WASHINGTON — The House Ways and Means Committee should protect the tax-exemption while also expanding the use of private activity bonds and reinstating tax-exempt advance refunding bonds, the Bond Dealers of America said in a written testimony provided to the committee.
BDA appealed its core issues to the committee in response to a March 27 hearing on the effects of the 2017 Tax Cuts and Jobs Act. It is common for committees to keep the record open following a hearing to allow testimony to come in, which is why the BDA submitted the comments this week. The testimony came from BDA as a group and was not attributed to any one person, and it comes as lawmakers gear up to produce and consider legislation that market participants hope will include policies favorable to munis.
“Simply put, municipal bonds build America’s infrastructure and have been doing so for more than 100 years,” BDA told the committee. “State, local governments and their constituents need Congressional help to ensure this positive economic activity across the country continues.”
Ways and Means Chairman Richard Neal, D-Mass., is a former mayor who is widely considered friendly to muni issues. Market participants are hopeful that some of these tax policy goals might be enacted as part of infrastructure legislation later this year, but there is also growing skepticism that such a bill will end up on President Donald Trump’s desk in the next two years.
The longest section of BDA’s testimony argued for the return of tax-exempt advance refundings, which the TCJA eliminated. At the time of the tax bill’s deliberation the Joint Committee on Taxation estimated that eliminating advance refundings would save the federal government more than $17 billion over 10 years. But BDA noted that a late 2017 rush to advance refund before the TCJA’s effectiveness and slowly rising interest rates will likely curtail that savings.
And allowing a return to the previous tax policy saves taxpayers more, BDA argued.
“For example, in Montgomery County, Texas, six advance refundings for bonds used to finance Conroe primary and secondary education needs resulted in savings of over $20 million dollars, BDA said. “In Barrington, Illinois, the city saved $300,000 by advance refunding an issuance in advance refunding bonds for parks, and in Eden Prairie, Minnesota, an issuance of general purpose bonds was advance refunded resulting in $250,000 savings for the city.”
Many of the BDA’s examples referenced Texas, the home state of the Ways and Means Committee’s ranking Republican, Kevin Brady. Brady chaired the committee during tax reform debates. For example, BDA also cited “more than 50 issuers” in Texas who will “lose the ability to advance refund an estimated $6.6 billion dollars in bonds over the next two years,” costing those communities millions of dollars.
Reps. Dutch Ruppersberger, D-Md., and Steve Stivers, R-Ohio,
The group’s testimony also urges the committee to expand the types of infrastructure facilities that are eligible to use tax-exempt PABs, lift PAB volume caps, and eliminate other restrictions on the use of PABs, such as the governmental ownership requirement for certain eligible facilities that apply under current law. PABs were on the chopping block next to advance refundings during tax reform debates, but ended up being spared.
