The landscape of municipal finance is set to undergo a significant potential shift following recent legislative efforts aimed at restoring the ability of cities and states to advance refund tax-exempt debt. A group of bipartisan lawmakers, spearheaded by Representatives David Kustoff (R-Tenn.) and Rudy Yakym (R-Ind.), alongside Gwen Moore (D-Wis.) and Jimmy Panetta (D-Calif.), has reintroduced the Investing in Our Communities Act. Although this proposal has surfaced in previous congressional sessions and met with little success, its revival underscores a growing urgency for municipalities that seek to stimulate economic growth while managing their financial obligations.
Advance refunding is a mechanism that allows state and local governments to refinance existing debt by issuing new bonds at lower interest rates, thereby reducing overall borrowing costs. This tool was particularly significant prior to the 2017 Tax Cuts and Jobs Act, which eliminated the ability to conduct advance refunds on a tax-exempt basis. Before this legislative change, advance refunding constituted approximately 20% of all municipal bond activities, providing critical flexibility for municipalities in managing their debt portfolios.
By reintroducing this ability, lawmakers aim to equip local governments with a vital financial instrument. Kustoff emphasized that the legislation is crafted specifically to “stimulate economic development, create jobs, and save taxpayer dollars.” This reflects a broad consensus among both political parties that enabling municipalities to manage their debt more efficiently is crucial for the well-being of communities across the nation.
The push for this legislation must be viewed within the larger framework of current municipal finance challenges, particularly as the industry grapples with the potential modifications to tax-exempt bonds. The fear among municipal lobbyists is palpable, as Congress deliberates major tax reforms that could impact existing funding structures. The need to preserve the tax-exempt status of municipal bond issuances is now intertwined with the quest to restore advance refunding, creating a complex political landscape.
The 2017 legislation was a major setback for municipalities, which rely on the bond market for major infrastructure projects and services. The sharp decline of advance refunding tools has heightened the urgency of the Investing in Our Communities Act, as local governments seek ways to deal with rising costs and inflation’s pervasive impact on public projects.
The bipartisan act has garnered widespread support from an array of municipal market stakeholders, including the National Association of State Treasurers, Bond Dealers of America, and the American Society of Civil Engineers, among others. Such backing highlights a collective recognition of the importance of this tool in effective municipal governance.
Chris Iacovella, President and CEO of the American Securities Association, articulated the intention behind the legislation: “Advance refunding for municipal bonds allows state and local governments to efficiently invest in their communities, saving taxpayers money and stimulating economic growth across the nation.” This sentiment is echoed by the Large Public Power Council, which noted that restoring advance refunding could lead to substantial savings for electric customers as energy demands continue to rise.
It’s worth noting that other legislative efforts, like the Local Infrastructure Financing Tools (LIFT) Act introduced by Rep. Terri Sewell (D-Ala.), also aim to address similar needs. However, like previous iterations of this legislation, Sewell’s initiative has yet to gain the momentum necessary for advancement. The parallel existence of multiple proposed acts underscores the urgency with which lawmakers are tackling municipal financing challenges.
The reintroduction of the Investing in Our Communities Act marks a crucial moment for municipal finance, presenting an opportunity for local and state governments to regain a valuable financial tool lost in recent years. As economic pressures mount and public infrastructure needs remain pressing, the successful passage of this bipartisan legislation could unlock significant resources for communities nationwide, fostering growth and efficiency in a manner that directly benefits taxpayers. Thus, the implications of such legislative measures are far-reaching, resonating across various sectors that depend on efficient, effective municipal financing.