipal issuance is on pace for a third consecutive record year, with dealers forecasting roughly $600 billion of new supply in 2026 after 2025’s record of about $580 billion. For municipal bondholders, the question is not whether the market can absorb the supply — so far, it has. Rather, the question is whether the debt being issued to fund this infrastructure wave is being taken on prudently at the issuer level, or whether it is quietly eroding the credit cushion that underpins the municipal market’s safe reputation built on extremely low default rates and the security of taxing power and essential services. Why Debt Levels Are Rising As demonstrated in the chart below, aggregate municipal debt outstanding has shrunk by roughly 16% in inflation-adjusted terms since 2005, even as GDP, state and local tax revenue, and personal income have grown by 38% or more. RECORD MUNICIPAL ISSUANCE NEBRASKA INDEPENDENT BANKER 15
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