Public finance advocates remain optimistic that Congress will reinstate advance refunding and enact other muni finance tax changes later this year even though they are not included in the $3 trillion HEROES Act.
Major federal infrastructure legislation remains a priority for the Trump administration and lawmakers as a method for economic stimulus later this year, advocates said.
House Democrats already have included municipal bonds provisions, such reinstatement of advance refundings and direct-pay Build America Bonds, in their infrastructure framework. It also includes an expansion of private-activity bonds.
“Right now, the focus is almost entirely on direct aid, and I understand the reason for that,” said National Association of Bond Lawyers President Rich Moore, a tax partner at Orrick in San Francisco. “Eventually, however, that well will run dry and state and local governments will need as many tools available as possible to lift themselves out of this financial crisis.”
Emily Brock, director of the federal liaison center for the Government Finance Officers Association, said she is confident muni bond provisions will be included in another legislative vehicle that will move later this year, whether it’s labeled a stimulus bill, an infrastructure bill or tax legislation.
“That will certainly come to the fore in the near future,” Brock said.
Federal Reserve Chairman Jerome Powell in a speech Wednesday said the nation ought to do what it can to avoid a prolonged recession and weak recovery.
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Powell said.
Irma Esparza Diggs, director of federal advocacy for the National League of Cities, said the emphasis of the HEROES Act is on emergency appropriations to address the pandemic, but eventually state and local governments will need to be given tax and policy tools to bolster their finances.
Citing the urgency for immediate federal aid, Diggs pointed out the mayor of Vicksburg, Mississippi testified to his state legislature earlier this week that his community is considering filing for Chapter 9 bankruptcy.
Diggs said the immediate priority should be to strike a middle ground between the HEROES Act proposed by House Democrats and what Senate Republicans can support.
Senate Majority Leader Mitch McConnell, R-Ky., has called for a pause in federal aid and even suggested states might become eligible for filing for bankruptcy, but he softened that rhetoric in an op-ed published Thursday in his state’s largest newspaper. “If Congress considers further legislation in response to the coronavirus, I’ll continue working with city and county officials to keep Kentucky’s priorities at the center of the discussion,” McConnell wrote.
Diggs suggested McConnell’s tone demonstrates a willingness to compromise.
Diggs said once there is compromise between the House and Senate on the next round of federal aid to states and local governments, Congress should look at "tools available to facilitate borrowing and giving governments the ability to refinance their municipal bonds."
NABL's Moore said the tools given to the muni market under the tax code “will enable state and local governments to work their way out of this crisis in a responsible manner. It just makes too much sense not to happen.”
Not everyone is as optimistic. Charles Samuels, an attorney at Mintz Levin, which represents the National Association of Health and Educational Facilities Finance Authorities, said Wednesday “it’s quite speculative” whether a bill containing muni provisions will be enacted this year.
Samuels, whose group includes nonprofit hospitals and colleges, is hopeful the limit for bank qualified loans will be increased to $30 million in that legislation.
This so-called small lender provision, which has bipartisan sponsors on the House Ways and Means Committee, would raise to $30 million from $10 million the deductibility of bank qualified debt and bank-eligible loans to nonprofits as a business cost. The bill also would set the $30 million on a borrower-by-borrower basis, rather than aggregating all bank-qualified bonds issued by a conduit issuer.
“Even on the Senate side, there’s highway reauthorization and some energy legislation that’s quite noncontroversial that we might see developing and that might become a vehicle for muni bond provisions,” Samuel said.
He did not question the political calculation to exclude muni bond provisions from the HEROES Act.
“It is totally correct for the Speaker to first worry about survival and then worry about the future,” Samuels said. “It’s quite a rational decision on her part.”
