How the Public Finance Network will push Congress to restore advance refundings
ST. LOUIS -- A broad range of 33 organizations representing states, cities, airports, hospitals and utilities that are members of the Public Finance Network are sending a letter Monday to members of Congress urging them to co-sponsor legislation to restore advance refundings.
The bill, H.R. 5003, was introduced in the House Feb. 13 by three Republicans and three Democrats led by Reps. Randy Hultgren, R-Ill., and C.A. Dutch Ruppersberger, D-Md., co-chairs of the Municipal Finance Caucus.
Only five other House members – one Republican and four Democrats – have joined as co-sponsors since then.
Termination of advance refundings after Dec. 31 as part of the Tax Cuts and Jobs Act has contributed to a 30% drop in municipal bond activity in the first quarter of this year.
Market volume dropped to $65 billion in the first three months of 2018 compared to $92 billion in the same period of 2017, the letter said.
The Government Finance Officers Association, National Governors Association, National League of Cities, U.S. Conference of Mayors, National Conference of State Legislators and National Association of Counties are among those to have signed the letter.
Other signers include the American Hospital Association, the American Association of Port Authorities, the American Public Power Association, the National Association of Local Housing Finance Agencies and the National Association of College and University Business Officers.
“Reestablishment of tax-exempt advance refunding remains a priority of issuers across the country,” said Emily Brock, director of the Public Liaison Center for GFOA. “It must be included as a central part of any comprehensive approach to an infrastructure plan.”
Officials of GFOA Debt Committee who are attending their annual convention here discussed alternatives to tax-exempt advance refundings on Saturday.
“Since the start of this year, there have been a fair amount of taxable advance refundings and a few forward delivery tax-exempt refundings while the use of more complicated methods such as the issuance of Cinderella bonds has only been talked about,” said Richard Moore, treasurer of the National Association of Bond Lawyers told the committee.
Tim Ewell, chief assistant county administrator for Contra Costa County, Calif. said his county “has been pitched several alternatives,” including Cinderella Bonds.
“When asked, underwriters pitching those transactions hadn't seemed to have structured deals using those alternatives,” Ewell said. “Our county has a very conservative debt portfolio and generally would not consider entering into such alternative structures until they had been proven and accepted by the market."
Several officials raised their hands at Saturday’s debt committee session when asked if the refunding call date on new bonds had been reduced from the traditional 10 years.
But one state debt officer said he was sticking with 10 years because no one can tell him what interest rates will be in eight years.
Brock said some “muni market industry groups are discussing conceptual synthetic alternatives to tax-exempt advanced refunding. We are also aware that the IRS and Treasury also are aware of the conceptual alternatives.”
The possibility of a synthetic advance refunding which would involve sending a check to the Treasury as a sort of “toll charge” is not legally permissible at this point but is under discussion.
The new letter to members of Congress marks an effort to jump start support for the bill, which is unlikely to pass in the current Congress but could have an improved outlook after the next Congress takes office in January.
“The bond market underpins the strength of state and municipal governments to provide necessary infrastructure across the United States,” the letter said.
Reinstatement of advance refundings could be packaged with infrastructure legislation because many state and local governments have used the savings to finance new infrastructure.
“In the last five years, 2013-2017, the advance refunding of municipal securities saved taxpayers at least $12 billion, a benefit to all of our shared constituencies,” the letter says. “It is the practice of state and local governments to measure savings on a present value basis but it is worth noting that the actual savings resulting from these advance refundings is far in excess of $12 billion in present value savings.