Congress Killed Off Key Muni Bonds. States Push to Revive Them
(Bloomberg) -- On Tuesday, while U.S. lawmakers were seeking to keep the government from lapsing into another shutdown over President Donald Trump’s demand for a border wall, state treasurers descended on Congress with a more low-profile request: restore the subsidies for bonds issued for a major type of refinancing.
They didn’t get much of a commitment.
"There probably hasn’t been enough" pressure raised yet, Representative Ron Estes, a Republican from Kansas and former state treasurer, said during a meeting with the treasurers on Capitol Hill.
The lobbying push is a reaction to a part of the 2017 tax-cut bill that’s proven costly to states, cities and the Wall Street banks that underwrite their bonds, though it has drawn little notice outside financial-market circles. The law pulled the tax-exemption for new bonds issued for so-called advance refundings, a technique that allowed governments to refinance debt before it could be called back from investors. That change was a major reason why the volume of new debt sales tumbled by about $90 billion last year.
The issue doesn’t have the buzz of other policy issues, but it’s important, said Deborah Goldberg, the Massachusetts state treasurer, who joked that mention of advance refundings on cable news would make people turn off their TVs.
"You save lots of money for your state and you’re able to reduce the amount of money that you owe so you can do new bonding," she said while speaking to attendees. "It’s the way we build schools, bridges, roads."
The effort to resurrect the subsidies hasn’t made much progress yet, despite the impact trickling down to the local governments. A bill introduced in U.S. House of Representatives last year to restore the tax-exemption went nowhere. Another will be introduced soon, despite the political divide in Congress that poses a big obstacle to any major legislation.
Still, Trump has indicated he’s willing to reconsider the limit on state and local tax deductions -- another aspect of the tax bill that riled state governments -- and he met with New York Governor Andrew Cuomo on Tuesday to hear him out. And since the state debt officials were in Washington for the winter meeting of the National Association of State Treasurers, they used the chance to make their case directly.
The new House Ways and Means Committee Chairman, Richard Neal, sidestepped a question about advance refundings after a speech to the group, indicating it may not be high on his priority list. But Representative David Kustoff, a Tennessee Republican, told attendees that they need to get it done this year before lawmakers start focusing on the 2020 elections.
"Try to get at these issues early so we can consider them this year," he said. "In 2020, it becomes problematic."
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