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

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**SPEAKER_2** (0:07)
You're listening to Bloomberg Businessweek with Carol Massar and Tim Stenovec on Bloomberg Radio.

**Tim Stenovec** (0:14)
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? What is it that led you to that?

**Matt Winkler** (0:28)
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. But 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. How 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.

**Tim Stenovec** (2:31)
So, what you're talking about is this whole pushback against ESG which was such a craze and everybody was involved in it in the financial industry, 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.

**Matt Winkler** (2:59)
Yeah. Well, we already know about record heat.

**Tim Stenovec** (3:01)
Right.

**Matt Winkler** (3:02)
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. So 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? 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 policy making. 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. Well, yes, that's true, but the trend changed with SB 13

**Tim Stenovec** (4:37)
So in 2021, when this happened.

**Matt Winkler** (4:40)
That was the bill that passed since 23
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

**Tim Stenovec** (5:11)
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 in Texas, right? So the numbers, we love the numbers and they tell the story.