Last year’s president of the National Association of State Treasurers urged the group on Tuesday to rethink its support of private activity bonds, but members reaffirmed their commitment to defending existing tax law on municipal bonds.
Speaking at NAST’s annual Legislative Conference here, Nevada Treasurer Kate Marshall said public officials should consider sacrificing private activity bonds if it would help to protect the majority of tax-exempt bonds.
Marshall mentioned her own state’s experience issuing industrial development bonds on behalf of private companies, and questioned whether this practice is a legitimate use of tax breaks. The bonds are intended to provide a public benefit, but the link between the private recipient of the bond proceeds and the public good is not always clear, Marshall said.
“Those connections are often tenuous,” she told fellow treasurers, 32 of whom registered for the conference. “We give away federal dollars routinely. I don’t know if the feds realize how much of their money we give away.”
Nancy Kopp, treasurer of Maryland who has been working closely with Virginia treasurer and current NAST President Manju Ganeriwala, acknowledged Marshall’s views but said the group does not support any changes to the tax laws on muni bonds.
“NAST’s position, in its resolution, is to maintain the tax exemption of tax-exempt bonds,” Kopp told Marshall. “That is our position.”
“That’s public infrastructure,” Marshall responded.
“We have not parsed it out beyond that,” Kopp replied.
“I think that we probably should think about it,” Marshall said.
Kopp maintained that the group should continue to let policymakers know that building infrastructure and creating jobs will be harder if Congress changes the tax code with respect to muni bonds, and urged treasurers to sign a NAST letter in support of the tax exemption.
“There will be fewer schools and roads built,” Kopp said. “It’s just that simple.”
Ganeriwala said her priorities are to get treasurers more involved with lobbying members of Congress and to increase NAST’s public profile. She said the group has never had to be so engaged before because the need for treasurers to make their voices heard has never been so great.
“We’ve been hit from all sides,” she told her fellow treasurers.
Treasurers voiced a number of other concerns during the session, including trepidation over the Municipal Securities Rulemaking Board’s delving into pension fund issues. Several treasurers said they were put off on hearing that the MSRB planned to hold meetings about pensions without reaching out for treasurers to be involved.
But MSRB executive director Lynnette Kelly told the group not to worry because the MSRB does not have the authority or the desire to insert itself into pension regulation. Instead, she said, the board is only trying to obtain information that might better help it to protect municipalities.
“We’re just trying to get smarter about this,” Kelly said. “It is certainly not a legislative mandate.”
Kelly updated the group about other MSRB activities, including what the board is doing in anticipation of the Securities and Exchange Commission’s release of a final definition of municipal adviser. John Cross, the head of the SEC’s Office of Municipal Securities, originally said that the MA rule would come out during the first quarter of this year but said more recently that it would likely be several more months before the SEC finalizes it.
“As soon as that does come out, the MSRB will be poised,” Kelly said. The group will likely issue rules articulating the nature of a federal fiduciary duty and will also develop a licensing examination for MAs. Kelly said the MSRB is charged with making sure that MAs are competent and fulfilling their obligations to their clients, and the rules will reflect that intent,
“It would be nice to finally get this done,” she said.
Kelly also urged issuers to “go above and beyond” required disclosures to their investors, and to post items like rating agency reports and investor presentations on the MSRB’s EMMA website.
Williams & Jensen lobbyist Susan Hirschmann told the treasurers that Congress will probably approve a continuing resolution to fund the government beyond March 27, and that a larger “grand bargain” that would likely contain muni-specific policy remains unlikely until at least July.
“Congress hasn’t been very capable of getting very much done at all,” she said. “In some ways, that’s good. Odds are not good on any big thing getting done right now.”
She also added that three weeks after the onset of the much-ballyhooed sequestration cuts, most people on the hill are not feeling any pressure to act to reverse the cuts. She said sequestration, the continuing resolution, and tax reform are all issues driving discussion at the Capitol, but that the next big federal “cliff” — when the federal government nears its congressionally-mandated debt limit — probably will not arrive until mid-summer.
Christopher Hatcher, also with Williams & Jensen, said the Congressional Progressive Caucus will submit a budget that will include the elimination of tax exemption, but it is “highly unlikely” to be adopted. Hatcher also stressed to NAST members that individual contact with lawmakers is much more likely to affect policy than signing on to letters to them from several groups.
“It just draws their attention quite a bit more,” he said.
John Perdue, treasurer of West Virginia, said he understands that the muni exemption is NAST’s top priority, but asked if treasurers should also bring up other matters, such as the regulation of 529 college savings plans with members of Congress. Perdue said guidance on what issues are most necessary to press on would be helpful.
“We understand as treasurers not all these eggs are going to hatch,” he said.
Kopp said NAST has put together some state-specific materials to help, but that members should also bring up any matters that concern them with their congressmen.
“We can walk and chew gum,” she said.
Municipal Market Advisors’ chief executive officer Tom Doe said treasurers are being fiscally prudent by not issuing large quantities of new debt, and the idea that debt spending is a good way to stimulate the economy is “preposterous.”
The threat to the muni exemption is the most serious since 1968, he said, in part because of the experience of the Build America Bonds program and its “egregious” 35% subsidy, he said.
“You got tempted by a trojan horse,” Doe told the treasurers.
The NAST Legislative Conference continues Wednesday, when the focus will shift to regulation with sessions on implementation of the Dodd-Frank Financial Reform Act and SEC oversight of the municipal market.