The public finance community is largely disappointed with the limited scope of the municipal bond provisions proposed by the Biden administration’s Treasury Department last week.
The so-called “Green Book,” which lays out suggested tax law changes the White House supports in concert with its budget request, proposed the authorization of $50 billion of direct-pay
Muni advocates in Washington said they were disappointed in the lukewarm support from Biden, but remained optimistic due to the bipartisan support of lawmakers backing those priorities.
“No mention of advance refunding and bank-qualified although they are broadly supported by the public finance community, state and local governments and non-profits of all types,” said Charles Samuels, who represents the National Association of Health and Educational Facilities Finance Authorities. “K-12 direct-pay bonds are probably of modest value. Not sure who in Saudi Arabia will be interested in buying small town Nebraska elementary school bonds. New private activity bonds for transportation are a more positive development but overall this part of the package is too thin.”
The proposal for Qualified School Infrastructure Bonds, also known as QSIBs, revives a proposal raised by House Democrats last year in their unsuccessful infrastructure legislation that never received a Senate vote. QSIBs also were part of the American Recovery and Reinvestment Act enacted in February 2009.
This new round of proposed taxable QSIBs would be similar to direct-pay Build America Bonds and would be eligible for issuance over three years from 2022 through 2024 with annual limits of $16.7 billion for each year.
As for the proposal to double the exhausted current cap of $15 billion of transportation PABs, the allocation would be made by the Department of Transportation. Public transit, passenger rail, and infrastructure for zero emissions vehicles would be added as qualified activities for which such bonds may be issued.
"The President's budget took us a little by surprise just because it was so much of a mixed bag,” said Emily Brock, director of the Government Finance Officers Association’s federal liaison center. “We were happy to see the PAB and direct-pay expansions in the public sector. But by limiting the budget to a few sectors and a few transactions, the budget doesn't take advantage of our market's greatest attribute — that we are a market open to all. Adding tools that encourage more participation is the tide that lifts all boats when it comes to infrastructure.”
Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association, said SIFMA appreciates the proposals included by the Treasury but hopes the administration will work in concert with the legislative champions of the group’s core priorities.
“These include reinstating advance refunding, authorizing a new general purpose direct payment bond program on a permanent basis, further expanding the volume cap and uses for private activity bonds and increasing the annual limit on the amount of tax-exempt obligations that may be issued to qualify for the small issuer exception to the tax-exempt interest expense allocation rules,” Bentsen said in a statement. “In addition, we continue to believe preserving the tax-exemption for interest earned by investors on state and local bonds, which is the financing mechanism for the clear majority of infrastructure projects that state and local governments undertake, is crucial.”
Lawmakers of both parties have said outright they want to see
“While we were disappointed that few fixed income provisions were discussed in the administration’s proposed budget, we remain confident that key muni provisions will continue to receive bipartisan support on the Hill,” said Brett Bolton, who is vice president of federal legislative and regulatory policy at the Bond Dealers of America. “We will continue to work with our partners on the Hill, and within the Administration to reiterate the importance of such provisions as the reinstatement of advance refundings, and raising the bank-qualified debt limit as infrastructure and budgetary issues continue to be debated.”
Teri Guarnaccia, National Association of Bond Lawyers president and a partner at Ballard Spahr, called the Biden proposals "encouraging," but vowed to continue advocating for other priorities.
"Our takeaway is that the municipal market can help provide the tools needed for the significant infrastructure investment Congress and the administration are working toward through the budget and in an upcoming infrastructure package currently under development," Guarnaccia said. "We will continue to communicate with our leaders in Congress to encourage the incorporation of other financing tools including bringing back tax-exempt advance refunding bonds, increasing the limit for bank-qualified bonds, and introducing other direct-pay bond programs."
