NABL wants to be a player in infrastructure deliberations
The National Association of Bond Lawyers wants Congress to consider an expansion of tax-exempt bonds as part of any infrastructure legislation lawmakers undertake this year.
That point was emphasized in a letter sent last week to the top Republicans and Democrats serving on three key Senate committees and two key House committees.
NABL’s No. 1 hope is to increase to $30 million the amount of tax-exempt bonds that individual local governments or nonprofits can sell to banks under favorable terms as bank-qualified.
Bank qualified debt, also known as BQ debt and bank eligible, allows banks to deduct the carrying cost of that debt as a business cost.
The tax reform law of 1986 set the qualified issuer limit at $10 million and it has remained there except for a two-year period in 2009-2010 when the American Recovery and Reinvestment Act raised the limit to $30 million.
The Municipal Bond Market Support Act, H.R. 3967, is a bipartisan House bill introduced last summer by two members of the House Ways and Means Committee. It would expand the limit on bank qualified loans to $30 million from the current $10 million, provide a permanent inflation adjustment to the nearest $100,000 and change the qualification to the obligors rather than issuers.
In addition to NABL, municipal finance industry groups that are members of the Public Finance Network have made increasing the limit on bank qualified loans and the restoration of advance refunding as their top priorities for inclusion in any infrastructure package.
Although the Senate began its impeachment trial of President Trump on Tuesday and the House is not in session this week, NABL wants to be prepared when lawmakers shift their attention to infrastructure.
That could come as soon as next week when House Democrats may announce their infrastructure plans ahead of a scheduled two-day retreat of their caucus.
NABL President Richard Moore, a tax partner at the San Francisco headquarters of Orrick, indicated in an interview that the timing of the letter is coincidental.
“We were contemplating this more generically before,” Moore said. “It is good timing, but that’s luck. Really, we knew at some point this year they would take up infrastructure.”
Moore is among the many congressional watchers who are doubtful any major infrastructure legislation will become law this year because of the presidential election.
But Moore and other NABL officials want their organization to be involved in whatever options for infrastructure legislation are discussed.
“Even if Congress is dysfunctional and nothing gets passed this year, the ideas that are formed this year, get traction this year, may well pass next year,” Moore said. “Whenever they take up infrastructure we want tax- exempt bonds on their radar screen in a positive way. Tax-exempt bonds is how we finance the bulk of infrastructure in this country.”
House Democrats have decided that they can't wait for a bipartisan deal with the Trump administration.
In fact, the prospect of a bipartisan deal with the administration has faded with the impeachment trial of President Trump already underway in the Senate.
On the other hand, congressional Democrats and the Trump administration were able last month to conclude an agreement on a revised U.S.-Mexico-Canada trade deal that incorporated labor and environmental protections important to Democrats.
The House approved the trade deal last month and it passed the Senate only hours before that chamber formally received the articles of impeachment.
A speedy impeachment trial and acquittal of the president, might leave room for a rapprochement on infrastructure later this year or during the lame duck session after the election.
Moore said NABL wants to be part of the early deliberations whether infrastructure legislation is enacted this year or in 2021.
“We learned in 2017 that the ideas that are floated during times when nothing gets passed get all of a sudden overnight part of legislation that is on a very fast track,” Moore said. “For those of us who are skeptical, it doesn’t make it any less important to be active in D.C. this year.”
The NABL letter reminds Congress of the key role tax-exempt bonds have played in financing infrastructure.
“As you consider America’s Transportation Infrastructure Act (ATIA) and other infrastructure packages, along with their respective financing components, we urge you to include provisions to continue the tax-exemption for interest on municipal bonds, preserve and expand tax-exempt private activity bonds (PABs), reinstate tax-exempt advance refundings, and expand the limits under Internal Revenue Code Section 265 on issuance of ‘qualified obligations’ to encourage banks and other financial institutions to purchase bonds that benefit smaller governmental entities and nonprofit organizations,” the letter states.
Congress might increase the current $15 billion on transportation related PABs that are administered by the U.S. Department of Transportation because the current allocation is nearly exhausted.
Airports also have been lobbying for an increase in the current $4.50 limit on passenger facility fee. A report released last week by the Rand Corporation suggested an increase to $7.50 with an annual inflation adjustment.
“State and local government bonds have financed a significant portion of our country’s schools, roads and highways, bridges, hospitals, universities, and public utilities, while PABs finance critical projects such as hospitals, institutions of higher education, airports, seaports, mass transit and other transportation facilities, and affordable housing,” the NABL letter said. “Tax-exempt bonds provide local control, with state and local governments setting the priorities for building infrastructure and promoting economic development, within the limitations set by Congress.”