Connecting state and local government leaders
U.S. House lawmakers reintroduced a bill dealing with the issue this week.
A federal tax break for bonds that state and local governments have used in the past to refinance and restructure debt would be reinstated under legislation the bipartisan leaders of the U.S. House municipal finance caucus reintroduced this week.
The tax exemption for interest earned on “advance refunding” bonds was eliminated by the 2017 federal tax overhaul. This change was opposed by state and local government groups. Counties, mayors, and state treasurers, among others, have been pushing to get it reversed.
Reps. C. A. Dutch Ruppersberger, a Maryland Democrat, and Steve Stivers, an Ohio Republican, who are the co-chairs of the House municipal finance caucus, are lead sponsors on the bill. It has eight other co-sponsors, six of them Democrats.
A spokesperson for Ruppersberger’s office said by email on Friday the bill is the same as a measure to restore the advance refunding tax exemption that the congressman backed last year. That legislation attracted 20 co-sponsors but failed to go anywhere.
David Damschen, president of the National Association of State Treasurers and Utah’s state treasurer applauded the new bill in a statement, calling it an “essential piece of legislation.”
Advance refunding offers municipal borrowers a way to issue new debt to refinance or restructure outstanding bonds, more than 90 days before the outstanding bonds reach their “call date”—a date when the borrower is allowed to pay the original bonds off.
By nixing the advance refunding exemption, lawmakers who drafted the 2017 tax package came up with roughly $17.4 billion over 10 years to help pay for the tax cuts for corporations and individuals that were at the heart of the legislation.
But state and local officials have warned that by eliminating the tax exemption federal lawmakers took away an important tool that cities, counties and states often used to refinance debt at lower interest rates and, in turn, save taxpayers money.
Figures compiled by the Government Finance Officers Association show that at least 8,353 tax-exempt advance refundings took place across the U.S. between 2012 and 2016, totaling $391 billion, and resulting in an estimated minimum savings of $11.7 billion.
In 2017, the volume of advance refunding bonds was $84.2 billion, resulting in savings for taxpayers of over $2.5 billion, according to GFOA figures cited by the National League of Cities.
In survey results NLC published last year, 61 percent of city finance officers reported that the loss of tax exempt advance refunding would have negative effects on the future fiscal health of their city and 35 percent said they were seeing negative effects already.
Much of the government borrowing that goes on at the state and local level is to pay for projects involving roads, waterworks, schools and other infrastructure—an area that President Trump has identified as a priority throughout his time in office.
Bill Lucia is a Senior Reporter for Route Fifty and is based in Olympia, Washington.