No Long-Term Transportation or Tax Reform Bill Until 2017

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FORT LAUDERDALE, FLA. - Congress is not likely to pass a long-term transportation funding bill or tax reform legislation of any kind until 2017, after the presidential election, lobbyists said at the National Municipal Bond Summit earlier this week.

There's no consensus on key issues, too little time exists, and nothing generally gets done in an election year, they said, after serving as panelists on a Capitol Hill update session.

"It's very hard to get anything done," Ellen Marshall, founder and president of Marshall & Company, said during the update session.

Jessica Giroux, general counsel and managing director of Bond Dealers of America who moderated the session, asked panelists about the possibility that Congress would include a tax section that contains muni provisions in a transportation bill. The current transportation funding law expires on May 31 and whatever legislation Congress develops to take its place will have to include provisions to raise revenues to keep the Highway Trust Fund solvent or pay for transportation some other way.

But Marshall, referring to a long-term transportation bill, which most participants want, said, "There's no resolution in sight on that. I think they're just going to kick the can down the road again."

Marshall noted, "We're just ramping it up once again on tax reform." She and Micah Green, a partner at Squire Patton Boggs, said it took Congress roughly three years before passing the Tax Reform Act of 1986. The Senate Finance Committee is not expected to get reports from its tax reform working groups until May and that's almost half way through the year.

"Think about 2017, How does that hit you?" Marshall asked.

Green and Marshall talked about the differences for tax reform in 1986 and now.

Green said the municipal market was more fragmented in the early 1980s, with issuers and even dealers urging Congress to support different types of tax-exempt bonds or market segments. Now the issuer and dealer groups have organized more as a public finance community, he said.

But "the unanimity of the entire community is not what it should be," Green added. "Now is the time to be coming together as an industry and as a community."

Green noted for example that some of the higher tax states have been more interested in saving state and local tax deductibility, which like municipal bond interest is also a tax expenditure that Congress could consider eliminating or restricting to gain revenues. The Joint Committee on Taxation found that over the five-year period, 2014-2018, the deductibility of state and local taxes would result in $316 billion of lost revenues. In contrast, public purpose, 501(c)(3), and private-activity bonds would result in a loss of $232 billion of lost revenues over the same period, he said.

The muni market needs to come together to convince congressional staff and their lawmakers that munis do not just benefit the wealthy, but rather provide lower borrowing costs for state and local governments and are key to financing critically important infrastructure.

Marshall agreed that issuers are more united now than in 1986. She said it's important to look at the current Congress compared to the one in 1986. Marshall said that today more than 60% of Senators have served seven years or less and have not seen the budget put together under the normal process.

Tim Firestine, chief administrative officer for Montgomery County, Md., said, "What surprises us is how difficult it is to get the White House's attention" on tax-exempt bonds. President Obama has repeatedly proposed in budgets that the value of tax exemption be capped at 28%. When issuers present their case as to why that's a bad idea, he said, "We get no reaction" from White House officials.

Firestine said state and local governments, as well as Montgomery County, have looked at the costs of eliminating or putting a 28% cap on tax exemption over 10 years, from 2003-2012.

Eliminating tax exemption would cost $500 billion for state and local governments and $40 million per year for Montgomery County. The $40 million per year for the county would be the equivalent of 536 teachers and 266 police officers, he said. Capping tax exemption at 28% would result in a cost of $200 billion for state and local governments and $14 million per year for Montgomery County, the equivalent of 200 teachers and 100 police officers, he said.

Green said that the 28% cap proposal in Obama's budget is "a little big to taking back the benefit" of his favorable tax-exempt proposals such as the creating of a new category of bonds called qualified public infrastructure bonds, or QPIBs.

"There's not a lot of policy discussion going on [with regard to tax reform]," Marshall said. "It's more on money generation."

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