Muni Coalition Creates Technical Advisory Committee

WASHINGTON — Municipal Bonds for America formed a technical advisory committee this week to serve as a market data resource for members of Congress, congressional staff, and policymakers as well as to support the overall advocacy issues of the coalition.

The committee is chaired by George Friedlander, Citi's chief municipal strategist and Tom Kozlik, Janney a Montgomery Scott director and municipal credit analyst, will serve as vice chair. There are currently 13 members on the technical advisory committee but it's expected to grow, said Mike Nicholas, chief executive officer of Bond Dealers of America, who spearheaded the creation of the MBFA.

The committee includes buy side and sell side representatives from the Investment Company Institute, Assured Guaranty, and Raymond James and other organizations and firms.

"People like George and Tom can add a tremendous amount to the effort of the MBFA to explain the benefits of the tax exemption, the efficiency of the tax exemption, and why the tax exemption shouldn't go away," Nicholas said.

Friedlander said that there are several challenges the market faces in preserving tax exemption.

"Almost everybody on the Hill is tied to the efficiency of tax exemption based on the Joint Committee on Taxation model," he said.

The JCT report, "The Federal Revenue Effects of Tax-Exempt and Direct-Pay Tax Credit Bond Provisions," which was published in July, provided a detailed analysis for calculating the cost to the federal government from the tax exemption of municipal bonds.

That model is "massively" flawed, Friedlander said, adding it is a hurdle for him and others to explain why it is wrong. One component of JCT's analysis, which is easy to critique, is its comparison of corporate yields to muni yields, he said.

The muni market has performed "spectacularly more efficient today as a provider of a subsidy than several years ago when the market was struggling," Friedlander said, adding that this is likely to be the new normal.

The size of the muni market has stopped growing but the demand side is extremely strong, so there is no reason to believe that this market will be less efficient, he said.

Part of what the MBFA has to explain to Congress is, "please do not think of this as an inefficient subsidy the way it has been described to you. It is functioning as an extraordinarily efficient subsidy if you don't blow it up," Friedlander said.

Members from the MBFA executive committee have met with congressional staffers and members twice in the past 10 days to discuss the importance of tax exemption and the repercussions any changes would have on state and local governments.

The coalition, which was created in October, plans to continue to keep a strong presence on Capitol Hill as lawmakers negotiate the fiscal cliff and comprehensive tax reform.

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