Congress is not a safe place for munis right now
MIAMI – While President Trump’s infrastructure plan calls for expanding private activity bonds, municipal securities are unlikely to fare well in Congress in any bond-related legislation, market participants said here on Thursday.
“We’re back to trillion-dollar deficits,” Ralph Garboushian, a principal at CapitalEdge, said during a panel discussion at The National Municipal Bond Summit. “Everything Congress does, it’s going to be looking for offsets.”
The new tax law is expected to raise the federal deficit by $1.5 trillion. The two-year budget deal recently agreed to by lawmakers will add another $136 billion or so. Congress will be hard-pressed to do anything else without looking for offsetting revenue raisers and munis are always on that menu.
Not to mention statements by House Ways and Means Committee chairman Kevin Brady, R-Texas, that he has no intention of expanding PABs. The House proposed terminating PABs in the tax bill it proposed in November.
But Congress isn’t likely to do much more legislatively this year before mid-term elections, panelists agreed. The $1.3 billion omnibus spending bill for fiscal 2018 may be lawmakers’ last major piece of legislation for the year.
It is “the last train out of town,” Garboushian said.
There is no chance of Congress tackling infrastructure legislation this year, the panelists said. There’s no agreement on how to pay for it. Congress is politically polarized. The only way the tax bill made it through Congress was because of the reconciliation process that allowed a majority vote instead of 60 votes in the Senate and that isn’t an option here.
In addition, “there isn’t enough time of the calendar,” said Kenneth Baker, policy associate at the National Development Council. Election years are always short legislative years.
Panelists held out hope that advance refundings might be restored down the road, especially if the House flips to a majority of Democrats after the mid-term elections.
Reps. Randy Hultgren, R-Ill., and C. A. Dutch Ruppersberger, D-Md., have sponsored a bill (H.R. 5003) to reinstate advance refundings, but it only has a handful of co-sponsors and would need 50 or 60 to be meaningful, said Brett Bolton, vice president of federal legislative & regulatory policy for Bond Dealers of America.
Garboushian and Baker said the muni market is in unchartered territory with a 21% corporate tax rate and that it remains to be seen what impact that will have on the market.