Issuers push muni priorities in Senate hearing

Issuers and development advocates are urging lawmakers to include long-held municipal market priorities such as advance refunding, raising the bank-qualified debt limit and a direct pay bond program, on top of the expansion of the Tax Cuts and Jobs Act’s Opportunity Zones, and the New Markets Tax Credit in any upcoming tax legislation.

That was discussed as part of the Senate Finance Committee hearing Tuesday where those tools were said to be essential tools aiding economic development across the country.

This discussion also comes during the Senate’s final week in session before its six-week summer recess and where lawmakers are expected to vote on a tax bill proposed by Sens. Ron Wyden and Jason Smith, that includes an expansion of the much talked about child tax credit.

A big highlight of pushing through a vote this week is to show where Republicans stand on the issue, despite the bill receiving modest bipartisan support. Both Sen. Chuck Schumer, D-N.Y., and Senate Finance Committee Chair Wyden, D-Ore., are pitching it as such.

“The Republican senators have been talking a big game when it comes to helping kids and families. But when it comes to voting, they just haven’t been there,” Wyden said.

During the hearing, Wyden did not stress the passage of the bill and instead discussed the role he played in passing the Build America Bonds program and what can be included in future tax bills to help economic development. 

“Congress is facing a big tax deadline at the end of next year and we ought to be trying to find everything creative to try and give local communities a chance to tap potential good ideas,” Wyden said.

LaShea Lofton, deputy city manager for the city of Dayton, Ohio, testifying on behalf of the Government Finance Officers Association, urged that the restoration of tax-exempt advance refunding is the most important tool issuers can use to develop their own communities.

“In 2018, after tax-exempt advance refunding was no longer available to issuers, Dayton issued just over $11 million in debt to finance capital improvements,” Lofton said. “If tax-exempt advance refunding was still available to us, we could have taken advantage of favorable interest rates at some point over the life of those bonds and potentially generate a minimum of over $300,000 in savings for that amount of debt issued,” she added. “This may not seem like much to some cities, but for ours with a population of nearly 136,000, this would allow us to reconstruct a dangerously deteriorated road in a commercial district, or construct sidewalks and bike paths that allow residents to get to one of our newly built local libraries.”

Lofton also urged lawmakers to include increasing the bank-qualified borrowing limit to $30 million from $10 million and having it apply at the borrower level, in addition to the restoration and expansion of a direct-pay bond program and preserving the tax-exemption, which many others are urging as well.

“The tax-exempt status of municipal bonds has been a cornerstone of infrastructure financing, benefiting both rural and urban areas across our nation for over a century,”  said American Securities Association president and chief executive officer Chris Iacovella in a statement concerning the hearing. “ASA looks forward to working with policymakers to preserve this long-standing tax treatment which is a driver of economic growth and an improved quality of life for all Americans in every state.”

Another issue which took up much of the hearing was Opportunity Zones, created as part of the 2017 Tax Cuts and Jobs Act, and which Wyden described as “one costly example” for improving local communities. The program is not a bond program necessarily but some have said that the program will be a boost to the muni market as its designed to allow people to invest in distressed areas through Qualified Opportunity Zones.

“It was created as another way to boost struggling communities at a cost of around $1 billion,” Wyden said in his prepared remarks. “But the eligibility rules were too loose and the safeguards against waste were too lax. There have been some success stories, but for every affordable housing development, there’s a casino, or a stadium or crypto mining facility going up,” he added. “Just one percent of the areas eligible for Opportunity Zone dollars have hoovered up nearly half the invested money. More than three quarters of the OZ funding has gone to only five percent of eligible areas. That’s not a lot of shared prosperity.”

But Shay Hawkins, president of Opportunity Funds Association said that the program was arguably the most successful community development program in American history and in targeting private investments, the program has done remarkably well at targeting areas that have been deindustrialized, and shows how tax policy can be used to “build supply chains, encourage reinvestment and renew prosperity around the country,” he said.

“The best and most immediate way for Congress to support OZ communities is by enacting a one-time, two-year extension of the investment and deferral period for qualifying OZ investments,” Hawkins said. “This change, which is reflected in the bipartisan OZTEIA bill, would recoup time lost during regulatory implementation, recoup time lost during the COVID-19 pandemic, and create a stronger incentive for investment in low-income communities at a time when high interest rates have become a major barrier.”