President Trump in December signed into law a measure, H.R. 1, which retains the current-law tax exemption for municipal bonds, but prohibits the issuance of tax-exempt advance refunding bonds and tax credit bonds after Dec. 31, 2017.
The ability to currently refund outstanding debt is not affected under the new law.
Retaining the tax exemption for municipal bonds has been the American Public Power Association’s top legislative priority.
Retention of the tax exemption for municipal bonds will save public power utilities, as well as their customers, billions of dollars annually.
In October, the Association released a letter from more than 450 public power utilities to congressional Republican leaders and administration officials in support of their decision to retain the current-law tax exemption for municipal bonds in a tax reform framework that was announced by President Trump in September.
Over the last decade, public power utilities have used tax-exempt municipal bonds to finance more than 1,200 projects worth $97 billion. Financing these electric system investments with taxable debt would have increased costs by an estimated $4.5 billion every year — costs that would be borne by public power customers.
“Because of a huge amount of work by stakeholders — including public power utilities — we got the message across to Members of Congress that bonds finance the investments that make our communities livable and commerce possible,” wrote John Godfrey, Senior Government Relations Director at the Association, in a December blog posted to the Association’s website prior to Trump’s signing H.R. 1 into law.
“In turn, House and Senate lawmakers that understood the importance of municipal bonds to their constituents prevailed and the underlying tax exemption for municipal bonds remained intact in the tax reform bill,” wrote Godfrey. “This is worth restating. Despite pressure to find roughly $4 trillion of new revenue, states, tribes, and localities will still be able to finance critical infrastructure investments without the added weight of a federal tax on municipal bond interest. That includes tax-exempt private activity bonds.”
Godfrey noted that while power-related private activity bonds are rare, they are helpful for financing enhancements to hydroelectric projects.
Association strongly opposed repeal of advance refunding bonds
The American Public Power Association strongly opposed the repeal of advance refunding bonds.
About half of all refunding bonds issued by public power utilities in the last five years were advance refunding bonds, with net present value savings of at least $600 million.
A repeal precludes such savings in the future or forces public power utilities into complicated swap transactions to take advantage of interest rate changes if sought more than 90 days in advance of redemption.