Bonds and Financing

Tax reform: Let's keep up the fight for municipal bonds

On Friday, March 24, I was the dinner speaker for the Annual Board Meeting of the Indiana Municipal Power Agency in Indianapolis. Raj Rao, IMPA's CEO, and his team are rightfully proud of the joint action agency they have built in Indiana over the years — IMPA has a strong board, staff, and membership.

I started by noting how much I appreciate the close partnership between IMPA and the American Public Power Association. There is always the need for strong advocacy on behalf of public power and the customers we serve at all levels — local, state, and national. This is true now more than ever, with the advent of a new Administration in Washington.

By coincidence, I spoke to IMPA just a few hours after the Republican leadership pulled their proposed American Health Care Act back from a floor vote. This was a surprising reversal, given the very strong push that President Trump and Republican leaders had made all week to get the Act on to the floor and through the House.

Almost immediately, it was reported that the White House would pivot" to tax reform. Treasury Secretary Steven Mnuchin said he expected the White House to release its tax plan "pretty soon." The plan, he indicated, is the culmination of two months' work that has looked at a range of possible tax scenarios; the details must still be hammered out in consultation with Congress. So I took the opportunity to talk to IMPA's members about tax reform.

If you came to our Legislative Rally at the beginning of March, you already know that we here at the Association are on high alert about tax reform — and in particular, maintaining the tax-exempt status of municipal bonds. Bonds are the primary tool our public power utility members use to finance new infrastructure.

Eliminating or undercutting the tax-exempt status of these bonds would increase our borrowing costs, and that will be reflected in electric rates, which are paid by everyone, regardless of income level. In effect, it is a regressive tax. And we are not alone — water systems, roads, schools, airports, you name it — are built by state and local governments using tax-exempt bonds.

President Trump wants to see tax reform, but he is also pushing for infrastructure development, which of course, costs money. Last December, during the transition, a delegation from the U.S. Conference of Mayors met with President-Elect Trump at Trump Tower. After the meeting, they said he had told them he would keep the tax exemption for municipal bonds. Attempts to verify that statement with Trump's spokesman, however, were unsuccessful. And we have seen no tweets on tax-exempt financing as yet.

For our part, we on staff met with the Trump campaign and the transition team on our priority issues, tax reform being number one. We will continue our outreach to the Administration and to Congress. We have explained to Trump's energy advisors the tie between supporting energy infrastructure and protecting the tax-exempt financing we use to construct that infrastructure — a connection they had not previously made.

The most important Congressional committee when it comes to tax reform is the House Ways & Means Committee. In this Congress, Rep. Kevin Brady (R-TX) is holding over as chairman. Rep. Richie Neal (D-MA) is the new ranking member. Chairman Brady has been leading the House tax reform effort. It is unclear what his views are on preserving the tax-exempt status of municipal bonds, but we have been told that his committee staff sees everything as on the table — and that includes tax-exempt bonds. On the other hand, Rep. Neal has been a strong supporter.

Turning to the Senate, on the Finance Committee, Sen. Orrin Hatch (R-UT) remains as chairman and Sen. Ron Wyden (D-OR) as ranking member. Chairman Hatch will lead the Senate tax reform effort. He has not said how he would prefer to treat municipal bonds. While Ranking Member Wyden has in the past said he would like to replace tax-exempt municipal bonds, more recently he has said alternative financing tools (such as tax credit bonds and direct payments bonds) need to supplement, not replace, tax-exempt municipal bonds.

Given the Trump Administration's potential "pivot" from heath care reform to tax reform, we are at risk for a major fight on this issue. Anytime that tax reform or deficit reduction comes up, tax-exempt financing is on the short list of "pay fors" that can raise revenue to offset reductions to corporate or individual tax rates.

We are going to need all of you on the barricades. Those of you who came to the Legislative Rally know that we had an "ask" of the Representatives our members visited — to sign a letter to Reps. Brady and Neal in support of tax-exempt financing that was being spearheaded by Rep. Randy Hultgren, R-IL, and Rep. Dutch Ruppersberger, D-MD. Reps. Hultgren and Ruppersberger served in local government before they went to Congress, and they understand what tax-exempt financing does for local communities and what its loss would mean. Our goal was to get 100 signatures on that letter by the end of the Rally. In the end, we got 156 signatories from 39 states, from both sides of the aisle, and from rural, suburban and urban areas. This was a great effort, and I thank all of you who assisted.

Reps. Hultgren and Ruppersberger have also formed the Congressional Municipal Finance Caucus. If you see your Representatives at the local firehouse chili cook off, you might want to ask if they are members of that caucus. If they are, thank them — if they are not, you might want to ask them to consider joining.

Of course, getting a tax reform package through Congress and to the President's desk will not be easy. There is a reason that the last major overhaul of the tax code was in 1986 — it's hard. But we know that the House Ways and Means Committee is working on a package right now — which is why we wanted to get the Hultgren-Ruppersberger letter up to Reps. Brady and Ryan quickly.

We do not have the legions of lobbyists that big corporations and industries have to throw at tax reform. And we do not have the deep pockets to make large campaign donations — although I will note that PowerPAC, our political action committee, put on a fundraising reception for Rep. Hultgren during the Rally. He was extremely appreciative of our support.

However, we in public power have something others do not. A few weeks before the Rally, I went to a forum in DC at which four staffers from the tax-writing committees spoke. They were asked whether tax-exempt bonds would be at risk in a tax reform package. They gave the typical answer we always hear: "Everything is on the table, and you are not safe until the legislation is signed." Then one of them added: "But I don't want 100 mayors in my office." I took note of that. That is what we have: the ability to bring local policymakers to the Hill to personally lobby on this issue. We need to be able to do that, and on short notice.

We at the Association are also working to preserve tax exemption for municipal bonds in coalition with other state and local government groups. We are members of the Public Finance Network "– an issuer-only public finance stakeholder group that is very active in the defense of municipal bonds — and we are working with the U.S. Conference of Mayors on its "Don't Mess With Our Bonds" effort. We also belong to a coalition called Municipal Bonds for America — I serve on the Executive Committee. MBFA has the mayors, the airports, the bond dealers, the education finance community — all the municipal finance food groups. And we have our own hashtag on social media: #builtwithbonds. If the Trump Administration does indeed pivot from health care to tax reform, we will need to ramp up our tweeting and use of that hashtag.

At times like this, I remind myself that we have the privilege of advocating for public power's simple yet exceptional business model. We try to do what is best for our customers, acting as responsible stewards of both the customers' money and the environment. We listen to our communities and give back to them. It's the business model we need to stick to, even while we work to reboot it for the technological changes taking place all around us.

And I remember the words of one of our Association's founding fathers, Alex Radin. In an interview he gave to the National Journal at the time he retired, he said that, given the controversy surrounding the association's positions, "I tried to be as honest and objective as possible, refraining from invective. I tried to deal with issues on the facts and on reason, rather than emotionalism."

Doing this in the next few years will take some intestinal fortitude, as we are in a troubled legislative and regulatory environment. But we in public power have a strong history of taking on tough issues and punching above our weight. While it is rare in Washington for any one voice or constituency to win the day, we can influence the debate and the outcome — but only if we stay unified, stick to the facts, act as a voice of reason, and above all, out work everyone else. And it is time to get to work.