- How real is the threat to the tax exemption?
- What other scenarios may play out, such as the elimination of tax-exempt PABs or bonds for certain sectors like housing and healthcare, where Republicans look to the muni market for revenue to offset TCJA provisions?
- What effect will potential tariffs have on the industry?
- Will changes to immigration have an effect on state and local tax revenues?
Transcription:
Nicole Riggs (00:10):
Thank you Natasha. Natasha mentioned. My name's Nicole Riggs. I'm excited to be here today. Please bear with my voice. I've been fighting laryngitis and I don't know if it's my eight month old started daycare last week and then I also spent the last three days in Las Vegas, so I really don't know what the root cause, but here we are. And here I'm excited to be. I think the 25-year-old public policy student that I used to be would just be so excited to be hosting this panel about the impact of the federal legislature on municipal finance. So our goal today is to really kind of cut through all of the noise that's coming out of Washington and then also provide some ideas, some action items for moving forward. I'm going to definitely leave some time for q and a because this panel could be so many different topics. We've selected a handful, but would love to hear from all of you as far as what you might like to further discuss. Natasha introduced our panel already, so I'm just going to jump right in. We are also starting with the elephant in the room, which is the potential threat to the tax deduction and or the tax exemption rather. And I'm going to hand it over to Emily to kick us off.
Emily Brock (01:41):
Well, thank you Nicole. So I feel like I've got one shtick and that is the threat is real. And I've talked to a lot of folks in the market who have said, you know what, Emily? I don't know. I feel like we're okay because of what the municipal bond does. Okay, I get that. But then you have to follow that up by making the case so that we have champions who are willing to stick their neck out for us. We've done this before, and so what I was hoping to do is offer a little bit of thoughts for you to use as you're adjusting your per spectacles of what the threat level is. And first I wanted dispel three rumors. The first we were fine, we came out fine in 2017. That's a different kind of look back than what I have, which is we lost the ability to have one-time advanced refund tax exempt municipal bonds, which has cost issuers billions of dollars over the past eight years.
(02:55):
We weren't fine. We lost. Don't want to lose again. Another thing I'd like to dispel is that a lot of people are saying, well, Emily, don't worry. We won it back last time. We're going to win it back this time. The reality is when we won it back, it was one specific airport and one specific college that plucked their members away from the ways and means committee and said, if you do this, this terminal is dead. So real tangible cases had to be made to the legislators at 11:59 PM before the bill passed. The last myth I'd like to dispel is that a lot of people are saying, Emily policy prevailed over politics last time. Not true advance refunding was $17 billion of a $1.5 trillion bill. It was couch cushion change. They weren't upset by the use of the tool. They needed $17 billion.
(04:10):
So let me just sort of dial back into the differences and the similarities to 2017. So in 2017, we basically have the same structure, Republican Senate, Republican House, Republican in the White House. And arguably it's kind of the same method of politics. Managed chaos is kind of the way that I think that it's typified. It's the same process of reconciliation that will need to be evoked. So what that means is they're going to have to pass this package by a simple majority, and that means there are rules of the road that have to be used. They've got theoretically the same objectives. We're starting to hear from a lot of offices saying, we just want a straight line extension of the 2017 Tax Cuts and Jobs Act. So it's kind of the same as last year and the same as 2017. Politics prevailed as it did last time.
(05:12):
Politics is beginning to prevail this time. What is different between now and 2017? Well, the big 800 pound gorilla in the room and the notion that Jodi Arrington continues to bring up the chairman of the House Appropriations Committee is that we have $35 trillion worth of national debt. That's different. That's sort of a hangover effect of the stimulus programs that have passed had to pass since 2017. And today it's a very similar timeline too. The house is fighting for their lives. It's such a slim majority that they're going to have to deliver those campaign promises that they issued out in order to gain their seats right now. So that timeline's very similar. We also have the blueprint, which is different than last time. We know what's expiring. We know salt is part of the discussion. We know child tax credit, we know estate taxes. We know that those things are a part of this discussion.
(06:10):
And so we aren't starting from nothing. It won't be a big gigantic surprise when we see it. Now what's important, and I was talking to someone about this earlier, is that they already have the text of what they need to extend and remember, the text that they've already written is the complete elimination of private activity bonds from 2017. So think about that. They don't have to go through great lengths of trying to write it out and thinking about carve outs. They have the text, it's sitting right there in front of 'em, and that is a real reality that's different than last time. And I'd also like to say too, we have numbers grateful for Yaffa Rattner to bring up our research that we've been working on. We have found this time around, unlike last time, a good offense is a better defense. We are not excited to play defense this time. We'd like to try to prevent our issue to be on the chopping block. But as you look at the menu of options of pay for all issued bonds, governmental private activity, 501 C3 bonds are on the menu.
Nicole Riggs (07:25):
Thank you, Emily. Dan, I'm going to give you a chance to build on what Emily did in terms of contrasting what we're looking at in 2025 versus 2017. And if you could also touch on what you had mentioned on our prep call in terms of the scoring.
Dan Hartman (07:42):
Sure. So I would say at PFM, we are cautiously optimistic here. We're certainly not at DEF com one, I think it's a clear and present danger, but I believe that the Muni kind of groups we're well situated not to lose tax exemption. And there are some things that are different that I think are playing in our favor as well. So a lot of this is going to come down to scoring, right? So Emily mentioned that in 2017, the JCT scored advance for fundings a 17 billion. And I think a lot of people just got caught unaware that something that small would actually matter within the math, but the math is absolutely what's going to drive this, but we don't even know what the math is or what we're solving for, nor does Congress at this point, which is they're trying to come up with a baseline and nobody understands what the baseline, is it that TCGA goes away and it's extended at a cost of four and a half trillion dollars or is it going to be something else?
(08:47):
And I think what we're seeing in the political landscape is that it's likely to be something other than that, a much smaller number they're solving for. And the math is going to include whether they just assume TCJA extends without going away, as well as they're going to get credit for the economic activity and tax income that will be generated because of the economic gains coming from higher growth. So I think what we're hearing and bubbling up in this process is that they're going to be looking for cuts anywhere from 500 billion to 2 trillion. And I think we'll end up perhaps on the smaller side of that, I think benefits all groups and certainly munis. Now why is that? Because what's different this time? The house majority is razor thin. So in 2017, I believe it was like 242 to 1 91 in the house. Right now we're at two 17 to 215 and Elise de leaves Congress to take her job. And in a post you start losing and becomes razor thin. And so the fractured nature of the house is going to make a lot of these negotiations very difficult, which suggests that they're going to try to get to a smaller number of needed cuts because the pain is difficult to take. You also see a very fractured Republican caucus.
(10:15):
The Freedom Caucus is certainly going to have their issues. The New York, California Republican groups are absolutely focused on salt. So you have a number of small groups that are going to be focused on very specific issues out there. And I think that is going to make it very difficult to get these cuts through and maintain any type of majority in the reconciliation process to get through. And I think the third thing for me that's different is that the muni groups we're far better prepared this time. I think as Emily said, I fully agree that we lost last time. We were not prepared. I've been certainly doing, I'm in DC I do a lot of meetings. I run into Emily literally on the hill, and I see a lot of muni groups that are on the hill and had been on the hill over the last month, two months that continue to have a presence and to really drive this home. And that's significantly different. And mostly what we've seen from muni groups in the past is a lot of they we're fractured in what we want. The transit folks want grants for different, the public power group is focused on tax credits, but everyone is coalescing around this issue of the municipal tax exemption. And so I see a much more coordinated effort, much more prepared effort, and that certainly has made me, I think, much more optimistic as to our chances within this legislative period.
Nicole Riggs (11:48):
Thank you, Dan. Alright, I'm going to pry this discussion away from the municipal tax exemption. Geoff, can you talk about what other policy areas or pay fors in the tax bill will have the biggest impact on the municipal market in 2025?
Geoffrey Buswick (12:05):
Yeah, sure. I'll talk on other elephants in the room, right? The tariffs, immigration, Medicaid education. But I want to start with some of the stabilizing factors that we also are seeing right now. Our economists have been writing on all those factors and one of the things that they're keeping the baseline still at a slower economy than last year, but still a positive growing economy at 2% growth, about four and a half percent unemployment and maybe around a 3% CPI for the year. If you think about that, the backdrop of organizations managing their budgets with the revenues and how they raise them, that in itself sounds rather benign. So it's maybe these other policy issues will come into play and I'll talk a little bit about that. But we have that. The other thing that we get a lot on is that our sovereign rating for the US is a AA plus stable and has been since 2011.
(13:01):
One thing in that rating, where we took it from the AAA plus, was the assessment of the institutional assessment, the framework that you're operating within and how you think proactively about solving problems. We don't have that scored in that component of our criteria at the highest level. It scored a two, not a one. And that two represents that lack of proactive nature and the expectation that over time we will go right up to the border, right when time needs to go or past where other higher rated entities might not have that type of risk inherent. So we have an economy that's arguably holding in our forecasts and we have some leeway in that. The sovereign rating, which is above many of the other ratings that we have is not expected to move. It's currently AA plus stable. But now let me talk about how tariffs come into play.
(13:56):
Tariffs are, our economists are writing, look, this economy that is growing is a $30 trillion economy kind of humming on all cylinders. And you're talking about tariffs that may be a couple hundred billion in size and volume. Well, depending on how it plays out, maybe the tariffs could come in and slow GDP growth from 2 to 1.8 20 basis points. Maybe it doesn't. Tariffs has not been something that's been high on our economist lists of introducing risk. It is political, it is volatile, it is uncertain, but it's not driving some of the risks that we're seeing that affect munis. All of our criteria pieces have an economic factor that we consider. You look at immigration, this is one where immigration for the past few years, our economists have been saying has been aiding in the growth of the economy. And so if this were to shrink, if the population were to decline or if some of these measures would introduce other challenges of labor force participation or increase unemployment, then that could have a larger impact than tariffs.
(14:59):
And that our economists are saying, well, maybe that's a 50 basis point change. So let's say tariffs and immigration come together, we have a 2% growth. You carve out seven, we're still growing at 1.3%. What does that sound like? That sounds like the last Trump administration, the end of the last decade growth of the GDP was in that one and a half percent range for a while. So we're familiar with this. We know this. The meaning market has been able to respond and act in those situations. So I wanted to start with a little bit of stabilizing factor in some of the views that we're seeing. There's a lot of discussion on these, but maybe they're not as dire as they are now socially, politically, there can be other decisions and views, but credit is where I'm talking. But now let's talk about some of the things that really could affect us.
(15:41):
Medicaid is the largest discretionary component and when you're looking at the pay force for the tax cuts and jobs offset that may be needed within reconciliation, it's likely on the table. There are all sorts of aspects that are there. Is it they let the subsidy cliff at the end of this year just go by? Is it that they lower the match that the federal government has? Do they put back in workforce participation measures that 13 states did have under Trump and Biden came in on day one, eliminated it in one of his early executive orders? All these could have all together would be about a trillion and a half. Each of them are marked out in the ways and means measure, but the states spend on Medicare about 20% of their general fund, little under 19%. So any impact to the flow of that countercyclical stabilizing nature of Medicaid could come in and make a difference.
(16:43):
So we're looking at Medicaid as a big issue. We have that. And then the last one I'll speak to is the education sector. Look at education. The pandemic really highlighted the weaknesses where those entities had vulnerabilities in relation to higher paying foreign aid students. And so as we look at some of the higher ed issues, are there going to be fewer interested international students coming in and that could impact some of that sector. And additionally, in the pay fours, there is the endowment tax proposal, which is another couple hundred million dollars proposal and that could likely come too. It is a familiar target for the current administration. So we're thinking the higher risk would be Medicaid vulnerabilities and maybe higher ed to start. But I'll turn it over to Emily. I think you may have more risks.
Emily Brock (17:35):
Well, I mean I could talk about last Monday for example, as a risk when the funding freeze came out, I can say that that was the highest page view GFA has ever received. When we send out that alert that said federal funding was frozen according to the OMB memo, which was of course rescinded, and now there's this stay from the district. However, there are still reports from the field that there are payments that maybe aren't what the recipients had expected. Maybe there are some funds that are frozen. We're investigating that and we're trying to provide information to our members as quickly as possible. But I think Geoff did an excellent job of laying out sort of the buckets that Congress has to their avail. There's the spending buckets, there's mandatory and there's discretionary mandatory. Think about that as your YouTube subscription. You paid for that a long time ago, but you have to keep paying for it like social security, like Medicare, you've got to make sure that you are allocating appropriately.
(18:47):
And then there's discretionary, which is sort of like the budget. So that's the one thing that kind of goes up and down. Those are agreed upon by congressional measures for the administration to operate. And then the third bucket is your tax, your expenditures, your tax expenditures. Now there's a lot of things that matter to state and local government, both on mandatory and discretionary side, but the things that fall into the exemption or into the tax expenditure side is our access to tax exempt municipal bonds. Just to put a frame of reference on the tax exemption, as we saw the 51 page memo that came out of the appropriations committee and was identifying risk levels high, medium, low of each expenditure. If you add up all of the expenditures appropriately into their buckets, the tax exemption and all other exemptions for bonds issued is the fourth largest expenditure on that 51 page memo.
(19:54):
I'll say that again, fourth largest. Does that mean that we're more vulnerable or less vulnerable? There are things that sit above us that are less vulnerable than us, I can tell you. So fourth is not the best place on this list. And we're trying to make sure as we're just entering these discussions as we're talking with members, that is a real true pay for that actually has derivative effects in local governments and economies. Now what's important though is that as we're looking at that number, and I want to clarify this, that number is the JCT score that equates to taking away the exemption of all outstanding municipal securities. It's not for future issued securities, it's for those that are outstanding that are sitting in retirement accounts owned by 65-year-old grandmas and grandpas that will all of a sudden have to pay income on interests received for those municipal holdings in their retirement portfolios. And so that's another very common easy discussion that we have in every congressional offices. We have our meetings. Keep that in mind. It is an evolving conversation, but the risk level is still very high.
Nicole Riggs (21:20):
It's Emily, we're going to pass it back over to Geoff. You started touching on this, Geoff, but can you talk about which sectors are the most vulnerable to some of the federal legislative changes that we've discussed and provide some examples of the issuers that are better positioned to weather some of these policy shifts?
Geoffrey Buswick (21:42):
Sure, thank you. We just got through our outlook season as many of you all did as well. And we currently have our public power sector water sewer sector on negative outlook. Our higher ed sector is bifurcated, not trifurcated, but I like the term. And so we have the bifurcated sector there where those who are larger, more name recognition, higher endowments may be better off than some of the smaller ones who are dealing with it. And all the rest of our sectors are stable. And so if you look at it that way, you think maybe we're tone deaf and I don't think that's the situation. We are recognizing that the federal policy changes could have meaningful impacts going forward, and yet they're so uncertain. You think about uncertainty in general and uncertainty of credit is always a dangerous issue. It makes forecasting harder, makes the expectations of what you're going to get back harder.
(22:34):
And so we see the uncertainty out there. It's just very hard for us to gauge and say this is where it's going to go. So you ask what sectors are harder, where are we going? Some of the things that are in this bill, if the tax exemption for hospital goes away, the hospital sector, which is just now rebounding from the pandemic and coming back and having more balanced operations, if you now have higher costs, what's that going to do? That could be an issue in there. They had the elimination of the home mortgage deduction. If the housing challenges facing everyone across the country and now the mortgage deduction goes away, what does that mean? Does that affect a local municipality and how they can taxes the value of properties go down? Does the selling volume go through? There's all sorts of issues that come with that as well.
(23:19):
I think one of the things that we've been seeing over the past year, and maybe this is another one of those word of the year candidates, it would be affordability. And I think Kristen from the last call said it was the tax exemption is a kind of affordability issue. But we are seeing in many sectors affordability pressures and as affordability items come to the fore, if some of the actions that come out of Washington exacerbate some of these affordability challenges, that's a credit challenge. And maybe we start to look at some of the sectors differently, but I think there is a lot here that could really add to affordability where and what's in that final bill that's yet to be seen.
Nicole Riggs (23:56):
Thanks, Geoff. Dan, can you add on to Geoff's remarks?
Dan Hartman (24:00):
Sure. I mean, I think just in looking at groups that are vulnerable within the municipal community, and while I'm kind of optimistic on the bigger question of tax exemption, I definitely think that we're going to see some of the muni groups get hit in this process and public power is one. So the inflation reduction act, I think very much there's a pretty clear effort to defund some of that movement towards clean energy. So the ITC and PTCs that were within that bill that were significant and the municipal community fought hard for issuers to be able to take those tax credits directly are really going to be under fire. And the healthcare and higher ed. Robert mentioned in opening remarks, I think those are specific items that are in the list of cuts that the budget committee put together in ways and means are considering. I think those are places particularly on the higher ed side, on the endowment tax that I think are particularly vulnerable from a political perspective.
(25:08):
And I think we're certainly trying to fight that, find it important for the health of higher ed and certainly healthcare sectors for the tax exemption. But those are vulnerable. And then I guess I would just comment that what happens or who's vulnerable if we do see some of the loss of tax exemption? I think one of the things that we see out there is that the most vulnerable or the small issuers, it was mentioned on the first panel, I think by yfa, that I absolutely agree that the cost of capital and access to capital if we were to lose the tax exemption would disproportionately fall to small issuers. The taxable market, yes, we had success with that with Build America bonds and in taxable advance fundings and in 2020, but when you have index eligible large block size, you don't pay that. The premium can be limited, but for smaller issuers, and Glenn mentioned it as well, it's just not a structure of the market that is well situated to take in odd lots. So the cost would be disproportionately felt by small issuers and even access to capital where it may have to go through bond banks or other types of things. So I think that's one of the things we try to impress as well in some of the legislative meetings of where the cost and vulnerability is moving forward.
Nicole Riggs (26:34):
Okay, thank you. So I think so far panelists have done a wonderful job providing some context and discussing some of the hypotheticals. So now we're going to switch gears a little bit really to where the rubber meets the road. So I'm going to turn it over to Ira and then Giles, if you can please talk about, regardless of any of the policy changes in Washington state and local governments still have to continue to deliver services and projects to their residents. So how should issuers be thinking about financing and delivering some of these infrastructure projects?
Ira Smelkinson (27:13):
Sure, I'll go first. And again, thanks for the Bond Buyer to have me up here on this panel for a very interesting topic. And given the fact that none of us know what the future will bring, these comments are just really hopefully to plant the seeds for some things that we're thinking about, we think issuers might be thinking about. And I think as an audience, we do benefit from hearing from the earlier panels, for example, from Bryan from New Terminal one, he's got a project in midstream that they need more funding to finish and they've got more to do. And what Carol I want to just kind of talk about is for the issuers who, again, maybe were thinking about doing a multi-year multi tranche capital development project and they're two thirds done and they've got another third to do and they're looking at a very uncertain future, what should we think about what types of tools in the toolbox do you want to have?
(28:04):
And again, I think kind of picking up on what Bryan had said earlier, number one is access to the funding that you need. And number two, maintaining the flexibility in an uncertain work. So a number of folks have mentioned earlier in the day that when you talk about issuers, it's such a wide landscape. You've got large issuers who have successfully sold bonds to multinational investors in the taxable market. And that's going to be very different than a small town looking to build a library that is done that sells bank qualified bonds. So again, issuers a bit of certainly a broad landscape, but I think just things to think about. And a number of people have talked about the use of taxable bonds, which may work for some earlier the keynote speaker talked about from a planning standpoint, they're looking about at a 200 basis point delta between the two, whether it's the taxable or the taxes get market that fluctuates over time.
(28:58):
We certainly saw in the 2020, 2021 timeframe where issuers avail themselves of taxable advance fundings because it was so darn cheap to do. So might that happen, the future? Don't know. But I think it's important that if issuers are thinking about, we've got a financing maybe to do the second half of the year, and we're starting to educate our board now from a documentation standpoint put in there the ability to sell taxable bonds. You may never need it. It may be something you never contemplated before, but you might have to do that in what might be a brave new world. So we think just take the steps now so that you're not caught in the future, not able to avail yourself for something that you might need. Secondly, a number of folks have talked about, especially for smaller issuers, you've got the bank alternative. We might see a world where community lenders become more active in financing projects that are local.
(29:50):
It may not be all large money center banks, but there may be more of a widespread access of this type of capital to pre cheap projects going. And there's both a cost component to that as well as a tenor and structure consideration for that. But something else to keep in mind. Bryan also talked about earlier in a number of issuers we've had conversations with or contemplating pre-funding, their original plan was to dual financing in 2024 and come back in 2026 for the last one. Third. Well, they're now thinking about, well, let's run the numbers to see what the economic viability is of doing that under the current tax regime. And also they're thinking about doing that because they're thinking about the affordability impacts of what might be tariff or labor disruptions as well. So again, there's lots of questions. I don't know that any of us in the room right now have really good answers, but just kind of preparing yourself from an analytical standpoint that as some things were happen, you can say, okay, look, we've looked at this scenario, this is what the affordability impact is and this is what it means.
(30:55):
And maybe it means having to downsize or go to more of a modular approach to what you're trying to build. But we think having that information in hand and at least thinking about those scenarios is an important factor currently. And then just a couple other things real quickly. We think that there's certainly been transactions where have been sold with the ability to not just refund bonds, but to convert bonds in the future. And you basically lock in current tax rules for what could essentially could be a refunding in the future that's pretty acceptable in the marketplace. I think you may see those provisions start to reemerge more broadly because again, taking the steps now for things you might want to do in the future and try to lock in and preserve the current favorable tax landscape that we have right now. A couple thoughts for today.
Nicole Riggs (31:43):
Thank you, Ira. Giles.
Giles Nicholson (31:45):
Oh, sure. Yeah, no, I think a bunch of people have already framed this so well already. I mean, Yaffa, Dan, Glenn, and Ira have all brought up some very salient points about the problems with losing the tax exemption. Of course, it really falls most heavily on the smaller issuers. They're going to pay more in spread. And of course the taxable spread just naturally if you do, the math, is going to be wider than a tax exempt spread. And that's going to be a huge problem for the smallest issuers in our market. So what I want to do is just have a vision or think about what a world might look like without a tax exemption. And there is an example I think out there that we can look to and think about, and that is Canada, the subnational borrowers. It's a similar federal system. You have provinces that have similar functions to the states and localities that have a certain amount of independence that also issue debt, and there's absolutely no tax exemption.
(32:39):
It's all taxable, and they're competing for funding in the taxable market. So I thought a really good example of how it is working there right now is the province of British Columbia. British Columbia borrows taxable debt in its own right, and the city of Vancouver, the largest municipality there also is a highly rated liquid borrower that is able to borrow on its own, right? Every other municipality in the province borrows through a bond bank, the municipal finance authority, British Columbia, and they're able to do the structures. And Glenn brought up the point, well, how are we going to do? People are used to at a local level, serialized structures going out to 30 years, you're able to have that nice level debt that we're used to that's good for planning for taxpayers and for just generally a population. They're able to do that in BC.
(33:29):
And the way they do that is they have the loans come from the bond bank with a spread and they pay back over 20 or 30 years, and then the funding of the loans is done with 10 year rolling bullets and 20 year bullets in the public market by the finance authority. So the actual public borrowing is done in a way that's friendly to the taxable market, but the borrowers get what they want. There is an element too, where, and it's semi dormant, but the finance authority actually has the right to put a levy on local property taxes if necessary. They don't generally exercise that, but it really actually addresses the credit issue because the finance debt is AAA Vancouver. I mean the city of Vancouver stays out of it because they're a natural AAA in their own right, so they can borrow their own way and then the province does its own borrowing.
(34:21):
This does bring up a couple of issues though in the Canadian system school finance, for example, K through 12, a lot of that is coming directly from the province. It's not being done at the local level. You still have a lot of local control. But it does bring up a general philosophical question for our market. We're used to in this country a great amount going back hundreds of years of local independence and local decision making about how capital is spent and raised. And the tax exemption has given a lot of freedom at that level. If there's an all taxable world, it's not like that'll necessarily go away. And maybe bond banks can sort of cushion that somewhat. And as Ira mentioned, there's the ability to do bank loans as well, but it may be that some amount of consolidation or rationalization will also be necessary, which again takes away from local decision making. And so there's a philosophical question out there. So those are some of the things I think you'd have to think about in a world that becomes purely taxable.
Dan Hartman (35:20):
That sounds like a post apocalyptic vision, too much reality for a Thursday morning, I think.
Emily Brock (35:27):
Yeah, I would say though in reality GFOA members, United States Conference of Mayors, national League of Cities, national Association of Counties, I can name 43 issuer organizations who truly believe an issuer's efforts are better spent advocating for preservation of the tax exemption than worrying about the loss of it.
Nicole Riggs (35:47):
Alright, so before I open it up to questions, I'm going to have a quick lightning round. I think Emily anticipated this lightning question that I have for the group. So we'll start with Dan and then just move our way down. So just in a few words, what should this audience or the municipal market, what should we be either focusing on ignoring as far as what's coming out of Washington or what action should be taken? I think Emily picked the action items. I'm going to,
Dan Hartman (36:21):
Yeah, I mean my word would be urgency. If you're waiting for somehow there to be a clear framework coming out of Washington of how this is going to work, where you're going to think there's an orderly way in which you can then lobby, you're kidding yourself. What's going to happen is that the sausage is being made now and they're going to come back in two months and say, here it is. And the ways and means committee are going to move it and it's going to go fast. So if you have an interest and you should, the urgency is now and show up in Washington, or have your clients show up in Washington and particularly elected officials.
Nicole Riggs (36:59):
Geoff.
Geoffrey Buswick (37:02):
Yeah, I think the stat has been, look, president Biden wrote 162 executive orders. I'm not sure one of them kept anyone in this room up at night. And so as you see the executive orders, there are limitations to the power that the president has. It is an executive order, it affects the executive branch. So what we're looking for, and I think the advice to monitor is what's in the reconciliation bill. The teeth is what comes out of the Congress. And so that could have longer lasting change than some of these executive orders that may not have the teeth that would last.
Nicole Riggs (37:34):
Ira, anything to add?
Ira Smelkinson (37:36):
Sure. I think one of the beauties of the municipal market is how diverse and varied it is. And I think to the extent that regardless of what your interests may be to Emily and Dan's point, now is the time to harness your representatives to get out there. And I would also just say, as Yogi Bear said, it ain't over until it's over. So this could be a twisting turning road until we get to a final bill and until that comes out, we're not going to know. So the effort now and the investment of time is certainly worthwhile.
Giles Nicholson (38:06):
Oh me. I would just say stay tuned. Follow the press, especially read the Bond Buyer. Thank you. And finally, extremely important like and follow Emily Brock.
Nicole Riggs (38:23):
All right, so we can open it up to questions.
Emily Brock (38:29):
Can I just take a minute to ask? So I know we're in a room, Nora, sorry, I saw your hand. No, that's fine. We're in a room. I'd be remiss not to just ask. Anecdotes are important. Stories are important. As I said, tactile projects in their districts are important. We have a built by bonds.com website. Go there, put in stories from your clients. If you're an issuer, put in your terminals, put in your wastewater projects. We need data anecdotes and outreach. I need to know where do municipal holders of municipal securities live right now? I want to go into congressional offices and say, there's this many retirees in your district, or there's this many holders in your district. I'd love to know who will get specifically what issuers will get cut off from capital access in the event that the tax exemption goes away. Those are the stories you need to go in and you need to tell them it is time right now to build that argument. It's very nice to talk about broad generalizations and trillions of dollars, but the most compelling argument is the $6,500. It will cost every American household if the tax exemption goes away. So everyone here probably knows hundreds of issuers. Help us get the word out, get stories on the map, start to make those calls.
(39:58):
No, sorry.
Audience Member 1 (40:01):
I was curious what you were thinking about the sovereign wealth fund. I mean, obviously President Trump just signed the bill. I was thinking, is he trying to set up the tax exemption going away by creating this fund? I was just interested if you've heard anything about that in Washington, Emily.
Emily Brock (40:20):
Well, I mean it goes back to the buckets of resources. So Trump has said that it would be tariff funded. Again, that's a discretionary fund. That means that it's not, if I get this, then I need to get rid of the tax exemption. So it's not a one for one trade off necessarily. But again, I want to talk about 2017 when he came into the office. He was talking about an infrastructure bank. He brought in DJ Grins out of Australia to talk about P threes. I mean, a lot of the playbook is coming right back out that I recall. So I'm not saying GFOA does have policy that does not support a national infrastructure bank for obvious reasons. And so we're monitoring to see if in fact it has the efficacy to be funded. And we're certainly making sure we're monitoring that with our public finance network friends.
Audience Member 2 (41:28):
Can't see amount of away from the tax exemption for a moment to FEMA and disaster relief. Not that I think it looks as lightly as it might've a week ago that FEMA was in real jeopardy, but the whole concept of disaster relief and its overlap with major weather events and fire events and the like, seems to be in more jeopardy than it was. And it seems likely that there'll be less finances available through Congress than there would have been. And I would love any thoughts on that.
Geoffrey Buswick (42:18):
George? I kind of linked the FEMA discussion with some of the Medicaid discussions as Republicans, really since the Reagan administration have been looking to block grant any of these larger funded programs. And so a block grant would be you for a certain disaster would get this amount of money and you need to manage it. And if you manage it for less, you get to save the extra. And if you don't, you have to make the decision to pay more. The Medicaid block grant that I think was in the 51 page bill was what, a $900 billion, nine 60, something like that. So there are big pay for there with that. And so I would be hard pressed to see FEMA going away. I do think it's a stabilizing entity that affects all states and many residents. And we've seen that with the surprise flooding in North Carolina from a hurricane.
(43:11):
Right? I don't think that Regional was prepared for that in the same way, but they had a lot of FEMA support and they're now recovering. But I would say watching the block grant aspect over the next few months to see how that comes into play to change some of the federal policy transfers from funds to states or other counties as FEMA interplays with both could be very telling. So I do agree with you. I don't think it's as dire a situation as it may have looked a few weeks ago when you were saying, Hey, let's get rid of it. But I do think there's a realistic discussion in Washington that will go on to block grants for both of these issues and that could have credit implications.
Audience Member Greg (43:55):
I'm going to go back to the tax exemption for a quick section, obviously 50 page report that came out or from the Ways and Means committee in terms of opportunities. Emily, you pointed out number four, when you aggregate the numbers, is there any plans to via the mainstream media, to educate America on the impact? So we are preaching to the choir here, and when we go speak to our friendly members of Congress, it's the same story. The administration, current administration, it's about the headlines. We're not that sexy, right? The Muni tax exemption is not going to hit someone in the wallet tomorrow, but maintaining of their current or reducing their current tax rate will that sells well to mainstream America. So I'm just curious what the plans are to get those stories that you talked about, Emily, and get 'em on the front page of The Times and the Journal and other publications. Thank you.
Emily Brock (44:57):
Well, Greg, thank you for the question. I think importantly, GFO is a 501 C3. We are an education organization. We do advocate up to a certain threshold of our time allocated according to IRS rules. We are structured in very similar ways to United States Conference of Mayors nationally of cities and naco a really long way of saying we don't maintain and fund political action committees, which are often the source of those advertising campaigns, which are able to fund those types of projects. We have created the built by bonds.com website. We are continuing to advocate and educate with our materials, but we are looking to partners for certainly national media would be welcomed, I think. And that's just the reality of the matter.
Nicole Riggs (46:05):
All right, I think that is our time. So please thank our panelists.