Sens. Roger Wicker of Mississippi and Michael Bennet of Colorado announced Wednesday they are introducing bipartisan legislation to restore direct-pay bonds for financing infrastructure.
Their proposed
Wicker, a Republican who chairs the Senate Commerce, Science, and Transportation Committee, also is an advocate for the restoration of tax-exempt advance refunding of municipal bonds.
Bennet, a Democrat, was one of the many members of his party who earlier this year unsuccessfully sought the Democratic Party nomination for president.
“Empowering our local leaders to start important infrastructure projects is a proven, cost-effective way to help our communities emerge from severe financial hardship with assets that provide value to the area for years to come,” Wicker said. “The American Infrastructure Bonds Act of 2020 would improve upon previous efforts to expand investment in the state and local bond market by increasing flexibility for communities and adding assurances for the bondholder.”
The Wicker-Bennet American Infrastructure Bonds legislation would allow state and local governments to issue taxable bonds for any public purpose expenditure that is eligible to be financed with tax-exempt bonds.
The new direct-pay bonds would be an improvement from the Build America Bonds that were authorized under the 2009 American Recovery and Reinvestment Act because they would be exempt from the sequestration reductions that have plagued the BABs program.
The American Infrastructure Bonds Act would amend Subchapter B of chapter 65 of the Tax Code to provide a tax credit to issuers. The Department of Treasury would be given the authority to make direct payments to the issuer of the bonds on each interest payment date.
The House last month included restoration of direct-pay bonds in a $1.5 trillion infrastructure package it passed.
The new Qualified Infrastructure Bonds approved by the House would start with a federal 42% subsidy for interest expenses that would phase lower to 38% in 2025, 34% in 2027, and 30% permanently thereafter.
The massive House-passed infrastructure bill is unlikely to be considered in the Senate, but elements such as direct-pay bonds and restoration of tax-exempt advance refunding could be incorporated in a Senate bill.
A spokeswoman for the National League of Cities said earlier this week that advance refunding could become part of coronavirus relief legislation that the Senate will consider last this month. Direct-pay bonds could be paired with it, as two measures that would bolster efforts by state and local governments to avoid cancellation of infrastructure projects or scaling back their capital spending.
The Securities Industry & Financial Markets Association issued a statement commending Wicker and Bennet for their proposed legislation.
SIFMA President and CEO Kenneth Bentsen said the legislation would help state and local governments to attract taxable bond purchasers, such as pension funds and foreign investors, to invest in infrastructure projects.
“Increasing the demand for municipal securities is particularly helpful now, as state and local governments are experiencing much higher costs due to the COVID-19 pandemic,” Bentsen said.
The legislation is also supported by the National League of Cities, the National Association of Counties, the Government Finance Officers Association, the American Public Gas Association, the National Association of Bond Lawyers, the Bond Dealers of America, the American Society of Civil Engineers, the American Council on Education, and the American Planning Association.
