SIFMA urges new Congress to act on muni issues

The new Congress should take action to restore advance refunding and ease liquidity issues in the municipal market by lifting the state and local tax deduction cap, the chair of the Securities Industry and Financial Markets Association’s board of directors said Thursday.

The comments from James Reynolds, Jr.,who is also CEO of Loop Capital Markets, came during SIFMA’s 2023 Capital Markets Outlook, a two-man, online panel discussion co-hosted by Reynolds and SIFMA President and CEO Kenneth Bentsen.

“We would like Congress to take up the issue of restoring advance refundings,” Reynolds said. “It was never a big revenue producer for the government. We don’t know why they took it away.” 

Advance refunding was eliminated as part of the 2017 Tax Cuts and Jobs Act, and its restoration has been a top goal of muni advocates since.

Reynolds is also backing a congressional do-over for the state and local tax deduction cap.

“Liquidity remains an issue in municipals,” he said. “There were violent swings in the value of municipals that had to do with illiquidity. Folks having to sell at prices that were not advantageous and then demand not really being there. One of the key drivers of that is the SALT exemption.”  

Bentsen said SIFMA has concerns about aggressive regulation of the fixed-income markets.

“We continue to confront a very robust and aggressive regulatory agenda from the industry’s primary regulators, the SEC,” he said.

“More than two dozen major rulemakings have been proposed with another two dozen or more expected. Some of these rules, the industry supports as proposed. We remain concerned the commission is still trying to do too much, too fast, without sufficient review of economic impact of the rules individually and as they interrelate across markets.”  

Despite the ongoing wrestling match with regulators, Bentsen did acknowledge an action SIFMA agrees with. The SEC’s no-action letter with respect to Rule 15c2-11, released this week, is intended to prevent broker-dealers from publishing quotations for a security when current information is not publicly available. The rule doesn’t apply to munis but will apply to nonprofit corporations who issue both municipal securities through state or local conduits and corporate bonds issued directly.

“We’re very pleased that the SEC put out new no-action relief extending into early 2025, which could help avoid a major market disruption in the private placement market,” Bentsen said.

The presentation dovetailed with SIFMA’s latest capital markets outlook report which details how far the market has fallen in one of the worst-performing years for the muni market in four decades. 

“As we look out to 2023 the story is really going to be inflation and the Fed,” said  Reynolds. “After peaking at 4.2% on the ten-year, yields have been trending below 4%. Market participants are trying to figure out what the new normal will be. Clients remain nervous about how to navigate the markets over the next few months.”