The House GOP tax bill puts a bull’s-eye on New York City by eliminating advance refundings and private activity bonds, said Mayor Bill de Blasio’s top advisors.
Those provisions, they say, would impair the city’s ability to manage debt and would compromise affordable housing and other initiatives.
“We’re fighting hard against this,” First Deputy Mayor Anthony Shorris said of H.R. 1, which is before the House of Representatives. “So are a lot of people across the country.”
The bill advanced Thursday from the House Ways and Means Committee. The U.S. Senate version is expected soon.
“The details of the plan have been barely fully vetted, so we’re doing the best we can to understand a plan that affects trillions of dollars and hundreds of millions of people,” Shorris told reporters Wednesday in the City Hall Blue Room.
Budget Director Dean Fuleihan said the city has used advance refundings for nearly half the $850 million of debt it saved through refinancings over the past four years, de Blasio’s first term in office. De Blasio won re-election Tuesday.
“No question, when we issue our first debt and our bonds, it will be tax-exempt, but the idea that they’re taking away this tool makes no sense,” said Fuleihan. “There’s no relevant reason that in an administration that talks about infrastructure development that all we’re seeing are restrictions on things that we use to finance infrastructure.
“So the consequences here are enormous to New York State taxpayers and they will have direct consequences on how we finance and how successful we are, and what that means to the future capital plans.”
According to Ramirez & Co., tax-exempt advance refunding bonds and private activity bonds combined over the past three years accounted for an average of 40% of gross muni market supply. “The potential elimination of tax-exempts for this purpose is alarming for the market,” the firm said in a commentary.
The Republican majority’s goal with H.R. 1, said Ramirez, is to lower corporate rates rather than curb muni issuance, “but tax-exempts have become a victim in the quest to accumulate as many ‘pay-fors’ as possible in order to achieve the stated goal.”
Fuleihan said the city could pursue other means including the taxable market. “Then there’s going to be a spread difference and we’re going to lose a significant portion.”
He could not specify how much.
“This is very quick," said Fuleihan. "Everyone who issues municipal debt is trying to figure out the consequences of this, what other alternatives are available. It certainly makes life very complicated.”
Housing and Economic Development Deputy Mayor Alicia Glen said the elimination of private activity bonds would cost New York and other cities “one of the principal building blocks of affordable housing.” Glen is running point for de Blasio’s 10-year, $41 billion plan to create and preserve such units across the five boroughs.
Combined, the bill as written threatens $2.6 billion annually, said Glen, which would jeopardize thousands of homes financed annually for working families, veterans and elderly people.
Hospitals, schools and other nonprofits use private activity bonds to tap the tax-exempt bond market, finance projects and deliver services. According to Glen, the de Blasio administration has issued more than $3 billion in tax-exempt bonds through the Build NYC program to support nonprofits, “from charter schools to United Cerebral Palsy.”
The changes would not affect deals that closed, Glen added. “Even if the most draconian version of this were passed, we would still be able to close this year’s pipeline and all the existing tax-exempt debt would still be out there.”
The bill, as written, would also eliminate new markets tax credits and historic tax credits, financing tools that generate millions in private investment. Glen said four projects at the Brooklyn Navy Yard – the Green Manufacturing Center, Building 77, B Amsterdam and Sands Street – use these programs to leverage $348 million in total investment.
According to Shorris, about 760,000 families, most of whom make $75,000 or less annually, would face $3.7 billion in tax increases.
Shorris also expects pushback from conservatives worried about the plan’s effect on the federal deficit. According to a report Wednesday by the nonpartisan Congressional Budget Office and the Joint Committee on Taxation, the plan would add $1.7 trillion to the fiscal deficit over 10 years.
“There’s no way they’re not coming after this on the spending side,” said Shorris.
“This is the same crowd that you’ve seen with the budget they proposed, even before this, that comes after basic programs including programs that support infrastructure, healthcare, Social Security, education and national security.”