The Bond Dealers of America have launched an initiative to highlight projects across the country financed by municipal bonds as infrastructure discussions between lawmakers resume next week.
The initiative, Infrastructure in America: Munis Since 1812, was announced Friday, as part of BDA’s Municipal Bonds for America lobbying effort.
“We’re going to work with people in the business, whether it’s dealers, research firms, analytical firms, strategy firms to really demonstrate how municipals have been funding infrastructure since 1812,” said Michael Nicholas, BDA CEO.
The first municipal bond was issued in 1812 for a New York canal project.
Municipal bond-financed projects across the country will be highlighted on the MBFA website with photos and a written case study showing taxpayer savings, Nicholas said. MBFA is a group of buy and sell-side stakeholders lobbying for specific municipal bond initiatives on Capitol Hill.
“When we’ve met with Congress people in the past, they’ve said you should really highlight projects in members of Congress’ districts that are financed with bonds,” Nicholas said.
Nicholas is optimistic that 2021 will bring infrastructure legislation that will include municipal bonds.
“But it’s hard to predict what it will look like at the end of the day,” Nicholas said. “You’ve got lots of different demographics pushing back, not on the need for infrastructure, but how to pay for it.”
This comes a week after President Biden released his $2 trillion dollar infrastructure plan, which has already received significant pushback from Republican lawmakers, making passage through budget reconciliation a strong possibility. Many Republican lawmakers and some moderate Democrats oppose Biden’s plan to pay for infrastructure in part by raising the corporate tax rate to 28%.
Reconciliation is a tool lawmakers use to conform tax and spending levels to the levels set in a budget resolution. The tool limits lawmakers’ ability to create new policy, limits Senate debate time and comes with a 10-year budget window.
If an infrastructure bill does go that route, municipal bonds’ future could be very fluid. Sources say municipal bond provisions like bringing back a direct pay bond, tax-exempt advance refunding or lifting the caps on private activity bonds and bank-qualifed bonds may have to go into another bill to have more flexibility.
Direct-pay bonds authorized in a reconciliation bill could be issued with the 10 year window, though it is more likely any such program would have a much shorter issuance window than that. Issuers could continue to receive subsidy payments beyond the 10 years, but payments received past that mark would have to be offset by revenue in the bill. There is a possibility still that the subsidy could be frontloaded, to start out high and drop off each year.
For tax-exempt advance refunding, experts said the tax exemption would remain for the life of those bonds, but it could be decided that they would have to be revenue neutral after the ten-year mark. For example, if advance refundings are only scored as having a cost during the escrow period for the refunded bonds, that could be done through a maximum escrow period of three years and a sunset on the ability to issue advance refunding bonds at the seven year mark.
For bank-qualified and private activity bonds, it’s possible that those could be simpler, and just issued within the ten years. There could also be a need to offset revenue in the bill for any cost incurred after the 10-year mark.
Biden is also pushing another major package concerned with childcare and education. House Speaker Nancy Pelosi, D-Calif, told reporters this week that the two bills will likely be separated. Pelosi is still holding out for bipartisan support, though could decide to combine both bills.
On Wednesday, President Biden spoke on his infrastructure plan, encouraging its debate.
“Democrats, Republicans will have ideas about what they like and what they don’t like about our plan,” Biden said. “That’s — that’s a good thing. That’s the American way. That’s the way democracy works. Debate is welcome. Compromise is inevitable. Changes are certain.”
Congress comes back from recess on Monday and has some hearings scheduled.
The Senate Environment and Public Works Committee has a hearing on highway funding next week. The Senate Banking Committee also has a hearing on public transportation next Thursday. Later in the month, the House Financial Services Committee is holding a hearing on the role of municipal bond markets in undermining and advancing economic, racial and social justice.