Transcription:
Mike Scarchilli (00:04):
Hi everyone, and welcome to The Bond Buyer Podcast, your essential resource for insights into the world of public finance and infrastructure investment. I'm Mike Scarchilli, editor in chief of The Bond Buyer, and today's episode features a powerful and timely discussion on one of the most pressing issues currently facing in the municipal bond market, the potential elimination or limitation of the federal tax exemption. Lynne Funk, our senior director of strategy and content for live media, is joined by two of New York's top public finance officials. Adam Barsky, Chief Financial Officer of the New York Power Authority, and Pamela Frederick, Chief Financial Officer of the Battery Park City Authority. Together they explore what's at stake if the tax exemption is eliminated or curtailed, how it would increase infrastructure costs, limit access to capital for small issuers, and shift financial burdens onto local taxpayers from post-disaster recovery to affordable housing and public-private partnerships. They bring clarity to the conversation and underscore why this issue demands urgent attention from policymakers and market participants alike. Let's dive right in.
Lynne Funk (01:16):
Welcome to you both. It's really great to have you here.
Lynne Funk (01:20):
Excellent. So Pam and Adam are joining us today to discuss the importance of the municipal bond market, particularly the tax exemption itself. We will discuss how this more than century-old market finances critical infrastructure across the country — from bridges, roads, ports, airports, schools, power grids in the largest cities to the smallest townships. And as we like to note here, in red states and blue states. The tax-exempt market I think is really the definition of fiscal federalism, leading to the states and its cities and towns and agencies to build the infrastructure is taxpayers want and need. So to set the stage here, we know that there are threats to the tax exemption, perhaps maybe more tangible, more palpable than ever before. And this is coming at a time where I'm sure we all have seen last week the American Society of Civil Engineers just gave the country a C for a grade for its infrastructure and there is at least a $7 trillion shortfall in infrastructure development across the U.S. So I think what's set the stage for the audience. Adam, maybe you could kick us off on the threats, the threats to tax exemption they're facing the market.
Adam Barsky (02:38):
Yeah, I think this threat has been out there at different times in the past, but what I would say is that this time it's more real than it's ever been. And my major concern is really twofold. One is that because in the past it's come up and it's never been eliminated and there have been fights over this that people are sort of shrugging it off and say it's just going to be like it was before that. This time no different. And I do think this time is different because of what's at stake right now in Washington, and this is very much on the table. So that's number one that I do believe it's real. I don't think people, whether it be in government, in the market are treating it as real as it is. And the other is that with everything that's going on in the Trump strategy of flood the zone, it's hard to mobilize all the people you need to around an important issue like this when there are so many other issues that are competing for the attention and opposition that needs to be mobilized. So right there, we put those two things together and I think we have the makings for a real issue that we need to keep an eye on and raise the level of awareness and really get people talking about it seriously.
Lynne Funk (03:51):
Okay. Pam, would you maybe talk about some of the potential implications, the dollars and cents of losing the tax exemption?
Pamela Frederick (04:01):
I think it's vitally important to state and local governments in terms of minimizing the cost of what you've already stated is a huge dearth of infrastructure needs throughout the country. It's a bipartisan issue when you look at what at least ways of means has cited as the potential savings for the budget over 10 year period. It's somewhere in the order of $375 billion, but in terms of cost to issuers, and that means cost to state local governments, which then rolls down to actual tax paying citizens that cost on a per issuance basis could be and has been estimated to be anywhere from 150 basis points to 250 basis points. So let's call it 200, which is a massive amount of incremental costs for what's already, municipalities are trying to minimize taxes as the federal government is doing. And so it's really a shifting of a tax from the federal level to the state and local level. And unfortunately it also results in a shift from local decision making to the state levels if this were to occur. So as you noted, it would be very important. I think most cities would like to maintain that level of control over what their needs are and how they get it financed.
Adam Barsky (05:33):
Yeah, just to emphasize on what Pam is saying, so from the state, city county perspective, it's going to hit in two ways. One, it's going to, as you increase the interest costs, as Pam saying it could be as much as 200 basis points if not more. And there are other nuances that exist in the tax exempt market for particularly infrastructure that don't necessarily translate well into a taxable market. We could talk a little bit more about those technical fine points a little bit later on if you like, but really what it does is it a shrinks capacity for capital. So it just means that the higher interest costs, there's less that you can actually do. So less will infrastructure will be built or maintained or addressed. The other part is as debt service becomes a bigger part of the annual operating budget that starts to either compete with or cause cuts in other vital services that has another downward pressure on communities, societies that are being served by this or the other option is you raise taxes. So either way it has a capital component, then it has an operating expense component, both of which could be very detrimental to all these municipalities.
Lynne Funk (06:51):
Right. And we haven't even talked about thinking about just the cost of, in general, the cost of building the construction costs that have grown in significance over the past few years
Pamela Frederick (07:03):
And really since Covid where we saw significant higher inflation starting and constraints supply chains, that has not gone away. In fact, it's just continued since that period. Unfortunately, we'd like to see it lower, but some of the current legislation could potentially prolong that if not increase it. And so during covid we saw costs increase of 20% to 30%, and as that's continued, inflation was in the seven 8% level getting there and now it's come down to it's more in the four level. The Fed would like to see it back down to three, maybe 2%. I don't see that happening in the foreseeable future. So adding inflationary costs as well as a potential hit on tax costs. And we didn't talk about the credit component of that and we can get into that layer, but those are multiple layers of incremental costs either causing municipalities and local governments to delay projects or they will be forgone altogether because you may not hit the hurdle great. Necessary to pursue the project.
Lynne Funk (08:15):
Right. I mean, I think one of the things too is when you think about a taxable municipal market, what 50,000 some issuers across the country, various sizes, presumably a very large portion of those smaller issuers, which makes up a good portion of the issuing community across the country, might not actually really be able to afford to price into a taxable market, nor would there be as much investor interest in buying those securities at a taxable level. Would you agree?
Pamela Frederick (08:50):
I mean, I could say the smaller issuers are going to have a number of areas of concern just from a tax driven investor, tax paying investor, they're going to have higher hurdle rates. More than likely they will also gravitate towards larger, the larger issuers, the higher credit quality issuers. There may be a rerating of how one assesses credit risk in a municipal market. I think the municipal investors have a lot of understanding and information about how the municipal market is structured. You shift to taxable where you're moving away from maybe seven to 8% of municipal issuances have been taxed on a taxable basis. Now you have to do a hundred percent. So you're making up 93% of a 500 billion annual number. That's a large amount of supply to then shift over to a taxable base that was only maybe looking at, let's call it 50 billion. So it's very huge. Now, you'll also potentially be broadening the number of issuers, and so maybe now we'll start to attract some from the European market, but that takes time. And we only have a very small number of taxable investors in the muni space right now. And so I think it's going to take more time than people anticipate.
Adam Barsky (10:18):
Yeah, I agree. And I think that to Pam's point, the investor base is very different. Their understanding of municipal credits are very different. Start discussing with people subject to appropriation risk for the first time and see how easy it's going to be for them to get their arms around that. We had the days of more obligation bonds. I mean, this is not something that's common in the taxable market. They're also, it's a shorter market. They won't go as long with the same features that you would get in tax exempt market. The tax exempt market has a commonly a 10 year call at par. Taxable market really doesn't have that. They're make hold calls and things of that nature, but it's going to be very difficult for smaller issuers to get any kind of long-term financing. So it'll be looking more like shorter term bank financing that's going to carry with it a lot of repricing risk that a lot of issuers today don't have to face.
(11:17):
And to Pam's point, yes, there'll be a broadening of the investor base going to Europe. There is an appetite there, but again, there has to be a lot of education and getting them up to speed on the credits, you probably will have to force people to pull their credits because it wouldn't be efficient for people to do what they do today on a one-off basis as a single. So there's going to be a wholesale upheaval of the market if this were to happen, and a lot of dislocation and a lot of bad pricing as a result.
Lynne Funk (11:46):
I was going to mention the structure of the muni deals, the call option, all of the idiosyncrasies of this market would be much more challenging to do in a taxable space. So do you want to talk a little bit about actually the credit implications? I think you started getting to that in certain ways. What does it mean for municipal credit? I guess I'll even say one step further. There's balanced budget requirements across the country from the state level. They don't have the luxury of printing money. What does it mean for credits generally?
Adam Barsky (12:18):
So again, it's going to be a credit issue in a number of ways. As I mentioned before, just the fact that debt service will be taking up a greater percentage of budgets. That right there will cause a credit concern and a credit issue. The refinancing risk, that rollover risk, all those things will factor in. But on top of that, and this is why I got to that point about flood the zone and other issues that are going out there, if this were just the only issue that were happening, yes, you'd have the Governor's Association, League of Cities, counties, you would have a full court press from all elected officials on killing this idea. But we're looking at other implications. We're talking about probably the largest shift from federal spending, forcing it down to the states that we've probably seen since 1986 and the 86 Tax Reform Act and all of those things. So this is probably the biggest shift we will be seeing. And you start talking about issues like Medicaid, once the Medicaid starts getting cut at the way it's being proposed, it's going to put lots of pressure on any municipal budgets. So you combine that with the fact that you're going to have higher borrowing costs right there. You have all the makings of a perfect storm for negative credit outlooks and downgrades as a result. So it could be disastrous for the municipal credit market.
Pamela Frederick (13:47):
I have to say, and I'm here speaking as an issuer and not representing any other organization, but I know that there are a number of municipal securities organizations who have been taking a full court press to try to educate lawmakers to help them to understand the implications of what we're speaking about today and the concerns that we have about dislocation and disruption of a very stable market. And I was in Washington this week meeting with the legislatures and trying to not only impress upon them the impact on their specific districts, but the impact more broadly on infrastructure improvements throughout the us. The top four issuer municipal securities issuers in the U.S., two are red and two are blue. You have California, you have Texas, you have Florida, and you have New York. And so when we say it's a bipartisan issue, that is very true throughout the states.
(14:54):
While the size of issuances per state are very greatly, much of it driven by size of population, every state has some level of municipal issuance outstanding. So it's going to impact everyone. And one of my concerns, particularly for smaller issuers who are going to face challenges getting to market, is timing. Depending on when this happens, this location, we don't have a sense of how long that would take. It certainly will be easier for your high credit large issuers to get to market and attract investors. But for the smaller ones, as Adam noted, we're probably going to have to have infrastructure banks at the state level to aggregate credits. But that takes a while to put that kind of infrastructure in place. And so if you're a small issuer planning to come to market this year, maybe even next year, that's going to be a challenge to try to get that replaced and to get it replaced for a cost effective level or cost effective rate. So that is a huge concern for us.
Adam Barsky (16:00):
And just to show you how real it is or the concern is that, again, trying to heighten the awareness here and get people focused on it the first time, I can remember while these issues have come and gone over the years, current issues that are being done right now are now including a specific disclosure around these threats that you haven't seen in the past because of how real it is that you're disclosing to investors now that you're going to buy these bonds on a tax exempt basis, but there's no guarantee that this is going to hold for the foreseeable future because there is a real threat out there. So it's even risen to the level of forcing that kind of disclosure in current official statements that are being done now, which it should tell people that this is a real issue and something everybody should be concerned about.
Lynne Funk (16:53):
Right. There are some areas too of the market that I know we've all heard that maybe if it's not a full scale, full scale elimination of the tax exemption that some areas are being targeted such as healthcare, higher education, private activity bonds, specifically what does that do? What kind of damage would happen to those sectors?
Adam Barsky (17:19):
So what I'll say is that first, protect the tax exemption for municipal issues as we have it today. And then the concern is even if we're successful with that linear a hundred percent, right, they may be going after some of these different areas like private activity bonds, and what does that mean? Well, for a place like New York, all of New York's private volume cap for activity bonds goes to housing. And at the time when we have a housing crisis already trying to build affordable units, we have a huge gap in New York. This will completely kill those efforts. 80 20, 70 30 projects will not happen. It'd be a huge devastated blow to the housing market On the other side, look at what we're doing in New York. We're talking about rebuilding a JFK airport. We're looking at LaGuardia, all of those type of big infrastructure projects for airports, which thankfully they were able to lobby very well back in the day and get a no cap on those private activity bonds. And if not for that, we would not be able to be overhauling those airports the way we are doing today. So all those kinds of projects would really be at a loss significantly.
Lynne Funk (18:33):
You're really eliminating just more tools in the toolbox. Let's keep it in New York for a couple minutes here because I think it's important to maybe talk about you're both New York based issuers this market. Well, New York has gone through some pretty big disasters in its time, right from nine 11, hurricane Sandy, the role that the municipal market plays and played in those recoveries, you both are quite acutely aware. Can you talk about what happened, what a day?
Adam Barsky (19:08):
Sure. So at 9/11, I was a budget director for New York City, and I knew right away that we were going to be faced with significant issues and even on a cashflow basis. And what I can say is that New York came together and the country came together that night. I had my staff drafting a bill that would allow us, allow New York City to borrow billions of dollars in anticipation of future federal funding because we didn't know how long it was going to take. The night of nine 11, the bill was drafted. We had it introduced on the 12th, the legislature passed it on the 12th, the governor signed into one the 13th, which is probably a record for any bill getting done in New York, right? He saw how people were coming together. And then I issued about three weeks later, recovery bonds. We took out a full page ad in the New York Times and Wall Street Journal, and people came together as buyers of those like by war bonds kind of effort.
(20:18):
And people bought it out of their sense of patriotism and helping New York come back. It was an overwhelming success. We paid a very low rate, and it was significant in helping us meet a very difficult time. We had the budget director from Washington come down, Mitch Daniels. I gave him a tour of the site with the mayor and he said, what are you guys looking for here? You're looking for just money to actually just build, rebuild the buildings. I said, no, there's the money that we, in terms of an appropriation is really for the infrastructure. We need it for the transit hub, we need it for the path station, we need it for Route nine A, those big areas. But for the buildings that were there, if you gave us tax exemption to be able to sell those bonds, to rebuild those commercial towers between insurance proceeds and the commercial market, we should be able to do those.
(21:13):
And we did. And he got it and he said, we'll do this. We'll carve out this special authority to do liberty bonds. It was a liberty bond creation at that time, seven and a half billion dollars of bonds. And it worked so well that others copied. A few years later we had Hurricane Katrina, and that became the opportunity zones of bonds that were done in Louisiana. So this really take off. So the municipal market has come together at times when there have been these disasters and have had these crisis where using tax exempt bonds help really meet an immediate need. You take that tool away, it's going to be very difficult in the future when something similar happens. Not to mention what they're talking about doing with FEMA on top of that. So we're getting on the spending site and you're taking away the one tool. States and localities have to address it on their own,
Lynne Funk (22:07):
Right? This isn't just throwing a bucket of money at you. This is usually you securitize it, you bond it out. It's an investment that is multiplies, right, as a multiplying effect. Pam, what are your thoughts here?
Pamela Frederick (22:20):
Well, as Adam was describing, lower Manhattan we're right across not a, and in fact, we partnered with the city at that time, but in addition to some of the infrastructure that was built because we connect to the major transit hubs and there was a big infrastructure project that we supported there, but for our buildings, we were nearing the end of the development of the land space down in Battery Park City. And several of the buildings were able to benefit from able to continue their project because as you could imagine, when you have a cataclysmic event like that, capital dries up because of the uncertainty, because of the risk, because of the volatility and having the ability for vehicles, financing vehicles such as that to be put in place so that you can continue to build and grow. A couple of our buildings probably still have some of the bonds outstanding that associated with that, but we were able to continue projects that were already up and running and by up and running, I mean being structured from a development perspective, but having that financing and pace was really, really pivotal.
Lynne Funk (23:34):
So I guess I'm curious then your thoughts on, you mentioned FEMA, and I'm curious, is there an alternative? I mean, truly there's taxable. Taxable of course.
Pamela Frederick (23:49):
That's really, you take away the exemption, you're left with taxable. It's more cost, just cost. I think as much of the cost, I think is the market dislocation of the uncertainty for investors, the uncertainty for issuers. And I think that projects will get done at a price and the market will respond. It's left. And what mayhem happens in the meantime and how quickly can we recover from it?
Lynne Funk (24:23):
And if we are looking at something along the lines of in the past there's been questions about a national infrastructure bank or they've been proposed over the years,
Pamela Frederick (24:32):
Many years, many years, and many administrations has not gotten done. So imagine, how long would that take?
Adam Barsky (24:41):
Well, not only that, but I would say given the philosophy of the current administration, that's the last thing you're going to see. I mean, the whole philosophy here is to push to the states away from federal government, make federal governments smaller. It's a little bit of a Reagan-esque approach. I'm not saying all of it is bad. There's some sense of some of the things that you could take a look at and maybe do differently. But if you're going to take that approach to push things from federal to state, it must give the states and localities the tools. You must give them the ability to decide how the money should be spent and how to access markets in the most efficient way. And you can't take away something as critical as tax exempt bonds. I mean, this is really, it should be a right of the states and not a privilege. And unfortunately, they lost that Supreme Court challenged back in, what was it, baker versus South Carolina. But that could have gone the other way and we wouldn't be here talking about it. So it's been the age old debate, but it really is, I believe it is a right for the states to be able to issue their bonds on the taxes on basis.
Lynne Funk (25:54):
What do you think about, when are going back to private activity bonds, this came up as I were talking and I forgot to ask it. Would private capital come in in the same manner? Could private capital come in in any meaningful way without some sort of incentive to co-partner with the governments like this?
Pamela Frederick (26:12):
Yeah, I think public-private partnerships is a model that has been out for quite a while, particularly in the power space. I did that in the nineties and definitely you are bringing capital. We have a hybrid of that going on right now, but private capital needs private returns. And so the thought is that that will offset some of the risk and potentially ensure timely completion maybe. But I think there is private capital there, but it will be at private cost, which is much different than a municipally financed project.
Lynne Funk (26:55):
Would you even say similar if these smaller issuers who might just have to go to direct bank loans, would that cost end up being
Pamela Frederick (27:04):
I think that would be Herculean.
Adam Barsky (27:05):
Yeah, I think
Lynne Funk (27:06):
Do they have it? Has the capital even lend at that capacity?
Adam Barsky (27:09):
Right. And I would say no. What we're seeing, I mean, I would say in general, the changes in the bank rules for their capital requirements, Basel requirements have really limited where they are choosing to lend today. I'm not even talking about municipals, I'm talking about throughout the credit markets. The bank lending market is shrinking and it being crowded out a little bit. Now the emergence of the private credit market has taken up the slack there. And there's also the emergence today, which we didn't have in the past. All these infrastructure funds, many of these private equity funds with KKR, Blackstone Apollo, they put in massive infrastructure funds. So I do believe that is a place that will be a partner, but we're using them today and they're looking to us to help them come up with ways to have a tax-exempt solution. So we're working on some projects today with some of the private equity partners, and we're coming up with conduit vehicles to securitize revenues, but allow them to participate, say in a subordinated debt position or provide some equity to take care of any of the taxable pieces. So that's where the private partnership, the three P partnership really works is bringing to private capital with the municipal need and the municipal tools of tax exemption together to get the optimal solution. You take that away. Again, it's just going to make things cost more, whether it be toll roads, airport fees, energy costs, I mean, all of it will hit everybody.
Lynne Funk (28:46):
I mean the P3 market, often people will say, oh, look too abroad, Australia, Europe. But just the actual geography and the size of the United States, it's big. The needs are vast, the scale is much bigger,
Pamela Frederick (29:03):
I think for the infrastructure needs. And we noted earlier $7 trillion, I think Brookings put out a report, maybe $9 trillion. So I mean, it is a huge number, and I think that it is important to find ways to bring together public as well as private. But to Adam's point, the public benefit would be having a tax exempt element to the capital stack. It's just one of the pieces. And you'll continue to bring in private equity and other in the capital stack. And at the end of the day, it's just a matter of how you keep the cost down such that you can justify projects and lever them inappropriate and lower cost ways.
Lynne Funk (29:55):
So there's a question from the audience actually that just what is this going to, we talked about costs. What is this going to cost the average taxpayer? Do we have any estimates out there? I'm turning on my top, I am driving on the road. I am flushing my toilet, doing all the things. Does the industry have an estimate?
Adam Barsky (30:15):
There is a few estimates. There was a Moody's report out recently. I think they put it at $6,500 per family over some period of time that it would be an additional cost that they don't have today. But the costs then get added up with everything else that they're being faced with today. That's not to mention higher taxes as a result of losing these benefits, higher electricity costs that people are facing if you don't have all these benefits. So it's just another hit to the average consumer that they're going to have to shoulder all of these additional costs that's going to be pushed down on them. And I think so it is significant. And the only other thing I wanted to mention is that all of this in Washington is really going to go around on this scoring how things are scored. And so the big piece is they're trying to baseline was 2017 tax extensions,
Lynne Funk (31:13):
Which costs, right, it be $4.6 trillion.
Adam Barsky (31:15):
So what they're trying to say is, and this is the big fight, they're saying, well, we don't need to pay for that 4.6. It should be baselined. Now if that is agreed to, it will relieve some pressure on all these scorched, the earth type of proposals we see out there. And I think that has to get resolved. If they get resolved that way, it'll take some of the pressure off to do some of these things. But one of the things about the scoring is when they say, well, it's worth 400, 500 billion to pay for tax cuts if you take away tax exemption, that assumes that all of the borrowing is happening in a tax exempt is going to result in a new borrowing that's going to generate interest, that's going to be taxable, make its way to the treasury. And that's not always the case because people have ways of offsetting those interest income costs with interest expense and other deductions, and that it's not a dollar for dollar income to the treasury if you make everything taxable.
(32:15):
So this idea of dynamic scoring I think plays itself into this argument as they try to say when they say, well, tax cuts shouldn't all be scored as to the tax loss. It could result in further economic activity that will generate more overall revenue to be taxed and not cost as much as they say. So if they want to have the dynamic scoring conversation on that side, we should have the dynamic scoring conversation on what does it really mean to lose tax exemption? Is that money going to make its way back into the treasury? And I would say no
Pamela Frederick (32:49):
Doubt, for doubt for sure. We've looked at various districts and the impacts on there, local taxpayers, and it really is arranged depending on what the bond issuance is. I think we also have to be careful of how we look at numbers in terms of savings, et cetera, because they're looked at differently. Some are looking at a full retroactive elimination, which would result in an expected large number, but it would also completely cause an upheaval of the muni securities market. So I think if anything, people don't think that has a feat,
Lynne Funk (33:31):
Right? Meaning if I hold, I'm an investor and I hold outstanding tax-exempt bonds, all of a sudden I'm going to get a tax bill that says, you owe the federal government X amount and my entire portfolio
Adam Barsky (33:41):
And whoever's holding that bond, all of a sudden it's worth a lot less today than it was yesterday. So it'll create massive potential losses if you tried to sell.
Pamela Frederick (33:52):
Yes. We don't see that as having a high probability because of all the things we talked about today, the loss of which is why we think it's really important that all the various associations who are trying to do their best to get at as many of the lawmakers so that they could truly understand at a local level, how would this impact your district and make it very real so they can own it. And the result we've had, bond dealer I know has gone over, gone down. GFOA has made the rounds. MSRB has had certain educational meetings with lawmakers. And so I think there's a number of organizations who are really attempting to do that and just making ourselves available to those who want to know, Hey, how would this impact my taxpayers or taxpayers investors? How would this impact X market that I've invested in? And so hopefully people will reach out to the various organizations to try to get that information. But it's not only an impact on individual taxpayers, a loss potentially for investors and certainly for states and local communities.
Adam Barsky (35:11):
And one of the things also people should remember is that in 2017 when we were first negotiating those tax cuts that happened then that are now expiring, they're trying to extend when they were coming up with the how do we pay for this? Immunities in tax exemption was on the table as well. The lobbying effort did help. It was put off. But one of the things that happened as a result of that was what they call salt, which is the eliminating the deductibility of state and local taxes or having a very slow level cap of 10,000, what have you, which particularly hurts high tax places like California, New York. And that has been a rallying cry of many since then. Give a lot of credit to Congressman Tom Swazi, who's made this a real pitch on his part. And he's really campaigned on that. And to the extent that when they were fighting over those congressional districts on Long Island, and candidate Trump came out at that time, went to Nassau County Coliseum, he said, I'm going to address salt this year. I'm going to pick the salt. So many people think whatever they do for salt, they're going to look to offset it in tax exempt muni market to pay for whatever they do in salt. So that's the other thing that I think we need to keep an eye on and make sure that doesn't happen.
Lynne Funk (36:31):
It really does impact everyday individuals. And is your schools, your bridges, your public power? Is there anything that I didn't ask you too that you want to leave this audience with? Nina? Note that what should everyone be doing?
Pamela Frederick (36:47):
The one thing that I would like to touch on is the fact that many have used as a dog whistle that the tax exemption is benefiting wealthy individuals. And I'm hoping from the conversation today, people could say, no, it is benefiting all individuals and all taxpayers even more. And then when you look at who are the investors, individual investors make up a significant portion. I think it's 44% of actual all the bonds that are outstanding. And it's actually higher than that because the others may flow to ETFs or a lot of the retirement savings are through vehicles like that as well. So I would like to make sure the conversation shifts away from a benefit that is accruing to wealthy investors and shift the focus to what does it do to individual taxpayers
Adam Barsky (37:47):
And cost those municipalities and what it's going to do for infrastructure where we're saying, obviously there's already a gap and now it's going to make that gap larger. I think the message I would leave and times like this, I miss not having Jim Leventhal around anymore. I mean, he would've been the best spokesman for this there ever was, right? So I always think about him and I wish we did have him here to do that. I miss him a lot. But really it's about the lobbying effort. I'm part of the large public power council at NYPA. Tom Palone, former CEO of LIPA is now the head of that entity. And he's been mobilizing that group to lobby Washington not only on tax exemption, but the direct pay for municipalities under the IRA for all the renewable energy credits. Those efforts are very important. Governor's Association, all those are being done in Washington. But what I would say to local municipalities, you really need to go after your local congressmen. You need to go after all those people, and they need to hear from you. If they don't hear from you and you're not screaming loud, they're going to think there's no impact on you for this. So if they don't hear from you, they'll take it to mean you're not concerned. They need to hear your concerns.
Pamela Frederick (39:07):
And one great source of information, the University of Chicago is put together a database that's easily accessible online that can help quantify the numbers on a per state basis and maybe drill down below that as well. And so I think that people could use that as a resources, as a resource to have to really quantify what is the impact on my community.
Lynne Funk (39:31):
Well, listen, thank you both so much for your time. Thank you for coming in. This conversation's definitely going to continue, and I'm very grateful for your expertise and your insights today.
Mike Scarchilli (39:42):
We hope you enjoyed this episode of the Bond Buyer Podcast. A big thank you to Adam Barsky and Pamela Frederick for sharing their deep expertise and to lend for guiding such a compelling and important conversation. Here are three key takeaways from today's episode. One, eliminating the tax exemption would drastically increase infrastructure, financing costs, hitting not only state and local governments, but ultimately taxpayers, especially in small and underserved communities. Two key sectors like housing, education, and transportation would face significant disruption with private activity, bonds and public-private partnerships also under threat. And three, with bipartisan implications and real economic impact. Protecting the tax exemption requires coordinated advocacy and engagement from all corners of the public finance ecosystem. Thanks again for listening to the Bond Buyer Podcast. This episode was produced by the Bond buyer. If you liked what you heard, please hit like and subscribe on your favorite podcast platform. And please rate us, review us and subscribe to our content at www.bondbuyer.com/subscribe.
To view the full video of the discussion you just heard, visit www.bondbuyer.com/leaders.
Until next time, I'm Mike Scarchilli signing off.