Congress has left town for a two-week recess, as chatter is bubbling up about a second budget reconciliation bill that could have negative implications for tax-exempt munis.
"The threat will always be on the table," said Brett Bolton, vice president of federal legislative & regulatory policy for Bond Dealers of America. "There's nothing that I've heard that says that, but we've heard absolutely no policy detail either."
The threat comes in the form of possible tax cuts that would require pay-fors that could be accomplished by eliminating the tax-exempt status of municipal bonds.
The notion frequently comes up in free-form budget policy discussions.
House Budget Chairman Jodey Arrington, R-Texas broached reconciliation last week by expressing a need for targeting fraud in the earned income tax credit program.
Senate Budget Chairman Lindsey Graham, R-S.C. is looking for an increase in defense and immigration enforcement funding.
Rep. Jason Smith, R-Mo., Chairman of the House Ways and Means Committee, has indicated that any second reconciliation bill would need to flow through his tax writing realm.
President Trump threw all his support behind the SAVE America Act aimed at election security.
The bill is currently stuck in the Senate with a House version already passed.
In addition to the turf wars, the calendar is playing a role with another recess scheduled in August, the end of the fiscal year in September, and mid-term elections in November.
With the war in Iran going on in the background, turmoil at the airports, and Republican infighting, the possibility of getting both chambers to agree on anything seems remote.
"It would be tough, but not impossible," said Tom Kozlik, head of public policy and municipal strategy at Hilltop Securities. "There isn't much bandwidth right now. And what it all comes down to, in my mind, is what was really driving the big, beautiful bill last year was the President."
Assuming a bill could be cobbled together with presidential support and a successful pass through Ways and Means, it could provide a vehicle for restoring the advance refunding of municipal bonds and lifting the cap on bank-qualified debt. Both issues could boost bond sales.
"It is an excellent avenue for advanced funding and BQ too," said Emily Brock, director of the federal liaison center of the Government Finance Officers Association.
Brock remains skeptical about how much fraud the government could actually find even with a legislative mandate and cites a lack of support for a second reconciliation from Rep. French Hill, R-Ark., chair of the House Financial Services Committee.
Despite Congressional best intentions, the votes for getting something passed without help from the Democrats may not exist.
"I don't think it's the bandwidth, I think it's the math," said Brock. "We've learned from past reconciliations that sometimes congressional math is not what we learned in grade school but they figure out a way."
A way forward for any budget reconciliation also requires a thorough Byrd Rule review from the Senate Parliamentarian to ensure that any tax cuts are paid for, which re-opens the threat to the tax exemption, or positives like advance refunding.
"Every reconciliation, has to sit through a bird bath, and that, in and of itself can knock stuff out that we thought had legs," said Brock.
"It has to have relevance; it has to be scored. It has to it has to fall within a window. All those bird bath calculations are real."
