Bonds and Financing

NCPA’s Howard, others underscore the need to reinstate advance refunding bonds at hearing

Randy Howard, General Manager of the Northern California Power Agency (NCPA), and other panelists at a congressional hearing on March 11 underscored the need for Congress to reinstate advance refunding bonds, among other key bond modernization steps.

Howard testified at a virtual hearing held by the House Ways and Means Committee’s Select Revenue Measures Subcommittee on tax tools to help local governments. He testified on behalf of NCPA and the American Public Power Association.

To address challenges facing public power, “we believe energy-related federal tax incentives should be made more broadly and equitably available to governmental entities. We also believe that the tax code’s treatment of tax-exempt municipal bonds could be improved to make it more efficient. Combined, these changes are critical to any ‘build back better’ initiative,” Howard told the lawmakers.

With respect to bonds, he argued in favor of a bond modernization agenda including reinstating tax-exempt advance refunding bonds, increasing the smaller issuer exception and restoring and expanding the use of direct-pay bonds, including protecting direct payment bonds from budget sequestration.

“We’re also glad to see bi-partisan interest from the subcommittee in improving energy tax incentives,” Howard said. Investment tax credits (ITC) and production tax credits (PTC) for energy projects are effectively federal expenditures, he noted.

“However, because these expenditures are administered through the tax code tax-exempt entities including public power utilities can only indirectly benefit,” Howard said.

“Generally, we do so by entering into long-term power purchase agreements with taxable entities” that can claim these tax credits, which public power cannot.

The transaction costs and the complexity of power purchase agreements can be quite high, Howard pointed out. In addition, only a portion of the value of the tax credit is generally passed on to the purchaser, “thus muting the incentive benefits to tens of millions of consumers.”

Howard also said that “as community owned utilities, we often prefer to own and operate our own resources” to assure future cost certainty and energy supply reliability.

The NCPA general manager touted the benefits of the Growing Renewable Energy and Efficiency Now (GREEN) Act of 2021, which was introduced by House Ways and Means Committee Democrats in February.

Howard noted that the GREEN Act would make energy tax credits refundable. “This would give public power utilities and other state and local entities and others with little or no tax liability comparable incentives to make” investments.

“We strongly support this approach,” he said. “Making the PTC and the ITC refundable will avoid complex and costly alternatives.”

Moreover, Howard said that encouraging cities and towns to build their own generation “means local projects under local control with local jobs.”

By way of example, he noted that the City of Healdsburg, Calif., a NCPA member, recently completed the largest floating solar project in the country at its water treatment facility. This project will serve approximately 8 percent of the community’s power needs going forward and provides several additional benefits.

Because of the project benefits, Healdsburg proceeded with a power purchase agreement where the developer applied for the ITC, but the city is challenged by allowing a third-party lease and operational access to such a critical part of its community infrastructure.

With a comparable incentive, Healdsburg would have developed and owned this project directly, Howard pointed out.

For additional details on the project, click here for a related Public Power Current article.

Other witnesses also back reinstating advance refunding bonds

Other witnesses at the hearing were Stephen Benjamin, mayor of Columbia, South Carolina, Kevin Boyce – Franklin County Board of Commissioners, Chairman of the Finance, Pensions and Intergovernmental Affairs Steering Committee, National Association of Counties, Elizabeth Reich, Chief Financial Officer, City of Dallas and Michael Hendrix, Director of State and Local Policy at Manhattan Institute.

For her part, Reich said that in the next legislative package related to infrastructure, Congress should, among other things, restore advance refunding of tax-exempt bonds. She noted that between 2007 and 2017 there were over 12,000 tax-exempt advance refundings nationwide, generating over $18 billion in savings for tax and ratepayers over the 10-year period.

“Restoring tax exempt advance refunding would be of immense help for planning and budgeting purposes for the City of Dallas and other communities,” she said. 

Reich also spoke in support of tax-exempt bonds and direct payment bonds.

“As you develop and consider an infrastructure recovery proposal, we encourage you obviously to maintain the tax-exempt status of municipal bonds and pass legislation that also reinstates the tax exemption for advance refunding of muni bonds,” Benjamin said.

Boyce also asked Congress to protect the status of tax-exempt bonds, reinstate the ability to issue tax-exempt advance refunding bonds, and reinstate the ability to issue direct payment bonds. He added that Congress should also increase the small-issuer exception from $10 million of issuance per year to $30 million.

Letter from NTUA GM Wally Haase

A letter from Navajo Tribal Utility Authority General Manager Wally Haase to Subcommittee Chairman Mike Thompson, D-Calif., was formally entered into the hearing record by Thompson.

In the letter, Haase states that increasing the benefits of tax incentives to NTUA “would allow NTUA to increase infrastructure development in the Navajo nation for renewable energy, electric distribution, communication, water, and wastewater services for Navajo homes.”

Sens. Roger Wicker, R-Miss., and Debbie Stabenow. D-Mich., on Feb. 25 introduced legislation that would reinstate the ability to issue tax-exempt advance refunding bonds. The bill is supported by APPA.