The American Public Power Association on Jan. 29 applauded the inclusion of advance refunding bonds in a House infrastructure framework unveiled by Democrats.
As part of the House Democratic “Moving Forward Framework,” the House Ways and Means Committee announced that it intends to reinstate the ability to issue tax-exempt advance refunding bonds, which historically were used by states and localities, including public power utilities, to save billions of dollars in financing costs. Their issuance, however, was prohibited beginning in 2018 to raise revenue for tax reform.
“Advance refunding bonds were a vital tool for public power utilities to refinance and restructure existing debt,” said American Public Power Association President and CEO Joy Ditto. “Allowing their issuance will save billions of dollars that can be put toward critical investments. We applaud their inclusion in the Moving Forward Framework.”
In recent remarks made at the United States Energy Association’s State of the Energy Industry Forum in Washington, D.C., Ditto outlined the Association’s top regulatory and legislative issues in 2020. With respect to tax issues, she said that the Association would continue to push for the reestablishment of the advance refunding mechanism.
Similar to refinancing a home mortgage, a state or local issuer can refinance – or “refund” – a tax-exempt municipal bond by issuing a new “refunding” bond.
However, while a mortgage generally can be refinanced at any time, a bond cannot be refunded until the “call” date of the bond, generally 10 years after the bond was issued.
Prior to 2018, states and localities had greater flexibility and could issue “advance refunding” bonds prior to the original bond’s call date. These bonds helped issuers adjust their debt portfolio, but also saved billions of dollars.
In fact, in the five years prior to their repeal, state and local governments saved more than $11 billion in debt costs by issuing advance refunding bonds, the Association noted. These savings were reinvested or passed on to state and local residents.
Click here to watch a video that explains the benefits of advance refunding bonds.