Bonds and Financing

It's time to update public financing of public infrastructure

As the 116th Congress gets underway, there is a general consensus that lawmakers should work on infrastructure legislation. That consensus comes without a lot of agreement on what Congress should do. Much of the debate centers around transportation infrastructure — gasoline taxes, toll roads and other ways to raise new revenue for highway projects. Nonetheless, the American Public Power Association and other stakeholders see this as an opportunity to update and improve an already powerful tool — tax-exempt municipal bonds.

The message is simple and clear — a Municipal Bond Modernization Act would make it easier and less costly to finance the investments that make our communities livable and commerce possible in the cities, towns and villages that public power serves.

In the last decade, tax-exempt municipal bonds have financed more than $2 trillion in investments in roads, bridges, schools, hospitals, airports, ports, water systems and the like — and are on track to finance another $3 trillion in such investments over the next decade. Likewise, public power utilities have used tax-exempt municipal bonds to finance roughly $75 billion in investments in the last decade and to continue to make roughly $5 billion in additional investments every year. However, the tax treatment of municipal bonds is behind the times, with the last major review made more than 30 years ago.

Sadly, the Tax Cuts and Jobs Act of 2017 missed the opportunity to improve upon this incredibly powerful financing engine. We should not allow another chance to slip by. That’s why the Association and other stakeholders are calling for a Municipal Bond Modernization Act. Such an act could undo damage done in recent legislation and update provisions that have been left untouched for decades. These changes would make the public financing of public infrastructure simpler and more affordable. That means more time — and resources — to tackle the day-to-day responsibilities of governance.

We propose eliminating the new tax that was placed on advance refunding bonds by the Tax Cuts and Jobs Act. This new tax is making it harder — and more expensive — to refinance existing debt and more costly to issue new debt — both steps in the wrong direction if Congress wants to encourage new infrastructure investment.

The bill should also stop federal budget sequestration of tax credit payments to Build America Bond issuers. These payments were promised to public power utilities and other BAB issuers willing to undertake new projects at the lowest point of the global financial crisis. Instead, Congress has reneged on that deal by imposing $1.6 billion in across-the-board “sequestration” cuts to these payments.

Additionally, this plan would revisit limits set in 1986 to increase the number of smaller towns, villages and utilities from which banks could purchase debt — a significant cost-savings to these issuers. The plan would also simplify “private use” rules that needlessly complicate bond financing and, in some instances, are intentionally punitive to public power. Again, these are rules that were set more than 30 years ago and need to be reconsidered.

The Association is taking these proposals to the Hill. So are allied stakeholders, such as the Government Finance Officers Association. Working together, we can ensure that these good ideas are included in whatever infrastructure legislation Congress advances in the 116th Congress.

You, too, can help by making the case for bond modernization in your conversations with your Congressional delegation and its staff. We will gladly provide any materials you need to make that case — email us at [email protected].