Lew Hopes Lawmakers Will Enact Bonds for Infrastructure

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WASHINGTON — Treasury Secretary Jack Lew said he hopes Congress and the Obama administration can work together in a bipartisan way to authorize qualified public infrastructure bonds or another type of bond program.

"The idea is to create opportunities for private capital to be invested in infrastructure," Lew said at a Senate Finance Committee Thursday on President Obama's fiscal 2016 budget. The budget proposes creating tax-exempt QPIBs as well as direct-pay America Fast Forward bonds, the latter of which would not be subject to federal subsidy cuts mandated by sequestration.

Lew said that even if Congress passes a six-year surface transportation bill, there will still be a large amount of unmet infrastructure needs in the United States. Congress needs to pass a long-term bill, authorize new bonds and pursue public-private partnerships as another financing option, he said.

Senate Finance Committee ranking minority member Sen. Ron Wyden, D-Ore., said that while the type of bond used for infrastructure can be debated, bonds would be helpful because they have worked and garnered bipartisan support in the past.

"The path that we know works, because we've done it, is the bond question, a question of getting some of this vast sum of money off the sidelines and into infrastructure," Wyden said.

QPIBs would be a type of private-activity bond that could be used to finance infrastructure projects, including water and sewer projects. But unlike most types of traditional PABs, they would not be subject to state volume caps. Also, the interest on QPIBs would not be subject to the alternative minimum tax.

Sen. Bob Menendez, D-N.J. said he is planning to reintroduce legislation in the Senate to exempt water and sewer PABs from annual state volume caps. A similar bill  was recently offered in the House by Rep. John Duncan, R-Tenn.

Menendez said the caps make it "extremely difficult" for local governments to take advantage of water and sewer PABs, because water projects are often complex and multiyear endeavors.

Lew said that "raising the caps would provide more room for local authorities" and would look forward to working with Menendez to get something enacted that would help allow local projects to proceed more easily.

Lew also advocated for Obama's proposal to use a one-time 14% transition tax on earnings of foreign subsidiaries of U.S.-based corporations to help pay for a six-year surface transportation bill. The charge would apply to untaxed foreign earnings regardless of whether they were repatriated.

Lew repeated remarks he made at a House Ways and Means Committee on Tuesday, saying the administration does not favor using a voluntary repatriation holiday to pay for infrastructure. Lew said a repatriation holiday is a "bad incentive" because it leads to companies building up earnings overseas in anticipation of the next holiday. Also, the 2004 repatriation holiday didn't result in the level of investment that was desired, he said.

Sen. Chuck Schumer, D-N.Y., asked Lew if the administration's proposed 14% tax could be done by itself or as part of international tax reform, even if Congress can reach an agreement on a broader package.

Lew said the best idea is doing broad business tax reform, because problems will persist if the nation doesn't address inversions and the high corporate tax rate.

Schumer and Sen. Tom Carper, D-Del., both said that they are interested in the administration's transportation funding proposal but think it could be hard to achieve. But Lew said he is hopeful that the proposal, or a form of it, will be enacted.

States are beginning to shut down construction projects because of a lack of certainty and predictability, Carper said. If Congress can't pass the president's proposal before the current bill expires, it will still have to do something to provide transportation funding. Other ideas Carper said he's heard for transportation funding include increasing the gas tax, using revenues from opening areas for oil and gas exploration and finding ways to do transportation projects less expensively.

The tax reform plan that former House Ways and Means Committee Chairman Dave Camp released last year also proposed using one-time revenue from taxes on accumulated foreign earnings. Camp proposed an 8.75% tax on earnings and profit consisting of cash and cash equivalents, and a 3.5% tax for other earnings and profits.

Lew said that the administration likes the rate it proposed, but that there are a lot of similarities between Obama's and Camp's proposals. He later said that is hopeful Obama's proposal can lead to a conversation.

But Sen. Tim Scott, R-S.C., said the administration's proposal could lead to conversation but probably not to progress. He criticized the 14% rate, calling it a "nonstarter on our side of the aisle."

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