WASHINGTON — The municipal bond market needs lawmakers who will champion the protection of the tax exemption, the restoration of advance refundings, and an expanded use of private activity bonds among other things, Bond Dealers of America representatives told congressional staff Tuesday.
BDA hosted the breakfast event in an effort to educate congressional staffers about muni issues and hopefully drum up support for the group's legislative priorities. Several staffers attended at least part of the session, which touched on the basics of the municipal market before digging into the policy agenda.
At the top of the BDA list is advance refunding along with expanding the types of projects eligible for private activity bond financing and raising to $30 million from $10 million the bank qualified bond cap.Above all, the panelists said, the tax exemption is vital to fund localities’ projects.
“If you take away tax exemption and you water it down, then you’re going to have fewer projects, smaller scale projects, higher taxes, higher user fees — that’s the reality of it,” said Ronald Bernardi, principal and chief executive officer at Bernardi Securities. “If in fact, we want to close this infrastructure gap, the municipal bond market, issuers across the country need congressional help so that they can continue.”
Municipalities have relied less on federal governments to fund their infrastructure projects and turn to private investment and private activity bonds to get the funding needed.
In the past 10 years, the amount of infrastructure financing has been stagnant, said Sean McCarthy, Build America Mutual’s managing director and chief executive officer. McCarthy noted that state and local borrowing capacity has decreased because of the recession and it has taken a long time for the revenue streams to recover. Rising costs, such as pension obligations have put a damper on infrastructure funding, he said.
“Finally, the economy is growing and the population is growing,” McCarthy said. “We need to focus on the value of state and local participation, not rely on the federal government for support on these projects.”
In a report from the American Society of Civil Engineers, it said the U.S. was spending 50% of what it ought to be spending on infrastructure, said Steve Heaney, head of public finance at Stifel.
“Can the markets handle the debt load to be able to spend more, and the answer is yes,” Heaney said. “The municipal market can and it has done so in the past.”
Heaney added that federal funding such as BUILD grants, which President Donald Trump recently proposed to increase in his budget proposal, Transportation Infrastructure Finance and Innovation Act loans, and a restoration of some kind of subsidized bond like could also provide support for the infrastructure push.helpful for municipalities, Heaney said.
Next steps for the BDA are to push for more lawmakers to jointhe House Municipal Finance Caucus, and reauthorize infrastructure spending. The group is also looking forward to supporting a bill to restore tax-exempt advance refunding and wants to strengthen pension funds by incentivizing them to invest in infrastructure.
However, Brett Bolton, BDA vice president, said he wasn’t sure an infrastructure package would pass this year.
