Bond Dealers of America's Brett Bolton sits down with Kyle Glazier to discuss the group's latest advocacy efforts and the outlook for legislation critical for the municipal market. (18 minutes)
Transcription below:
Kyle Glazier: (
Hello, and welcome to another bond buyer podcast. I'm Kyle Glazier, the Washington bureau chief of bond buyer. And I'm joined today by Brett Bolton, the vice president and head of government in industry relations at the bond dealers of America. Uh, Brad, thank you for joining me today,
Brett Bolton: (
Kyle. It's a pleasure to be here. I look forward to talking with you.
Kyle Glazier: (
All right. Well, we certainly appreciate you making the time and, uh, there's no shortage of, uh, things going on in, even in the winter here. Uh, so Brett, why don't you tell us a little bit about, uh, what's going on at the BDA. I understand you may have some, some new initiatives going on. Uh, why don't you tell us a little bit about that?
Brett Bolton: (
Yeah. Kyle, thanks. Thanks for bringing up the, the musical bonds for America coalition. So 2020 got us thinking over at the BDA. I, I, I mean, I think a lot of folks were making changes during COVID seeing how they can become more efficient and, and better as an organization. Uh, so we got to think and revamping the M BFA, which had become somewhat dormant. It, it served, uh, previously as a coalition between BDA membership and some issuer community groups here at, in DC. Uh, we wanted to revamp the coalition, make it a sell side, buy side coalition, working in concert with our issuer community friends over at the public finance network. So in, in our efforts last year, we, we worked to streamline priorities with both the buy side and sell side, put the group together, create an advisory board of seven retired municipal, uh, market professionals along with a large steering committee of active professionals, and really put this group in front of members of Congress and their staff. So we probably had 15 meetings last year leading up to, uh, the passage of the bipartisan bill, uh, as well as some continued meetings this fall, uh, working on build back better. It's an exciting time for the BDA. Uh, growing the N BFA has been a, a, a passion this year and we're just thrilled at where it ended up and thrilled to be a part of the conversation working with our friends over in the issuer community.
Kyle Glazier: (
Sounds great. Um, do you have any, um, activity, do you have any more of that advocacy activity plan for the, uh, the, the next few weeks or so it seems like, uh, there's gonna be a lot going on in terms of the, uh, push for some more of that, uh, Biden administration, signature legislation.
Brett Bolton: (
Yeah. So where, where do you wanna start with that, Kyle? I mean, there's a lot happening this week. Do you wanna continue to talk about M BFA or do you wanna dig it to the policy of it?
Kyle Glazier: (
Well, why don't we, why don't we shift to the policy right now, since, since you sort of, uh, brought it up, um, you know, we, we, it, there's, there's really no shortage of, of, of, uh, of gr for the mill as they say, so why don't you kick us off?
Brett Bolton: (
Yeah, so I can definitely tie in our advocacy work with this discussion, but I, I I'd be remiss not to, to say that the slim margins in the Senate just got a, a slimmer for a short period of time yesterday with, uh, Senator Luhan, uh, having a stroke. And he's gonna be out for an unforeseen amount of time here. So this followed within I think, 12 hours of Senator Joe mansion, uh, who has been quite the thorn in the side of the Biden administration saying that the build back better act and for our listeners, that's the broad, uh, originally $3.75 trillion infrastructure package. He that, uh, the slimdown version, which I believe was a little bit under 2 trillion was, was dead as existed. So 2022 has started as 2021 ended. Uh, we're at a little bit of a dead end. Uh, so the MUN, uh, community, if okay with you, Kyle, I'd like to take it back to 2021 and even start back in 2019 with the, the inter of a bill by, uh, Congresswoman Terry school of Alabama, uh, advance for fundings would be reinstated with that language.
Brett Bolton: (
And that language has stuck around with us over the past several years. I was looking back today just to refresh my memory and I, I was right that bill had over 30 co-sponsors bipartisan, meaning this, this bill, uh, frankly, this provision is one of the most bipartisan muni provisions out there. So I wanna take us back to the bipartisan infrastructure, uh, and jobs act, I believe is what the final title was called. Originally. The thought process was advancer fundings, uh, direct pay, maybe private activity bonds, and or any other muni provision would fit nice and tightly within this package, it helps state and locals provide infrastructure at a relatively cheap cost to the federal government and in a really efficient way to state and local citizens. So it, it tend to make sense. So it turns out that advancer fundings in the Senate, uh, ran into some turbulence, uh, as our listeners may know, this was used as a pay for, uh, in the tax cuts and jobs act of 2017, which was passed by a, uh, party line Republican vote for the bipartisan bill to pass.
Brett Bolton: (
There were several senators who made their point clear that anything that was removed in that bill could not stand thus AR was removed from the package. Then we turned our attention to private activity bonds, and, uh, the build America bond like provision that was included in the Senate original draft, uh, and really tried to push the Senate to take up and ensure those provisions are included in the bipartisan bill. Long story short, uh, the product ran into some serious issues with reimbursement rates. Uh, I know our friends in the ISR community were pushing, uh, for 28 to be the absolute floor. And, uh, the Senate, uh, was flirting with the idea of lowering that to around 26 and the market, uh, rejected that fairly, uh, fairly quickly as that is, um, a fairly, fairly low reimbursement rate and yet still a very expensive product in the legislative scoring sense.
Brett Bolton: (
So then we were left with private activity bonds in the bipartisan bill. Uh, those remained so a couple key points in there. Uh, carbon can now be used for private activity bonds, uh, as well as the expansion of broadband and rural areas. But I think the key here is the highway transit bonds. Uh, the cap was lifted from 15 billion, which it had already been allocated last year, all the way up to 30 billion. So I think that is a pretty expansive, uh, growth of private activity bonds. And one, there was somewhat, uh, glossed over because of the lack of other, uh, muni type issues included in the package. So fast forward that passed, uh, I wanna say the house in August and the Senate sh uh, or excuse me, the house last spring, and the, the Senate here in September and was signed this fall by president and Biden into law, and all attention turned to the, the robust, uh, budget reconciliation package, the build back better package, which was president Biden's signature goal.
Brett Bolton: (
If you will. The muni coalition, uh, led by the public finance network, as well as the, the N BFA coalition. We really put, uh, again, I hate keep going back to the pedal to the metal here, but full press ahead to get advance fundings in the bad product, uh, even more, uh, P type provisions into this bill. And lo and behold, they were so Terry SW following her 2019 bill put a, a grouping of muni provisions together in the lift act. And that's L I F T act so that, uh, as I mentioned, would reinstate tax exempt answer fundings that would, uh, raise the BQ debt limit and tie it to inflation that would create a new Baptiz product. And that would've also expanded paths that made it through the house committee on ways and means that made it through the house. But then we ran into the problem that still exists today.
Brett Bolton: (
Senator Joe mansion of West Virginia, Senator Kristen cinema of Arizona, had a problem with overall price tag and made it clear that 3.75 was not gonna pass 2 trillion was likely not gonna pass. You gotta cut it in half, at least for even a chance. So long story short, they cut all the muni prevent out of the build back better act. They cut pretty much anything that was not healthcare childcare, uh, or climate related out of the package. And that's where we stand today. Um, I think we can talk a little bit further about if you'd like Kyle, what, what could possibly pass, uh, what inroads there may be some mini provisions, what we're working on on the house in the Senate, uh, if you would like, yeah, maybe we
Kyle Glazier: (
Could segue to that. Maybe what would be helpful, I think is, you know, most of our listeners, uh, are, are not DC insiders, right? So maybe you can help us understand a little bit, you know, you've been congressional staff, you've been on the hill for a lot of years, um, given that the, okay, so the, the muni provisions didn't survive this process, right? Because they were part of an extremely expensive, massive bill. Um, but as you noted, there, there is bipartisan support, uh, for the restoration of tax exempt advance refunding. Um, there is bipartisan support for the raising the BCU debt limit. Um, you know, there's at least some support, uh, maybe slightly controversial for the, for the direct pay bonds, but, you know, it's there. Um, so why is it so difficult to move these things? You know, why is it that it's so hard to get these things pushed forward, unless they're part of a big bill and then they get cut because of how much they come, right?
Brett Bolton: (
Yeah. That, that, that is the confusing thing to even us who do this for a living. So I, I provision such of advance or fundings and MUN provisions in general. You definitely, there, there's no way around it. You're gonna have to ride on, you know, a, a larger spending type package that has a tax title. I think that's position one. I mean, there are so many bills introduced every year in Congress, Kyle it's, it's incredible. So there's only a, a limited amount of time in 2022 in election year. There's an extremely limited amount of time of legislating that happens on the flu. So basically the bills are introduced, they're packaged up in committee, uh, and it goes from there to a bigger package if you will. So the issue also with our provisions, I think stemming from the 2017 action on advance funding, our community realized that a whole lot of education needed to happen on these provisions, uh, hill staffers rotate often, uh, committee staffers even rotate often.
Brett Bolton: (
So sometimes you're starting from scratch explaining, you know, what a particular provision is, what a particular provision does and why X amount of dollars to the federal government is such a great investment at the state and local level in turn, turning the go, uh, you know, costing the government very little money. So those, those are your, your, your two big issues, right? It, it has to have a vehicle to ride upon and, or the education, uh, and advocacy portion of it. Uh, it really helps to expedite it, but we also remember legislation takes time. Um, it's all only been four plus years since the tax cuts and jobs act. And, and a lot of big legislation takes 10 or 15 years. I mean, how many weeks in a row did we have infrastructure week over the past six or seven years, Kyle, and, and it finally, a, a bill passed this year, the point being, uh, there's still a lot of work to be done to get this stuff across the finish line. And, uh, that, that's what I'm hearing from Capitol hill as well, that there still may be a chance to get this across the finish line this year. All
Kyle Glazier: (
Right. Um, we're gonna take a, uh, brief break now for, uh, this, uh, advertisement. Okay. Well, Brett, now that we're back, uh, can you, can you talk a little bit about what the way forward, uh, actually might look like?
Brett Bolton: (
Sure. Ha happy to talk through that. And, uh, to be Frank Kyle, it's still, while there is a chance it's, it's somewhat blurry, uh, at this point in time. So I, I think the best option would be the build back better act. Uh, what does that mean today? That means it's probably gonna be a vastly smaller package than the 1.75 trillion as it stands right now. Um, I think there's a good chance that, uh, the Senate focuses purely on a, a slimdown climate, maybe some climate finance issues in there, uh, child tax credit, as well as a universal pre-K type package. So that provides a limited option. I think that it would have to, uh, hop onto the climate portion of the bill. Uh, hopefully they can revisit, uh, a relatively cheap provision such as advance for funding, uh, that would really know, not shift the overall price tag, uh, of the smaller package, uh, if that does not happen.
Brett Bolton: (
Um, I mean, I think there's still a 50 50 chance that build back better, does not pass at all. Just due to the numbers in the Senate. You, you gotta look for government funding, uh, which expires February 18th, I believe. Um, and, or some kind of tax title onto, uh, an infrastructure style bill later in the year I was told earlier today that, uh, it really needs to happen before Easter. Uh, if we start getting towards the election, maybe there would be a chance for some type of lame duck package where this could get pushed through, but it, uh, as we all know, lame duck sessions, uh, are called lame duck for a reason, and really anything can happen. Uh, and you really don't want to get to that point. Uh, I got word that committee staff, as well as chairman Neil, uh, over in ways, it means on the house side remain focused on these issues, which was fantastic to hear. Um, we're hoping that they're, they're talking with their colleagues in the Senate, uh, really continue to push, uh, chairman widen over in finance on the Senate side to, to today's strong to, to muni provisions and hope to find a path forward. But, uh, there there's limited vehicles in 2022, but, uh, we feel that this is the year to make it happen, uh, if we can do so.
Kyle Glazier: (
Sure. And I understand BDA, you know, would, would never officially take a side on, uh, who should control Congress, but, uh, obviously the game could change pretty significantly if Republicans were to take control in the house, right? I mean, you'd have a, a whole new, a whole new chairman to deal with, which really changes
Brett Bolton: (
And that that's not a political political statement, Kyle, I mean a form, uh, I, I think that these provisions, uh, stand no Chan, uh, in 2023, if power shifts the Republicans in the house, uh, I I'll choose my words carefully here, but I, I mean, I think that's fair to say. I, I know that the muni finance caucus after years of work, uh, from the community has grown in a robustly bipartisan way. I, I know that the chair is a sitting member of ways and means currently Jackie w Walorski of Indiana, which is a fantastic development. I mean, I can't underestimate how good of a development that is. So I'm not willing to say that the tax exemption would be under a attack next year. I'm just saying that I'm concerned at this point in time that the lift act is gonna be fully associated with the build back better act.
Brett Bolton: (
Um, and that definitely would create hiccups in 2023. So I, I, I'm not ready to raise a red flag for the tax exemption yet. Clearly that's gonna remain on our, our radar, but clearly we're gonna continue to work with friends on ways and means such as rep Ron Estes, former state treasurer of Kansas. Uh, clearly we're losing, uh, Tom Reed next year, who I know has been a, a cosponsor of many pieces of muni legislation, but point being there they're all are definitely some champions on the Republican side of ways and means especially, uh, that we plan to continue to build relationships with and continue to educate staff on the importance of these provisions
Kyle Glazier: (
On, on the positive side, you know, the bipartisan infrastructure bill, uh, is at least sending a lot of money into the market, right? When, when you talk to your members, uh, you know, does that, does that sort of blunt the disappointment of, uh, the other developments to any degree?
Brett Bolton: (
I wouldn't say blunt, let me be clear. The, the amount of funding that went to the state and local government is, is astronomical and beneficial. I think that we avoided massive credit downgrades across sectors, you know, uh, over the past year or plus because of those funds. So yeah, that definitely does help blunt the effect, but I can't understate the importance of these provisions. Our, our members were still disappointed that, uh, not all were passed. They were happy that private activity bonds yes were expanded and that the federal government did provide direct funding. So, uh, I don't, I wouldn't go as far as you to say blunted, all
Kyle Glazier: (
Right, going forward. Um, you know, is there any, uh, you know, final thoughts you'd like to leave the listeners with, uh, before we, uh, let you go,
Brett Bolton: (
The representatives here in DC are, can continue to work for our membership, whether it be on the sell side, the buy side, or within the issuer community, we're still working to advance. These provisions will continue to do so through, throughout the remainder this year and whatever the results are, the election will be here next November. So whether they pass this year or not, I, I don't, I, I, I don't discount the fact, uh, advance funding restoration is gonna remain important going forward. I don't discount the fact that we will continue to prevent the tax exemption of municipal bonds here in DC, continue to educate staff, continue to fly our members into DC so that everybody gets to experience the legislative process and continue to grow relationships with our friends on Capitol hill, both sides of the aisle and in both chambers at, so it's been an exciting four plus years since the, the tax bill past, uh, it's been a really exciting past 18 months with all the infrastructure and MUN discussion. Uh, we're not quite over the finish line yet. And, uh, we look forward to hopefully getting that ball across the line here in the near future.
Kyle Glazier: (
All right, Brett, I really wanna thank you for, uh, joining us and sharing all your insights with us. It's been extremely, uh, eye opening. Yep. Thanks Kyle. It's been a pleasure. Thanks to win Weis, John, who did the audio production for this episode, and don't forget to rate us, review us and subscribe@www.bond buyer.com/subscribe from the bond buyer. I'm Kyle Lazer. Thank you for listening.