JCT's Cost Estimates for Obama's Bond Proposals Differ from Treasury's

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WASHINGTON — The Joint Committee on Taxation this week released its estimates of the budget impacts from President Obama's fiscal 2015 revenue proposals, including those related to municipal bonds, and they differ the ones published by the Treasury Department in March.

JCT estimates that the revenue proposals in the budget would raise a net $887.5 billion from fiscal years 2014 through 2024, compared to the more than $1 trillion estimated by the Treasury.

Two upper-income tax provisions that have implications for the muni market would raise billions of dollars over that period. But the bond-specific revenue proposals in the president's budget, many of which would ease private-activity bond rules, would cost the federal government.

The JCT estimates sometimes significantly differ from the revenue estimates in the Treasury Department's general explanations of the budget proposals.

JCT and Treasury numbers often differ because the entities frequently use different economic assumptions, said Bill Daly, director of governmental affairs for the National Association of Bond Lawyers.

Capping the value of tax exemption for municipal bonds and other tax expenditures at 28% would raise $497.64 billion from fiscal 2014 through 2024 according to JCT, less than the $598.07 billion estimated by the Treasury. Imposing the so-called Buffett Rule — requiring high-income households to pay at least 30% of their income, after charitable giving, in taxes — would raise $69.62 billion over the 11-year period under JCT's estimates, more than the Treasury's estimated $53.03 billion.

JCT found that providing America Fast Forward bonds and expanding their eligible use would cost $4.42 billion in the time period, far more than the Treasury's estimated $247 million. The JCT figure takes into account the outlays the federal government would have from making subsidy payments to state and local issuers.

The AFF program would build on the now-expired one for Build America Bonds. They would be direct-pay bonds with a 28% subsidy rate that could be used for the same kinds of projects financed by BABs but also for projects that could be financed with qualified PABs. The AFF proposal would shield the subsidy payments from having to be cut because of sequestration.

The Treasury estimated that authorizing the issuance of AFF bonds and expanding their uses would only cost $1 million over the 11 years. However, it had a separate line item for allowing AFF bonds to be used to finance all PAB-type projects and added that proposal would cost $246 million.

Daly said that part of the reason for the differences in the estimates for AFF bonds is that the Treasury believes that a 28% subsidy rate is revenue neutral, but JCT said a few years ago that the revenue-neutral rate was slightly lower.

The JCT estimated the proposal to allow current refundings of state and local governmental bonds would have a negligible revenue effect, while the Treasury found it would cost $48 million over the 11 year period.

JCT estimates that repealing the $150 million non-hospital bond limitation on qualified 501(c)(3) bonds would cost $98 million over the 11 year period, while Treasury said it would cost $82 million.

Increasing the national limitation amount for qualified highway or surface freight transfer facility bonds would cost $262 million according to JCT and $669 million according to Treasury. Eliminating the volume cap for private activity bonds for water infrastructure would cost $166 million, JCT found, less than the $201 million estimated by the Treasury.

Raising the limit on land acquisition restrictions for PABs to 35% from 25% would cost $274 million, according to JCT, more than the $141 million estimated by the Treasury. Allowing more flexible research arrangements for purposes of PAB private business use limits would cost $92 million over 11 years, JCT said, more than the $13 million estimated by the Treasury. Repealing the government ownership requirement for certain types of exempt-facility bonds would cost $3.55 billion, according to JCT, compared to the $3.26 billion estimated by the Treasury.

The JCT said easing the rules for tax-exempt bonds for Indian tribal governments would cost $266 million, far more than the $112 million estimated by the Treasury.

The numbers change from year to year, and while the estimates are important, the market participants shouldn't fixate on them, Daly said. Instead they should be focusing on what the policies are and how they affect infrastructure. Some of them would be beneficial and some of them would be harmful, he said.

The market needs to "explain the real world effects of making the changes," he said.

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