Ongoing Uncertainty About Muni Exemption Creates Concern

MIAMI BEACH — For yet another year, uncertainty surrounding the potential loss or cap of the municipal tax exemption concerned panelists at the National Municipal Bond Summit here.

The good news is that dramatic changes to the tax-exempt status of munis, such as those proposed in House Ways and Means Committee chairman Dave Camp's draft tax reform plan, are "dead on arrival," predicted Sandra Swirski, a partner at the tax and financial services firm Urban Swirski Associates LLC.

With mid-term elections this year, politicians don't want to proceed with difficult choices tax reform measures bring, she said at a session on Thursday.

However, Swirski projected that elements of Camp's blueprint will surface in the plans offered next year by Paul Ryan, R-Wis., who is expected to become chair of the House Ways and Means Committee

"This was not a fly-by-night proposal," Swirski said. "A lot of hard work was put into it."

In addition to potential changes in munis, proposals to ban tax-exempt private activity bonds as well as eliminate advance refundings and bank qualified bonds should be "carefully watched," said Susan Collet, senior vice president for government relations with the Bond Dealers of America.

People need to get involved to help shape the discussion about the importance of municipal bonds on Capitol Hill, said Columbia, S.C., Mayor Steve Benjamin, a public finance attorney at Parker Poe Adams & Bernstein LLP.

"We are very much in the throes of a battle," said Benjamin, who also is chairman of Municipal Bonds for America, a coalition of issuers, state and local government officials, and broker-dealers whose goal is to protect tax-exempt municipal bonds.

Columbia is halfway through a $1 billion water and sewer infrastructure program, he said.

"The tax exemption on municipal bonds that allows us to do that [program] is now under attack in Washington, D.C.," Benjamin said. "I would say the uncertainty the last two years has had a chilling effect on our ability to grow."

Talking about large infrastructure projects when discussing the importance of public financing with people in Washington can be difficult, said Vince Sampson, president of the Education Finance Council, a national trade association representing nonprofit and state agency student loan organizations.

Sampson said his members have seen success in discussing a reason for protecting the municipal bond exemption in Washington by localizing the message about student loans. The loans are financed with bonds, which reduces costs for students.

"It's one thing to talk about infrastructure," he said. "I posit access to higher education as a path to intellectual infrastructure."

Giving Washington lawmakers and staffers specific instances of local needs that can be financed with tax-exempt bonds is critical, said Russ Bey, a longtime retail bond investor from Ocean, N.J., who also appeared at the 2013 Muni Summit to express concern about possibly losing the municipal tax exemption.

Bey, who said he traveled to Capitol Hill several times to address the issue, encouraged people to tell lawmakers about specific funding needs, such as schools or a fire truck, instead of saying municipal bonds are needed to fund infrastructure.

"We have to maintain the tax exemption because we have to maintain our country," he said.

The National Municipal Bond Summit continues Friday at the Fountainbleu on Miami Beach.

Sessions include discussions about the dynamics that hedge funds bring to the muni market and the best execution of e-trading.

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