Muni market participants asked Congressional leaders to use a stimulus bill as an opportunity to push muni bond initiatives and increase infrastructure efforts amid economic stress caused by COVID-19.
In a letter sent by the Public Finance Network to Congressional leadership Thursday afternoon, the group asked for the restoration of tax-exempt advance refunding, an increase in the cap for bank-qualified debt, and the creation of new direct-pay bonds shielded from sequestration.
“If Congress manages to get a quick bill out this week, these in the weeds provisions may make it in,” said Emily Brock, director of the Government Finance Officers Association’s federal liaison center. “If not, we do legitimately believe that these are the sorts of things that can free up state and local resources. In addition, those resources could be used to address the pandemic that is upon us.”
PFN, which is made up of over 30 muni market groups, asked for restoring certain muni bond provisions to help state and local governments, schools, hospital, airports and special districts. PFN said an infrastructure plan could stimulate the economy since the full impact of COVID-19 on the economy remains uncertain.
"Looking forward, state and local governments and special districts know that preparing for a pandemic requires strengthening the infrastructure network that underpins their communities," PFN wrote.
Brock said there will be a discussion on future and more long-term bills, based on what she heard from Senate Finance and House Ways and Means Committee members.
Municipal bonds have helped stimulate the economy in the past during the American Reinvestment and Recovery Act of 2009, Brock said. Direct-pay bonds such as Build America Bonds did well and Congress raised the cap on bank-qualified debt limit to $30 million, though it has now gone back down to $10 million.
Hospitals, for example, are a frequent user of bank-qualified debt, Brock said.
During ARRA, bank-qualified debt accelerated thousands of critical infrastructure financings by small governments and charities, said Chuck Samuels, general counsel for the National Association of Health and Educational Facilities Finance Authorities.
That included small critical care hospitals and health facilities that are currently on the front line of the virus crisis, Samuels added.
Advance refunding would free up billions of dollars for governments and nonprofits, PFN wrote in the letter.
PFN’s proposals make infrastructure projects more efficient and less costly in helping in both the short and long term, said John Godfrey, American Public Power Association senior government relations director.
Infrastructure could be more expensive if the virus spreads and workforce decreases for example, Godfrey said, and PFN’s proposal could help municipalities that face that issue.
Municipal bonds could help the economy get going again, Godfrey said.
“There’s no technical indication that we’re in a recession, but it sure seems that people are concerned that the virus and quarantines, etc. will have a negative effect on the economy,” Godfrey said. “Looking ahead what can we do to get our foot back on the pedal as quickly as possible?”
There will probably be a near-term and long-term stimulus bill, for which muni bonds provisions would be in the latter, Godfrey said.
The House had plans to vote Thursday afternoon on a bill that included provisions for paid sick leave, unemployment insurance among others. It did not include bond provisions.
House Speaker Nancy Pelosi, D-Calif., has been in talks with Treasury Secretary Steve Mnuchin to push a stimulus bill through. Pelosi said Thursday Mnuchin’s suggestions would not prevent moving forward the bill.
The House bill has not been endorsed by Trump. Republican leaders have pushed back against the bill, making it unclear that the House bill would become law. Senate Majority Leader Mitch McConnell blasted the House bill, calling it "off-base" on Twitter. In another tweet the Kentucky Republican said the Senate was eager to pursue bipartisan policies.
Pelosi wants to find common ground and work together with lawmakers to get the bill passed as soon as possible, she said during a press conference.
“Some things that they might want in this bill aren’t there,” Pelosi said. “There could be another bill shortly down the road.”
