Ten key lawmakers for the municipal market to watch
Ten key Washington lawmakers on both sides of the political aisle are expected to play an important role in helping the public finance sector in the coming months.
These public finance supporters in both chambers of Congress include Democrats from Massachusetts, Maryland, and Alabama as well as Republicans from Mississippi, Ohio, and Texas who understand how tax-advantaged bonds can help our nation recover from the COVID-19 pandemic.
Experience in local and state government helps inform their advocacy. One is a former mayor. Another is a former superintendent of schools. And a third is a municipal bond lawyer by profession.
None of them, however, currently serve in the House or Senate political party leadership.
But two of them chair committees run by the majority party in their respective chambers, including the tax policy committee in the House with jurisdiction over tax-advantaged bonds. Several others are members of that committee.
There is some hope that these lawmakers will successfully lobby for a restoration of tax-exempt advance refunding as part of this year’s final package of COVID-19 emergency aid, if there is one.
But whether they can do it or not, there is optimism that the next Congress which takes office in January could act quickly on several measures to boost the public finance sector.
Democrats are expected to keep majority control of the House in the November election and, if they do, House Ways and Means Committee Chairman Richard Neal, D-Mass., will remain the most influential advocate for tax-advantaged bonds in Congress.
Neal, a former mayor of Springfield, recently won a hard-fought Democratic primary and does not face a Republican challenger on the November ballot.
If Republicans also retain control of the Senate, the most influential advocate for the muni market will remain Sen. Roger Wicker, R-Miss., who chairs the Senate Commerce, Science, and Transportation Committee. Wicker won his second full six-year term in 2018 and won’t be up for re-election until 2024.
Wicker and Sen. Debbie Stabenow of Michigan, who is senior Democrat on the Finance Committee, are lead sponsors of a bill to restore tax-exempt advance refunding of municipal bonds.
Stabenow, who also doesn’t face re-election until 2024, has served as a county commissioner and in both chambers of the Michigan Legislature.
Wicker also is the co-author with Sen. Michael Bennet, D-Colo. of bipartisan legislation to restore direct-pay bonds for financing infrastructure.
The Wicker-Bennet American Infrastructure Bonds Act would provide a 35% federal subsidy to taxable bonds from the date of enactment through 2026, when the subsidy would drop to an estimated revenue-neutral rate of 28%.
The legislation would allow state and local governments to issue taxable bonds for any public purpose expenditure that is eligible to be financed with tax-exempt bonds.
The new direct-pay bonds would be an improvement from the Build America Bonds that were authorized under the 2009 Americans Recovery and Reinvestment Act because they would be exempt from the sequestration reductions that have plagued the BABs program.
Bennet, who serves on the Senate Finance Committee, is a former superintendent of the Denver public school system who does not face re-election until 2022.
Bennet also is an original co-sponsor with Sen. Rob Portman, R-Ohio, of the bipartisan Carbon Capture Improvement Act. If more than 65% of carbon dioxide emissions from a given facility are captured and injected underground, 100% of the eligible equipment could be financed with tax-exempt private activity bonds. If less than 65% is captured and sequestered, then tax-exempt financing is permitted on a prorated basis.
Portman gets an honorable mention for his work with Bennet on the carbon capture bill.
Polling experts say Democrats have a plausible chance of gaining majority control of the Senate, which would likely mean consideration of infrastructure legislation similar to the Moving Forward Act that passed the House in July.
Neal’s committee was responsible for the municipal bond provisions in the Moving America Forward Act which is expected to be the House Democrats’ template for infrastructure development in the next Congress.
The legislation includes a revision in the definition of bank-qualified bonds issued by small issuers to increase the limit to $30 million from $10 million and applying the limit at the borrower level.
It also would create a new program of $30 billion for qualified school infrastructure bonds through annual increments of $10 billion from fiscal 2020 through 2022.
Another provision would create direct-pay Qualified Infrastructure Bonds which would start with a federal 42% subsidy for interest expenses that would phase lower to 38% in 2025, 34% in 2027, and 30% permanently thereafter.
That’s more generous than the 35% initial federal subsidy proposed in the Wicker-Bennet Senate bill.
One Senate Democrat who is not on our list, but almost certainly would be next year if his party gains majority control, is Ron Wyden of Oregon.
Wyden is ranking Democrat on the Finance Committee and would become chairman if Democrats have a working majority. Even if the next Senate is 50-50 in membership next year, Democrats would have a working majority if former Vice President Joe Biden wins the presidency because his running mate Sen. Kamala Harris would break tie votes as vice president.
Over the years Wyden has been a reformer in search of new financing mechanisms. He supported the creation of direct-pay bonds before Build America Bonds became law in the 2009 American Recovery and Reinvestment Act. He’s also been a supporter of tax credit bonds.
Unfortunately, none of the public finance sector’s allies were in a key position in late 2017 to block the termination of tax-exempt advance refunding as one of the revenue offsets in the Tax Cuts and Jobs Act.
The tax bill approved by the Republican majority in the House at the time also would have abolished the tax exemption for private activity bonds.
The No. 2 ranking Republican in the Senate leadership at that time, Sen. John Cornyn of Texas, publicly opposed the House proposal to abolish the tax exemption for private activity bonds. He deserves credit for that.
Cornyn has since then left the Senate Republican leadership team, so Wicker of Mississippi holds the top leadership position among Senate advocates for municipal bonds. Cornyn, however, is a member of the Finance Committee.
Cornyn is continuing his advocacy for PABs as a lead sponsor of a proposal to raise the federal cap on surface transportation and freight improvement projects by $5.8 billion.
The current volume cap of $15 billion on PABs issued for highways and freight improvement has nearly reached its limit. Cornyn’s proposed Building United States Infrastructure and Leveraging Development (BUILD) Act his bipartisan support in both the House and Senate.
The lead bipartisan Senate cosponsor with Cornyn is Sen. Mark Warner, D-Va., another member of the Finance Committee.
Bennet and Warner make our list because the closely divided Senate needs bipartisanship to pass any major legislation.
The House version of the Cornyn-Warner transportation PABs bill is led in the House by Reps. Earl Blumenauer, D-Ore. and Terri Sewell, D-Ala., who are members of the Ways and Means Committee.
The lead Republican sponsors of that bill, Reps. Mike Kelly of Pennsylvania and Rodney Davis of Illinois, show its bipartisan support but don’t rank among the top 10 because their party isn’t setting the House agenda. Senate Democrats, on the other hand, can block the majority party's initiatives under the Senate's filibuster rule.
The one House Republican who does make our list is Rep. Steve Stivers of Ohio, who serves with Democratic Rep. Dutch Ruppersberger of Maryland as bipartisan co-chairs of the Municipal Finance caucus.
The duo are the lead House sponsors of the Investing in Our Communities Act, H.R. 2772, to reinstate tax-exempt advance refunding which is the top legislative priority of municipal finance groups.
Another bipartisan pair of advocates for public finance tax policy are Reps. Terri Sewell, D-Ala., and Tom Reed, R-N.Y., who are the lead cosponsors a proposal would increase to $30 million from the current $10 million the amount of tax-exempt bonds that individual local governments or nonprofits can issue and still qualify to sell debt to banks under favorable terms as bank-qualified.
Both Sewell, who is a bond attorney, and Reed, a former mayor, serve on Ways and Means Committee. Their Municipal Bond Market Support Act is one of the provisions in the House-passed Moving America Forward Act.
Their bill also would index the $30 million limit to future inflation and shift the authorization to the issuer.
Bank-qualified debt, also known as BQ debt and bank eligible, allows banks to deduct most of the carrying cost of that debt as a business cost.
The tax reform law of 1986 set the bank-qualified limit at $10 million and it remained there except for a two-year period in 2009-2010 when the American Recovery and Reinvestment Act raised the limit to $30 million.
Reed is among the dozen members of Congress who get an honorable mention.
Rep. Earl Blumenauer, D-Ore., makes our list as the lead Democratic sponsor of the Public Buildings Renewal Act which would authorize $5 billion in PABs for the construction or rehabilitation of government-owned buildings. The lead Republican sponsor, Rep. Mike Kelly, was the lead sponsor in the last Congress when Republicans had majority control.
There also is a Senate version of the public buildings PABs bill sponsored by Sens. Todd Young of Indiana and Tim Scott of South Carolina, both members of the Republican majority, joined their Democratic Finance Committee colleagues Catherine Cortez Masto of Nevada and Michael Bennet of Colorado.
Blumenauer makes our list because of this bill but the other lawmakers don’t because he’s a member of the majority party in the House, where changes in tax policy originate. Bennet already is on our list and the other all earn honorable mentions.
The bill had the support of leading state and local elected officials in the last Congress and would provide an economic boost of more than $8 billion in the first year, according to a 2017 study by the Beacon Hill Institute.
Other congressional lawmakers getting honorable mention include a pair of Democrats from Washington State, Sen. Maria Cantwell and Rep. Suzan DelBene, for their leadership on a bill to enhance the 4% federal Low Income Tax Credit that is often used in financing packages that include tax-exempt multifamily housing bonds.
Also earning an honorable mention is Rep. Gwen Moore, D-Wis., a member of the Ways and Means Committee who is the lead sponsor of a bipartisan bill would restore a short-term cash-flow management tool formerly used by many municipalities.
The Consumer Financial Choice and Capital Markets Protection Act, which has 14 cosponsors, would allow institutional money market funds to return to a fixed net asset value, reversing a 2014 Securities and Exchange Commission rule change requiring those MMFs to use a floating NAV.
Another honorable mention goes to Rep. Dan Kildee, D-Mich., a former Genesee County Commissioner and Genesee County Treasurer who serves on the influential Ways and Means Committee.