Testimony Wednesday about the underutilized capacity in the municipal bond market to finance infrastructure projects received a strong bipartisan response from members of the House Ways and Means Committee.
Lawmakers said there is bipartisan consensus that they need to address the nation’s infrastructure needs with a variety of revenues and financing measures.
The hearing marked the initial effort to flesh out a $760 billion, five year outline for improving surface transportation, waterways, ports, airports and broadband released earlier the same day by House Democrats.
House Democrats want restoration of Build America Bonds and advance refunding for municipal bonds to be key parts of the plan.
Philip Fischer, founder of eBooleant Consulting and former head of municipal bond research for several major banks, told lawmakers there is a strong investor appetite for additional muni bonds.
“The municipal bond market is now quite small relative to comparable markets, and any federal costs are correspondingly smaller,” Fischer said.
The size of the municipal bond market shrank to $3.8 trillion in 2018 from $4 trillion in 2010, Fischer said, attributing the shrinkage to congressional action that included the termination of advance refunding as part of the 2017 Tax Cuts and Jobs Act.
Over the same period the corporate bond market grew to $9.2 trillion from $6.7 trillion and the Treasury bond market grew to $15.6 trillion from $8.9 trillion.
Committee Chairman Richard Neal, D-Mass., who supports reinstatement of advance refunding and Build America Bonds, asked Fischer if BABs should be expanded to include the operational and maintenance costs of projects.
“Essentially the more latitude you give the issuer, the lower the cost of capital and the greater the use,” Fischer said.
Rep. Terri Sewell, D-Ala., said the underutilized capacity in the municipal bond market that could be tapped by Congress through legislation that enhances existing tax provisions in its toolkit.
“And they are well understood by the market,” said Laura Canter, executive vice president and director of finance programs for MassDevelopment in Massachusetts. “There’s a lot of expertise on how to use them and so as I think they would be tremendously valuable.”
Support for BABs appeared to be bipartisan at Wednesday’s hearing with Republican Rep. Kenny Marchant of Texas observing that BABs “were the most popular financing instrument used by cities and counties” in his congressional district.
“Is that the most effective way to put money into the system?” Marchant asked D.J. Gribbin, former special assistant to President Trump for infrastructure policy.
Marchant wanted to know if the direct-pay subsidy for taxable BABs compares to raising the volume cap on the issuance of tax-exempt private activity bonds.
“That’s a good question,” Gribbin said, adding that he didn’t know the answer off the top of his head.
Republicans largely have not warmly received BAB proposals since the program ended almost a decade ago, because of both its association with the Obama stimulus package that created them and the belief that the direct payments were a massive government subsidy.
Another Republican, Rep. Jackie Walorski of Indiana, commended the hearing for its give-and-take, saying there appeared to be unanimous effort to find solutions. She expressed hope that her colleagues could reach a bipartisan agreement on how to pay for and finance infrastructure if they continue their discussions.
“This is going to be financing, user fees and streamlining of permitting with regulatory relief,” said Rep. Tom Reed, R-N.Y. “And so on the financing piece, I would think bank qualified bonds, private activity bonds, things like that are very strongly in the bucket to be considered.”
Following the hearing, Neal said, “You can see that there was consensus about the nature of the problem. “Now we’ll have to figure out what the consensus is as it relates to paying for it.”
Neal said he was assured recently by Treasury Secretary Steve Mnuchin the administration’s next priority after the signing the U.S.-Mexico-Canada trade agreement would be infrastructure.
Gribbin, who rolled out a Trump administration infrastructure plan in February 2018 that was dead on arrival, also said he was encouraged by Wednesday’s hearing.
“I think it’s just fantastic that the chairman of the committee is talking about the hardest issue that there is when it comes to infrastructure,” said Gribbin. “And it is, how do you pay for it? It’s quite easy to talk about here’s a wish list of infrastructure that we want to make our country more economically secure. This is the committee that has to do the real hard work. This is a quite helpful start to that process. I think you heard a number of members talk about how this is quite bipartisan and we look forward to working together.”
Public finance industry groups also expressed optimism.
The Government Finance Officer Association's Emily Brock said her group was happy to see the priority given the municipal bonds.
“GFOA and the Public Finance Network have been working together very hard with leadership to ensure provisions that are essential to building and maintaining infrastructure are included,” Brock said.
Jessica Giroux of the National Association of Bond Lawyers said, “NABL is looking forward to continuing our dialogue with Congress about the key role that municipal bonds can play in rebuilding this country’s infrastructure and methods of optimizing such role in any infrastructure package.”
