Weekly Municipal Monitor—Tax Policy on the Ballots

State and local tax ballot measures could reshape municipal revenues and fiscal risk as post-pandemic revenue growth fades and spending pressures persist.

• Municipal bonds outperformed taxable fixed income last week: 10-year Treasury yields fell 8 basis points, while high-grade tax-exempt municipal yields declined 23 basis points in five years, 22 basis points in 10 years and 12 basis points in 30 years.
• Municipal fund inflows reached US$1.6 billion for the week ended October 21, while year-to-date inflows rose to US$77.3 billion; new issuance was US$14.9 billion last week and US$515 billion year to date, 11% above the prior-year pace.
• Twenty-six states have cut individual income tax rates since 2021, including eight that implemented further reductions in early 2026, but revenue growth has moderated and uncertainty over federal funding has increased.
• Colorado's Amendment 87 would replace its 4.4% flat income tax with graduated rates from 2027 and could raise about US$2 billion annually, although Proposition 136 and Proposition NN could constrain or alter the outcome.
• California's Proposition 40 would impose a one-time 5% tax on individuals with more than US$1 billion in wealth and direct 90% of the proceeds to health care, but competing propositions, taxpayer relocation and asset-valuation issues create uncertainty; behavioral responses could reduce recurring income-tax revenue by nearly US$1 billion annually.
• Washington enacted a 9.9% tax on annual individual income above US$1 million, scheduled to begin in 2028, adding another example of states reconsidering their revenue structures.

Takeaway: Municipal investors should assess ballot measures for their effects on recurring revenues, spending capacity and volatility, since temporary tax receipts or greater reliance on high-income taxpayers may ease near-term pressures without resolving longer-term fiscal risks.