As districts prepare for the 2026 bond cycle, financial conditions are shifting in ways that demand closer attention, stronger planning, and greater strategic alignment.

During CASBO Con, Erica Gonzalez, Managing Director in Stifel’s Public Finance Department, provided a timely market outlook, helping school business leaders understand the economic forces shaping bond issuance and what it means for their programs moving forward.

While access to capital remains strong, the environment has fundamentally changed. Success now depends on how well districts anticipate and navigate ongoing volatility.

A New Era of Market Volatility

The financial landscape has entered a new phase.

While previous cycles were largely driven by Federal Reserve actions, today’s market volatility is increasingly shaped by global events. Geopolitical instability, particularly in energy-producing regions, is influencing inflation and interest rate expectations in real time.

At the same time, districts are operating in a markedly different interest rate environment than just a few years ago. Borrowing conditions have shifted from historically low interest rates in 2020 to significantly higher levels today, even with some recent easing.

Artificial intelligence is also emerging as a major economic driver. Increased investment and productivity gains tied to AI are contributing to growth expectations, but they also introduce uncertainty around long-term market stability and labor impacts.

For California, these dynamics carry additional implications. State revenues are closely tied to capital gains, meaning fluctuations in financial markets can directly affect public funding streams.

“The bottom line is that volatility is here to stay. Geopolitics, inflation pressures, and global uncertainty are now the primary drivers of the market.”

For school leaders, this means planning for continued uncertainty rather than expecting a return to more stable conditions.

Interest Rates and the Federal Reserve Outlook

The Federal Reserve is currently balancing competing priorities: controlling inflation while maintaining employment.

Earlier expectations for near-term rate cuts have shifted significantly. Current projections indicate that rate reductions may not occur until 2027, reflecting ongoing inflation concerns and economic uncertainty.

While geopolitical developments could influence this outlook, the broader takeaway is that interest rate conditions remain fluid and unpredictable.

For districts, this reinforces the importance of flexibility in timing and financial planning.

Strong Demand, but Increased Competition

Despite market volatility, demand for municipal bonds remains strong.

Investor appetite continues to be supported by consistent inflows into municipal bond funds, often exceeding $1 billion per week. This creates opportunity for districts to access capital.

However, increased issuance is also changing the dynamics.

With record levels of bond supply, investors are becoming more selective. Larger, highly rated issuers tend to attract the most attention, while smaller districts may face greater challenges in standing out.

“When supply is high, investors get selective. Larger issuers get the focus, and smaller districts can get lost in the shuffle.”

This makes strategic positioning and timing even more important, particularly for districts planning smaller bond issuances.

Timing Matters More Than Ever

While districts cannot perfectly predict market conditions, they can take a more strategic approach to timing.

Seasonal trends offer some guidance. January and summer months have historically been favorable periods for bond issuance due to increased investor demand.

Beyond seasonality, districts should also consider timing within the month. Early issuance can capture available capital before it is absorbed by the market.

Economic events also play a role. Key indicators such as inflation reports and Federal Reserve announcements can significantly impact interest rates, making it important to avoid issuing bonds during periods of heightened uncertainty.

Large state issuances are another factor. When California enters the market with multi-billion-dollar transactions, it can affect pricing and investor demand.

“You may not be able to time the market perfectly, but you can be strategic about when and how you enter it.”

Advanced planning and coordination with financial partners are essential to making these decisions effectively.

Credit Strength and Long-Term Risks

While California school districts generally maintain strong credit ratings, long-term risks are becoming more pronounced.

Declining enrollment is one of the most significant challenges facing the sector. It affects not only operating budgets but also how investors and rating agencies assess creditworthiness.

At the same time, districts are navigating the expiration of pandemic-era funding, rising labor and operational costs, and increasing competition from alternative education options.

“Enrollment isn’t just a budget issue. It’s a credit issue. Investors want to know how you’re planning for it.”

Districts that can clearly articulate their strategy for managing enrollment trends and maintaining financial stability will be better positioned in the market.

Adapting Bond Strategies to Voter Sensitivity

Beyond market conditions, districts must also navigate changing voter expectations.

While bond measures have historically seen strong approval rates, economic pressures are increasing sensitivity to tax impacts.

As a result, more districts are exploring tax rate extension strategies, which maintain or extend existing tax rates rather than increasing them. These approaches have shown higher passage rates in more tax-sensitive communities.

However, they also limit the total funding generated.

District leaders must weigh the trade-offs between maximizing revenue and increasing the likelihood of voter approval. Voter opinion surveys can play a critical role in informing this decision.

Moving Forward with Strategy and Flexibility

The 2026 bond landscape presents both challenges and opportunities.

Market volatility, evolving economic conditions, and shifting voter expectations require districts to take a more strategic and proactive approach. At the same time, strong investor demand and historically high credit quality provide a solid foundation.

The districts that will succeed are those that plan early, align their financial and project strategies, and remain adaptable in a changing environment.

With the right preparation and partnerships, school leaders can continue to access capital effectively and deliver on their commitments to students and communities.

About the Author

Erica Gonzalez is a Managing Director in Stifel’s Public Finance Department and head of the California Schools Group practice. Ms. Gonzalez joined Stifel’s Public Finance Department after four years of working with the firm’s municipal trading desk and has over 20 years of experience in the industry. Ms. Gonzalez is a dedicated California K-12 school banker assisting local districts in financing school facilities, including new construction, modernization, renovation, and technology improvements. Her work with California school districts includes general obligation bonds, Mello-Roos bonds, certificates of participation, leases, and the refinancing or restructuring of previously issued bonds. Ms. Gonzalez graduated from USC with a BS in Business Administration with an emphasis in Finance.

With California offices in Los Angeles and San Francisco, STIFEL is the No. 1 underwriter, by par amount and number of issues, of K-12 school district bonds in California and the U.S. (Thomson Reuters for the time period 2022 through 2026). Stifel’s public finance professionals specialize in helping school districts raise capital to build and maintain essential infrastructure using general obligation (GO) bonds, certificates of participation (COPs) and special tax bonds (CFDs). Having the largest and most experienced municipal banking and underwriting group in California, Stifel works with school districts to develop and implement financing strategies that allow them to operate and optimize the important work they do.