WASHINGTON — The two-year, $109 billion highway bill that cleared the Senate Wednesday contained several provisions that would benefit or ease restrictions on municipal bonds, but market participants think they could come to nothing if the House insists on pursuing its own bill.
The bill sponsored by Sens. Barbara Boxer, D-Calif., and James Inhofe, R-Okla., passed with a 74-to-22 vote. If enacted, it would temporarily increase the limit for bank-qualified bonds to $30 million from $10 million, exempt private-activity bonds from the alternative minimum tax, eliminate the PAB volume cap for water and sewer bonds, and authorize state infrastructure banks to issue tax-credit bonds for transportation projects, or TRIPS.
The bank-qualified bond provision, which the Joint Committee on Taxation estimated would cost $761 million over 10 years, would allow banks for one year to deduct 80% of the cost of buying and carrying tax-exempt bonds sold by issuers whose annual issuance is $30 million or less from June 30, 2012, to July 1, 2013.
The bill would exempt PAB investors from the AMT on bonds issued this year, a provision that the panel estimated would cost $215 million over the next decade. The provision lifting the PAB cap for water and sewer projects until Jan. 1, 2018, would cost $305 million over 10 years, the JTC said, but its proponents argue it will allow municipalities to bridge an $84 billion gap in necessary water infrastructure investments,
The TRIP bond provision authorizes the issuance of tax-credit bonds for certain transportation projects, but contains no specific allowances for how much state infrastructure banks could issue. It has no projected revenue estimate.
Muni market participants praised the provisions as the bill moved toward final passage. “Every one of those provisions will help free up local economies to create jobs at very little cost,” said Chuck Samuels, a member at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC.
Michael Decker, managing director and co-head of muni securities at the Securities Industry and Financial Markets Association, is especially pleased by the bank-qualified provision and cheered by the willingness of lawmakers to explore handing greater flexibility to capital markets. Decker said investment banks are already eager participants in the muni market and the Senate transportation bill would help.
“It’s encouraging,” Decker said. “I think this would just feed that appetite.”
An amendment from Sen. Jeff Bingaman, D-N.M., wasn’t as market-friendly. It would bar the use of PAB financing on “brownfield concessions,” tolled public highways leased to private companies for at 75 years. That provision, however, only applies to a handful of projects and the Joint Committee on Taxation said it would have a “negligible” revenue effect.
Samuels and Decker expressed guarded optimism about the outlook for the provisions in the House, which is currently in flux over its highway bill after a five-year, $260 billion proposal sponsored by Transportation Committee chairman John Mica, R-Fla., collapsed over controversial oil drilling and transit funding provisions. The muni provisions in the Senate bill exist as standalone legislation in the House, but none of them were in Mica’s measure.
Rep. Richard Neal, D-Mass., tried to add the increased limit for bank-qualified bonds and the exemption of PABs from the AMT to the bill during consideration in the House Ways and Means Committee, but Republicans shot his amendment down.
The outlook for the muni provisions might be brighter if the House takes up the Senate bill, as House Speaker John Boehner, R-Ohio, has said it might, said Samuels and Susan Gaffney, director of the Government Finance Officers Association’s federal liaison center.
If the House moves its own bill, the hostility of some Republicans could short-circuit the measures, they said. “Unless the House takes up the Senate bill, which would be optimal, it will be an uphill climb to get the BQ provision, and perhaps other bond provisions, into the House transportation bill,” Gaffney said.
