The possibility of a major reconciliation bill happening before the end of the fiscal year is clouded in uncertainty, but the muni community already has its guard up.
"While House and Senate budget and tax writers are in the early stages of considering such a package, ICI believes it is important to be vigilant on areas where investment vehicles could be subject to changing tax treatment," said Tom Quaadman, chief government affairs and public policy officer for the Investment Company Institute.
Changing the tax treatment on investment vehicles could include eliminating the tax-exempt status of municipal bonds, as observers believe that looking for ways to pay for new programs or revenue cuts will put everything back on the table.
Although the current political climate doesn't lend itself to a united front in Congress, the Republican Study Committee, which is the largest caucus of conservatives in the House, has already drafted a ten-page framework document laying out the wish list.
"The framework aims to address three things: home ownership, American health care, and energy independence," said Nick Key, vice president, federal government affairs for the Securities Industries and Financial Markets Association.
"Luckily, the framework did not include the elimination of the tax exemption for muni bonds as a pay for."
The framework does call for prohibiting "illegal aliens and non-permanent residents from using the Low-Income Housing Tax Credit," while projecting an $11 billion reduction in spending.
Making "all non-citizen foreign nationals ineligible for Medicaid, the Supplemental Nutrition Assistance Program housing assistance, and other forms of government benefits," is projected to net a $231 billion reduction in spending.
Limiting federal transportation funding to states and cities granting driver's licenses to illegal aliens is expected to save $76.3 billion.
Breathing life into the document may come down to what the White House is focusing on.
"I think it's important to note that when President Trump says something, it happens," said Emily Brock director of the federal liaison office at the Government Finance Officers Association.
"Whether conceptually or literally, it happens. So, if reconciliation is something that President Trump wants before the elections, it's possible that we might see a reconciliation."
The fear of munis losing tax exemption stretches back to a year ago when the possibility appeared on a leaked "menu" of revenue raisers for what would become the One Big Beautiful Bill Act.
Eliminating the tax exemption on munis was projected to save $250 billion while cutting it on private activity bonds and Build America Bonds would save another $114 billion.
Reconciliation appears to be on the back burner for the time being as the appropriations process has lost traction following politically charged immigration enforcement actions in Minnesota, which have included loss of life.
"The Senate was expected to take up these bills this week, as is, which would fund the government to the end of the fiscal year," said Key. "Due to the recent events this past weekend, things may not be as straight forward as they were several days ago."
"The Senate has several options, but if they choose not to pass the package of the bills, as is, this will require the House to come back from recess this week and pass the Senate text as amended."
"Congress is on a timetable to meet the January 30th funding date, and negotiations between both parties and the White House will be key to whether that date is met."
