Key muni issues stalled in Congress

The stalemate that has stymied Congress via the House's inability to pick a new Speaker has turned months of slow progress on several muni-related legislation to a full stop, though two key agency reauthorizations and a backlog of appropriations could force things to start moving forward soon.

"A lot of these priority items are bottlenecking," said Brian Egan, director of government affairs at the National Association of Bond Lawyers. "I would expect a decent amount of activity as we lead into the end of the calendar year."  

The comments came during a panel discussion at NABL's Workshop event on Thursday as the group tried to predict how the House will resolve its constitutional conundrum. 

NABL

"The way in which the House selects a speaker is in the midst of changing right now," said Egan. "It's traditionally been a very internal within the family affair, and we've all seen it becoming an increasingly external affair, involving constituent politics."  

Must-pass appropriations are raising the stakes and could become vehicles for tax-based riders. The Farm Bill is now being eyed as way to advance the Modernizing Agricultural and Manufacturing Bonds Act, which would update Internal Revenue Service rules governing debt financing for small to mid-sized manufacturers and farmers. 

"The Farm Bill is not a package that typically has a lot of tax provisions," said Egan. "But you can see that there's some nexus there with the first-time farmers."  

The proposed changes to MAMBA, which are backed by the Council of Development Finance Agencies would increase the limitation on small issue bond proceeds for first-time farmers and triple the cap on industrial development bonds to $30 million from $10 million.

It would also allow up to a quarter of bond proceeds to be used for facilities that are located on or near the same site, align aggie bond definitions with the U.S. Department of Agriculture Farm Service Agency, and expand the definition of "manufacturing" to include intellectual property and software. 

Reauthorizing the Federal Aviation Administration is also on the Congressional to-do list. Although air travel has rebounded from pandemic levels and infrastructure money is flowing to airport modernization projects the industry remains heavily leveraged. 

"There's a lot of airport infrastructure programs, jet fuel tax, and airport improvement program grants," said Egan. "All those programs expire on Dec. 31, so Congress is under pressure to extend that as well." 

The Defense Bill is another must-do before the end of the year. Last year reauthorizing the Department of Defense served as the vehicle for passing the contentious Financial Data Transparency Act and the same legislation could play a similar role this year for other last-minute additions.  

"Even among partisan gridlock, it's really a must pass vehicle," said Egan. "I do think that we will see increased pressures to try to attach things." 

 FDTA, which is being implemented by the Securities and Exchange Commission aims to craft regulations for requiring machine readable document formats on EMMA. Muni leaders have been opposed to the change since it was proposed citing concerns about additional expense added to the disclosure process. 

Low-income housing developers and public finance officers are also keeping an eye on rejiggering the rules that govern Low Income Housing Tax Credits. Currently, certain LIHTC projects are eligible for a 4% tax credit from the Internal Revenue Service if the capital stack being used to finance the project includes at least 50% of the funding coming from tax-exempt private activity bonds. 

Various pieces of legislation and lobbying groups are calling for changes to the rules including reducing the percentage to 25%. The amount of PAB issuance is capped by the federal government which creates a perennial pain point for the affordable housing industry. In 2021, a 12.5% temporary funding expansion to the LHTC program was cut which has also raised cries for reforms.

"At this moment it's something we're tracking. It's not something that NABL that has taken an official position on," said Eagan. "Anecdotally, there are members in states that are hitting the volume cap who may want to see volume used for non-affordable housing deals."

The homebuilding industry also has skin in the LIHTC game. "That one I think has the most potential for getting through," said Alison J. Benge, a partner at Pacifica Law Group."I feel like the tax credit lobby is a lot stronger than the bond lobby. If the developers are pushing for the proposal, it might get somewhere."

The ongoing battle to revive advance refunding, which is backed by the Bond Dealers of America and the Government Finance Officers Association, has cooled but remains on the public finance long-range radar screen. "Just because the planets haven't aligned to get this across, we have no idea what we'll be walking into in January 2025," said Egan. "You don't want to be starting on the ground floor in the next Congress explaining to people what an advanced refunding bond is." 

Advance refunding was killed off by the Tax Cuts and Jobs Act in 2017, to compensate for the loss of tax revenue caused by rate cuts. Tax-exempt advance refunding represented about 20% of bond activity in 2017.