Texas Is the Tip of a Melting Muni Iceberg: How a 'Boycott' Led to Higher Costs

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1:58Matt Winkler:Great to have back in studio with us in our Bloomberg Interactive studio. Matt Winkler, he's Bloomberg News Editor-in-Chief Emeritus, joining Emily and me. Let's talk Texas. Why did it first come up on your radar? I'm just curious, did you write a column? Like, what is it that led you to that? Is it? Actually, it goes back several years now. there was a momentous event in texas and florida in texas it was called sb 13 it was legislation that prohibited anyone on wall street from underwriting insuring anything that had to do with state and local government debt in the state of texas if they were committed to the so-called Net Zero Banking Alliance, which was climate change, zero emissions by 2050, a pledge, transparency in markets, all kinds of actually good stuff.

2:52But it came under those letters ESG and also DEI. And the problem for the banks was if they didn't comply, they would lose the business with Texas. And of course, they all folded. What is interesting about this is since the bill went into effect, it's now several years now, the difference between California and Texas in the municipal bond market suddenly widened. And that spread that you referenced, 3.3 percentage point, 30 basis points, is real and it's permanent, even with all the help of Wall Street. And Texas really has not recovered since. Now, what else is going on? Texas has an antipathy to science.

3:48How do we know that? Well, science tells us that Texas is burning up. literally. And one big example of that is Corpus Christi, a city on the Gulf of Mexico, more than 300 ,000 people. It's where Elon Musk has a lithium refinery. And the credit rating companies have downgraded Corpus Christi because it will run out of water by 2027, not too long away.

4:15Matt Winkler:So what you're talking about, this whole pushback against ESG, which was such a craze and everybody was involved in it in the financial industry, right? Really kind of embraced it and then Texas pushed back. But you're right. I mean, this is a state that is seeing the impact of climate change in a big way. And so kind of their pushback has resulted in this gap where it's just you're seeing Corpus Christi and some other municipalities penalized as a result. Yeah, well, we already know about record heat. Right. Okay, 23 was that year in the world, and Texas was included. Floods, devastating floods, sort of back-to-back, actually, a year ago, and then again this year in Texas.

4:58So drought, floods, it's very biblical, but it's also very scientific. And Texas is heating up, and its resources are depleted. And guess what? But markets are not, or I should say money is not ideological. Money simply is about relative value. And the relative value of Texas is depreciating relative to California. Now, I'll get into that in a second because California embraces ESG. California says science is our savior. We need to commit ourselves to science. So California is the opposite of Texas from a perspective of policymaking. and historically California and Texas have borrowed at rates that have been comparable because even though California is lesser rated it's a high tax state Texas is a low tax state no income tax but California suddenly has more demand than it ever had relative to Texas since SB 13 okay now let me just explain that in a second because lots of people follow the municipal bond market will tell you, oh, they've always had this difference because the high-tax state and the low-tax state have different constituencies in the market.

6:15Well, yes, that's true, but the trend changed with SB 13. And so the spread -

6:23Matt Winkler:So in 2021, when this happened? That was the bill that passed. Since 23, the borrowing of these two states has favored California and higher rated Texas is at a disadvantage. Now, go back 16 years prior to SB 13, the rates between California and Texas were roughly comparable. So you suddenly have this widening spread. People say it's technical. Well, yeah, it is technical, but the technicality is SB 13. Can I just throw in one stat that's in your column? The costs are real. Bloomberg intelligence found in June 2025 that at$1.1 trillion, no state has suffered more in climate related expenses over the prior 20 years than Texas, right?

7:07Matt Winkler:So the numbers, we love the numbers and they tell the story. Ignorance and arrogance is a deadly combination. I'll let you say that. Okay. So are you seeing then that this is an example of the muni market pricing in climate risk? Is that what's happening? Yes. It certainly is the case with Corpus Christi. Without a doubt. Rating, or I should say credit rating companies have already said as much. And people who follow Corpus Christi have said what we saw this year is directly related to climate. That the market has said you have to price in the risk. That Corpus Christi can't figure out how to deal with what's coming next.

7:53Because it doesn't have the resources, it doesn't have the policy. Texas doesn't have policies that California does for mitigating the outcomes of climate change. Okay, so your column is titled The Tip of the Muni Iceberg. So what's the iceberg? Melting. Like a lot of icebergs these days, it's melting. And so this is not going to go away.

8:18Matt Winkler:Florida's already feeling it, right? You point that out in the column. And what's interesting... Florida is actually worse than Texas. Florida is now borrowing a full percentage point more than California. And again, that's AAA rated Florida, AA rated California. You know, if you're a corporation, if you're a business, you've got to really be thinking about these things because it does matter. It affects everything. I mean, in the case of Texas, you know, we're talking about$3 million, as you said, on every$1 billion of borrowing. In the case of Corpus Christi, we're talking about real money that would go to roads, build roads, build other facilities that isn't there.

8:55Matt Winkler:Correct, right? If you're paying more money in terms of a bond or a muni issuance, there's some money that's not going to be paid out. You know what's interesting, Matt? ESG, when it first came out, that's what it was all about, right? So that people thought about environmental, social, or governance issues and how it could maybe financially or material impact an asset or an investment. And it got caught up in some other stuff. Well, every leader on Wall Street that's been in this space and talked to you over the years committed to ESG. Yeah. And then with the election of Trump for the second time in 2024, they suddenly decided, we'll take the money and run.

9:38Matt Winkler:But it's interesting because it does have a material impact. There's a cost. Yeah. Yeah. And, you know, it's interesting since we're on the subject. Yeah. Just this month, University of California, Berkeley has a study that says the companies that didn't didn't abandon ESG are doing just as well in public markets as those that did. So this notion that ESG is woke and woke is broke, as Donald Trump has said, isn't borne out by the facts. But some of these institutions, maybe they weren't coming out publicly and saying we're in support of ESG, but they were maybe behind the scenes still supporting the cause.

10:19I mean, I think I remember writing about some BlackRock funds that had ESG in the name, and then after the election were named something different that didn't have that ticker in it. But they haven't walked away completely? Well, where I think we all come from is you've got to walk the walk, talk the talk, and they go together. And Wall Street isn't walking the walk. Or, first of all, stop talking about ESG. But when you stop talking about ESG, you are no longer making it a priority. You're no longer making gender equality a priority. You're no longer making zero net admissions by 2050 a priority.

11:01Because you're not talking about it anymore.

11:03Matt Winkler:Well, you know what's interesting, especially with the midterms coming up, I'm just thinking about the premiums folks are paying. I have family outside Charleston, South Carolina. I'm thinking about Florida, right? And there's even homes that maybe it's really tough to get insurance on. I just do wonder, you know, when this come back to the reality of, okay, climate change, it does, you know, it's changing the cost for people to live in certain places that we've got to get back to understanding that there is really an impact. Well, since you mentioned insurance, just so happens that this year, the Federal Reserve Bank of Dallas, okay, that's in Texas, right?

11:41They just reported that insurance premiums in Texas since COVID have risen above the national average. Okay. Since COVID. Yeah. Now, what happened right after COVID? SB 13.

11:58Matt Winkler:Right. So it's, right. Exactly. So it just in terms of the impact even more so. So we'll watch that very closely. I just do think about the cost of municipalities. Right. And if you start to then have something like an economic downturn, like all of this just starts to snowball. Right. Well, yeah. I mean, you need to have people and resources to deal with the calamity. Yeah. And we're finding that out, you know, coast to coast, north to south, east to west in the U.S. We don't have enough firefighters right now because, unfortunately, too many of them got cut in the Doge or Dodge episode last year.

12:37So, you know, that's something that's essential to dealing with extreme weather. Yeah.

12:43Matt Winkler:No, exactly. And we see it. I just think about what we've been dealing with even here in the New York metro, right? Things that we thought would be unheard of and whether it's smoke coming down from different areas or fires and so on. It's a thoughtful column, as always. Matt, thank you so much. Really appreciate it. Matt Winkler, of course, joining us here. He is, of course, Bloomberg News Editor-in-Chief Emeritus. Highly recommend. It's what I call one of those think pieces. And I have to say, at the same time, check out some of the climate reporting, green reporting that we do here at Bloomberg, because it tells you what's going on in terms of climate change around the globe.

13:46We'll be right back. your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. Hey everyone, it's Cal Penn. I'm inviting you to join the best sounding book club you've ever heard with my podcast, Earsay, the Audible and iHeart Audiobook Club. Every episode, I nerd out with amazing guests and dive into the best new audiobooks available on Audible. It's the book club for your ears. Listen to Earsay, the Audible and iHeart Audiobook Club on the iHeartRadio app or wherever you get your podcasts. This is Jacob Goldstein from What's Your Problem? Running a business is hard enough.

14:28Don't make it harder with a dozen apps that don't talk to each other. One for sales, another for inventory, a separate one for accounting. That's software overload. Odoo is the all-in-one platform that replaces them all. CRM, accounting, inventory, e-commerce, HR, fully integrated, easy to use, and built to grow with your business. Thousands have already made the switch. Why not you? Try Odoo for free at odoo.com. That's odoo.com.