WASHINGTON – Congress is not likely to do much other than passing a continuing resolution to avoid a government shutdown before they recess later this week or next until after the elections in mid-November, according to municipal market participants.
That means legislation regarding water infrastructure funding, the treatment of munis under bank liquidity rules, bank-qualified bonds, and the treatment of munis under tax reform will be put on the back burner until the lame duck session later this year or more likely, next year.
The most pressing matter for Congress is passing a continuing resolution (CR) to fund the federal government after the current fiscal year ends on Sept. 30 because Congress has not passed any appropriations bills.
Currently Senate and House leaders are considering a CR that would extend funding at fiscal 2016 levels through Dec. 9. Congress would then need to pass an omnibus appropriations bill to continue federal funding through the remainder of fiscal 2017.
The Senate is expected to vote Tuesday afternoon on a motion to proceed to the continuing resolution, which would be put into a House bill -- the Legislative Branch Appropriations Act, 2017 (H.R. 5325) – because spending bills must originate in the House. That vote had been expected to start at 2:15, but a congressional aide said it will be postponed until later. After that motion is approved, the Senate must invoke cloture to limit debate and prevent a filibuster. Cloture would permit 30 hours of debate after which a vote on the CR would take place.
Several lawmakers, including Senate Majority Leader Mitch McConnell, R-Ky., have urged Congress to push the stopgap spending bill through to avoid a shutdown similar to the 16-day stop in 2013. The bill has been delayed by a dispute over Zika funding, but McConnell last week said the CR would include funding to combat the disease.
Sources said it is possible that Congress could pass the Water Resources Development Act in a lame duck session after they return on Nov. 14.
The Senate last week passed a $9 billion WRDA bill, which includes $220 million in federal funding to Flint, Mich. and any other community experiencing a water crisis. The Senate bill also includes increased funding for WIFIA.
The House bill is smaller and does not include any funding for Flint or WIFIA. Once the full House passes its bill, conferees from both chambers would have to resolve their differences and negotiate a final bill.
Justin Underwood, federal policy advisor for Bond Dealers of America, said the group is continuing to advocate on the Hill for legislation regarding tax exemption, bank qualified bonds, and the treatment of munis as high quality liquid assets (HQLA). He told The Bond Buyer this week that maintaining the muni tax exemption is "something everyone should be talking about" in order to finance local infrastructure projects.
"While we know tax reform is not going to be accomplished in the near term, we hope that the need and desire for tax reform down the line will drive conversation at the local level when Congress is back home in their districts," Underwood said.
Rep. Randy Hultgren, R-Ill., also supports maintaining the muni exemption.
Hultgren recently launched a website for the municipal finance caucus he founded along with Rep. Dutch Ruppersberger, D-Md., in March. The caucus, which works to promote the economic and infrastructure benefits of munis, has now grown to 25 members, according to Hultgren spokesman Jameson Cunningham.
Cunningham said Monday that Hultgren's focus will be maintaining the muni exemption as well as the mortgage interest and charitable deductions within the House blueprint for tax reform introduced by House Ways and Means Committee Chairman Kevin Brady, R-Tex., earlier this summer. The blueprint does not specifically mention the muni exemption but generally focuses on repealing unnamed special-interest provisions, which has worried some muni pros.
Underwood also cited the House's unanimous vote in February on legislation that defines munis as HQLAs in the new bank liquidity rule. The bill, introduced by Rep. Luke Messer, R-Ind., allows banks subject to the new bank liquidity rule to define investments in municipal securities that are readily marketable as HQLAs. Still, he warned of the potential consequences if similar legislation is not proposed in the Senate.
"Unless companion legislation is introduced in the Senate and signed into law in short order, we risk not having a comprehensive rule that would include all investment grade municipal securities as HQLA, further chipping away at the value in investing in, holding and using municipal bonds as a go-to tool for state and local governments," he said.
A push to get HQLA through the Senate was also shared by Emily Brock, director of the Government Finance Officers Association's federal liaison center.
Brock, who was scheduled to speak on HQLA at the American Public Power Association's Business and Financial Conference in San Antonio on Tuesday, said that there is continued dialogue with Senate Banking committee members to hopefully introduce a bill before the end of the year or in 2017.
Although HQLA legislation has not yet been introduced in the Senate, Brock said GFOA will work "just as hard" during the next Congress to make that happen.
"We feel very confident that the Senate recognizes that this is a problem for municipalities and it needs to be corrected," Brock said.
Underwood said BDA is also hoping to see the Municipal Bond Market Support Act of 2016, companion bills introduced in both the House and Senate that would increase the annual volume limit for bank-qualified bonds to $30 million from $10 million, attached to a larger bill.
The bill, introduced by Sen. Robert Menendez, D-N.J., and Reps. Tom Reed, R.N.Y. and Richard Neal, D-Ma., in the House, would allow small governments to place their debt with local banks and have access to lower cost borrowing to support infrastructure.
"Unless this legislation gets folded into a larger piece of legislation moving through Congress this year, the bills will have to be re-introduced in early 2017 and acted upon by the incoming Congress," Underwood said.
