Municipal issuers entered 2026 navigating a complex mix of policy priorities, market dynamics and operational risks. Three themes stand out across jurisdictions and sectors: accelerating the delivery of affordable housing through scalable financing models; managing arbitrage exposure due to the rate environment of the early 2020s; and strengthening cybersecurity readiness and disclosure practices amid persistent threat activity. Public finance professionals and capital markets participants should keep some practical considerations in mind.
Affordable Housing: Scaling Impact Through Programmatic Finance
Affordable housing remains a top priority for cities and states as supply-demand imbalances, construction cost inflation and demographic shifts exacerbate affordability pressures. Meeting these challenges requires programmatic, multitool financing approaches that move beyond stand-alone projects to large portfolios of projects.
Baltimore provides a powerful example of how to finance affordable housing at-scale through a tax increment financing program that can be adapted by other jurisdictions. In 2023, Mayor Brandon Scott launched Reframe Baltimore, a 15-year, $3 billion vacancy reduction initiative to convert vacant and blighted properties into affordable homes, expand homeownership opportunities and revitalize communities. The tax increment financing (TIF) district legislation drafted by the firm to support the bonds encompasses approximately 8,500 properties across 190 neighborhoods. The financing uses TIF bond proceeds to fund grants to homeowners, for nonprofit community entities, and small for-profit developers to renovate vacant units. Grants are expected to average $75,000 per property, enabling a comprehensive, citywide vacancy reduction and community redevelopment program. By channeling TIF bond proceeds directly into rehabilitation grants, Baltimore can catalyze private investment, accelerate the return of properties to productive use and broaden access to quality affordable housing.
Programs such as Baltimore’s can standardize underwriting for property owners, minimize per‑unit transaction costs and compress timelines by establishing pre‑approved criteria for eligible projects and sponsors. Jurisdictions considering similar initiatives should focus on aligning available revenues with policy objectives and legal constraints and coordinating with housing agencies to integrate at-scale homeowner assistance efficiently.
Arbitrage: What It Is, Why It Matters and Practical Solutions
Arbitrage in the tax‑exempt bond context generally refers to the ability to invest bond proceeds (or certain related funds) at a yield materially higher than the yield on the bonds, potentially generating impermissible arbitrage profits. Federal tax rules seek to prevent issuers from exploiting tax‑exempt borrowing for investment gain rather than for governmental or qualified private activity purposes.
Arbitrage concerns persist into 2026 because issuance during the low‑rate periods of the early 2020s created portfolios with bond yields that may be lower than the returns available on cash and short‑term investments in subsequent higher‑rate environments. As interest rates rose, the risk of inadvertently earning positive arbitrage increased for unspent proceeds, reserve funds and replacement proceeds. In addition, construction delays, supply chain disruptions and scope changes extended spending timelines, threatening the availability of spend‑down exceptions and increasing rebate exposure.
Managing arbitrage risk requires a disciplined, life‑of‑the‑bond approach, including (i) advance planning to ensure spending exceptions can be met, (ii) establishing investment parameters to ensure applicable yield limits are satisfied, (iii) performing timely rebate analysis to identify emerging risk exposure to enable corrective action, such as spend downs and yield reduction payments, and (iv) maintaining documentation and controls regarding allocations, investment earnings and expenditure timing to ensure compliance in the event of an audit.
Ultimately, arbitrage compliance preserves the tax‑exempt status of the bonds and protects issuer credibility in the market. The best results come from integrating arbitrage analysis into pre‑issuance planning and post‑issuance compliance, with finance, treasury, project management and bond counsel aligned on the timeline and responsibilities.
Cybersecurity: Why It Matters and Best Practices for Market Disclosure
Cybersecurity remains a critical operational and financial risk for municipal issuers and obligated persons. Attacks can disrupt essential services, compromise sensitive data, impair revenue collection and trigger unplanned costs for incident response and recovery. From a capital markets perspective, significant cyber incidents may affect an issuer’s financial condition, operations and risk profile, potentially becoming material to investors.
Disclosure expectations arise from two overlapping frameworks. First, anti-fraud principles under the federal securities laws apply to municipal securities disclosure, including primary offerings and continuing disclosures. If a cyber incident or a pattern of cyber risk is material to investors, issuers should ensure their disclosures are not misleading in light of the circumstances. Second, under continuing disclosure undertakings associated with Rule 15c2‑12, issuers commit to provide annual reports and event notices. Although cyber incidents are not a specifically enumerated event in the rule’s event list, a significant incident may still warrant a voluntary event filing if it is material to investors. In practice, many issuers address cyber risk in offering documents and consider voluntary event notices on the Electronic Municipal Market Access system when an incident could be material.
Effective practices for primary market disclosures around cyber risks typically include elements calibrated to facts and counsel’s advice, including disclosure about (i) policies, and key risk management practices regarding the issuer’s operations, controls and third‑party dependencies, (ii) any past material cyber incidents, and (iii) governance of cyber security oversight and prevention.
Effective practices for disclosure around cyber incidents typically include elements calibrated to facts and counsel’s advice, including disclosure about (i) governance, policies and key risk management practices regarding the issuer’s operations, controls and third‑party dependencies, (ii) incident response coordination to manage and remediate risk, and (iii) materiality assessment of operational disruption, financial costs, potential liability and duration. If disclosure of a cyber incident is warranted, initial filings should be factual, avoid speculation, and focus on known impacts and steps taken, with follow‑up updates as the situation evolves. After resolution, issuers may update risk disclosures to reflect lessons learned, changes to controls or new third‑party dependencies, keeping the focus on investor‑relevant impacts.
By treating cybersecurity as both an operational and disclosure risk, issuers can improve resilience and maintain market trust. Clear governance, tested incident response plans and thoughtful, tailored disclosure help reduce the likelihood that a cyber event becomes a capital markets event.
In 2026, public finance leaders can make meaningful progress by scaling affordable housing through programmatic financing models, embedding arbitrage compliance into the full lifecycle of tax‑advantaged financings and elevating cybersecurity readiness and disclosure discipline. Each area benefits from early planning, cross‑department coordination and transparent communication with market participants. The issuers that succeed will combine policy ambition with execution rigor — aligning legal, financial and operational tools to deliver durable public outcomes.
McGuireWoods continuously monitors legal obligations and market conditions facing municipal issuers. For more information, contact the authors or a member of the Public Finance Practice Group.