Mixed outlook for reinstating advance refunding
Municipal bond lobbyists differ on whether Congress will reinstate advance refunding for munis in the next year or two, although they do agree the biggest obstacle is a lack of support from the Republican-controlled Senate.
The positive side is that bipartisan legislation for reinstatement was introduced by 10 House lawmakers last week and it has a high possibility of being included in whatever infrastructure legislation passes that chamber.
Members of the Government Finance Officers Association Debt Committee who were briefed on the legislative outlook for federal tax changes on Saturday also were told there’s congressional interest in expanding private activity bonds and creating a new type of direct-pay bonds.
Perry Israel, a member of the board of the National Association of Bond Lawyers, offered the pessimistic outlook for advance refunding while Emily Brock, director of the federal liaison center at GFOA, was optimistic for passage in 2020 if it doesn’t happen this year.
“From our discussions with the Senate side, there is no appetite from the majority to allow advance refunding again,” Israel told the debt committee, describing the discussions as “kind of like talking to a brick wall.”
However, Israel said he continues to think that pursuing reinstatement of advance refunding is a worthwhile "marker" for the municipal bond industry and advocates should continue providing information to lawmakers on the cost savings to municipal governments.
“It is unlikely in my view that we will see advance refundings come back before 2020,” Israel said.
Brock, on the other hand, said the reauthorization of the Highway Trust Fund will be must-pass legislation in 2020 that offers an opportunity for advocates of advance refunding to attach the provision to.
“I have a different opinion,” she said. “I am a very positive person.”
The Public Finance Network is sending a letter to House and Senate lawmakers Monday in support of advance refunding, Brock said.
"In the 5-year period from 2013-2017, the advance refunding of municipal securities saved taxpayers at least $12 billion, a benefit to all of our shared constituencies," the letter states.
Twenty-six national organizations representing state and municipal officials signed the letter, including GFOA, the National Association of State Treasurers, The National League of Cities and the National Association of Counties.
In addition to the 10 original sponsors to the advance refunding bill there are more on the way, Brock said.
She conceded that House lawmakers are continuing to ask questions about the cost of reinstating advance refundings. The nonpartisan Joint Tax Committee estimates the federal revenue loss would be $16.8 billion over 10 years.
“Ways and Means [Committee] members are still saying, why is that number so high?” Brock said.
Both Brock and Israel said there’s interest in creating a new direct-pay bond program similar to Build America Bonds.
“People on the House side were relatively confident they would pass something,” Israel said. “We actually talked about expanding private activity bonds to finance some sort of P3 activity.”
The outlook for PABs is most optimistic in regard to targeted bills such as the Public Buildings Renewal Act which would authorize $5 billion in PABs for the construction or rehabilitation government-owned buildings.
The bill had the support of leading state and local elected officials in the last Congress and would provide an economic boost of more than $8 billion in the first year, according to a 2017 study by the Beacon Hill Institute.
The House version is led by Democratic Rep. Earl Blumenauer of Oregon with Rep. Mike Kelly of Pennsylvania as the lead Republican sponsor. Kelly was the lead sponsor in the last Congress when Republicans had majority control.
There also is a Senate version of the public buildings PABs bill sponsored by Sens. Todd Young of Indiana and Tim Scott of South Carolina, both members of the Republican majority, joined their Democratic Finance Committee colleagues Catherine Cortez Masto of Nevada and Michael Bennet of Colorado.
Another possible PABs expansion involves a proposal to raise the federal cap on surface transportation and freight improvement projects by $5.8 billion.
The current volume cap on PABs issued for highways and freight improvement has just over $2.5 billion remaining that can be authorized by the U.S. Department of Transportation.
A total of $12.45 billion has either been issued or allocated of the $15 billion currently authorized by Congress.
The proposed Building United States Infrastructure and Leveraging Development (BUILD) Act has bipartisan support in both the House and Senate.
The Senate bill was introduced in February by Sens. John Cornyn, R-Texas, and Mark Warner, D-Va.
Two House Democrats — Reps. Earl Blumenauer of Oregon and Terri Sewell of Alabama — recently teamed up with Republican Reps. Mike Kelly of Pennsylvania and Rodney Davis of Illinois as lead cosponsors.
A more far-reaching PABs expansion under the proposed Move America Act is given a lesser chance of becoming law. Israel said NABL officials also have pitched for the proposed creation of disaster bonds that could be used after a federal disaster declaration.
GFOA has draft legislation for the expansion of bank qualified loans, but has not yet found a lawmaker to sponsor the bill.
President Trump and congressional Democratic leaders have agreed to pursue $2 trillion in infrastructure spending over 10 years, so the cost of advance refunding reinstatement could be included in that package.
The major revenue producer that has been widely discussed is a 25-cents-a-gallon increase in the federal gasoline and fuel tax.
It would generate $55.5 billion per year in average increase in revenue, or $549 billion over 10 years, according to an estimate by the Penn Wharton Budget Model at the University of Pennsylvania. The estimate took into account the U.S. Energy Information Agency’s forecast of both retail gasoline prices and changes in fuel consumption, including consumption declines following a 25 cent increase.