With the new Congress and President settling into Washington, we now enter time where the new administration lays out its key goals and looks for opportunities where these initiatives can find traction. GFOA priority items for the new Administration and Congress include consideration of legislation dealing with an overhaul of the federal tax code through comprehensive tax reform, collection of state and local taxes on remote sales, legislation to classify investment-grade municipal bonds as High Quality Liquid Assets (HQLA), efforts to repeal or significantly reform the Affordable Care Act (ACA), and attempts to revise the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Below is an overview of expected federal activity in 2017 that includes discussion of GFOA’s related advocacy campaigns. The GFOA’s Federal Liaison Center will monitor these legislative and regulatory activities and work to advance the public policy positions adopted by the GFOA membership. The association’s legislative and regulatory priorities for the year are listed below.
While there has been a great deal of discussion both pre and post-election on fixing and building new public infrastructure – and how to pay for it – tax writers are already drafting legislation that could have a significant impact on the preservation of the tax exemption on municipal bond interest.
- The Blueprint preserves the mortgage interest deduction and the charitable giving deduction, but it does not directly address the tax exemption of municipal bonds.
- In addition the House Municipal Finance Caucus has been engaged throughout the process we look forward to work with them directly on preservation of the tax exemption in 2017
- GFOA will also continue to promote its policies to ensure that governments have an additional advanced refunding, and that the bank qualified limit is increased, permanently from $10 million to $30 million, and indexed to inflation thereafter.
Other Municipal Bonds Initiatives
Disclosure Standards: In 2014-2016 SEC’s Enforcement Division increased its focus on improving continuing disclosure compliance through the Municipalities Continuing Disclosure Cooperation (MCDC) initiative. In mid-December 2016, the SEC stated that it has concluded actions against issuers and underwriters that self-reported in the MCDC program and will now turn their attention to issuers, underwriters and obligors that did not participate.
Implementation of the Dodd-Frank Act: When the Dodd Frank Act was debated and voted on, GFOA advocated for numerous provisions which are in the final law. These include:
- Ensuring that rating agencies use the same measures for all securities, and have increased transparency standards regarding their rating methodologies.
- Regulating MAs and derivative products are also GFOA public policies contained in the Act.
- Finally, changes to MSRB responsibilities to the marketplace and their mission are issues of interest to GFOA.
Legislation to Classify Municipal Securities as High Quality Liquid Assets (HQLA): GFOA will be working with its state and local government and public finance partners to have legislation re-introduced that would classify municipal securities as high quality liquid assets.
- While legislation to overcome this problem was passed in the House last year, the Senate failed to vote on legislation that was introduced by a bi-partisan group of Senators.
- In 2017, GFOA will work to increase sponsors for this legislation, and push for its passage.
IRS Redefining ‘Issue Price’: The IRS issued its Final Issue Price Regulations last December. Since first proposed in 2013, GFOA testified at hearings, submitted numerous comment letters and met with IRS and Treasury staff expressing concerns about the proposed regulations. The final Issue Price regulations are significantly different than current regulations, although they are a better compromise than what was first proposed, and do acknowledge many of the concerns GFOA commented on throughout the years
Pensions and Retirement
Continued scrutiny of state and local government retirement plans is expected to last into 2017. GFOA will continue to educate members of Congress about the true fiscal condition and disclosure practices of public pension systems.
- Legislation that may be a potential threat in the 115th Congress is another iteration of The Public Employee Pension Transparency Act (PEPTA), sponsored in the past by Rep Nunes (R-CA)
- GFOA is working to ensure that the provisions in the now-established Puerto Rico Oversight Management, and Economic Stability Act (PROMESA) and recommendations from its Congressional oversight committee do not apply to state and local governments in the US.
Health Care and Compensation
There are specific items of concern that are especially important and will be dealt with in a particularly swift manner in the 2017 Congressional calendar.
- It is widely believed that Congress will address changes or possibly dismantle the Affordable Care Act early in the 115th Congress. Those efforts may include changes to the Cadillac Tax, which GFOA policy acknowledges as an unfunded mandate.
Marketplace Fairness & the Preemption of State and Local Government Taxes
Legislative Strategy: GFOA and our partners in the State and local government community will continue to strongly oppose any federal preemption of State and local taxing authority. These measures threaten to reduce State and local tax revenues even as States and localities struggle to fund critical services like education, health care, and public safety.
- As Congress begins working in 2017, we expect to see a debate revisited on the Marketplace Fairness Act. The Senate’s Marketplace Fairness Act legislation (as has been introduced in previous congresses) would compel retailers to collect and remit taxes to State and local governments on online purchases based on the location of the consumer. Similar legislation was introduced last Congress in the House by Representative Chaffetz (R-UT), the Remote Transactions Parity Act.
- The legislation in the House did not move forward as the Chairman of the House Judiciary Committee, Representative Goodlatte (R-VA) proposed a discussion draft that differs from the Chaffetz and Senate versions.
Legal Strategy: As an alternative strategy, the GFOA, along with Big Seven members of the State and Local Legal Center (SLLC) have turned to focus on the “right” case for the Supreme Court to consider this issue.
- Each amicus brief has cited the devastating impact that the 1992 Quill Corp. v. North Dakota Supreme Court ruling has had on state and local governments in light of the rise of Internet purchases, Congress’s failure to pass the Marketplace Fairness Act, and states’ need to improve use tax collection through statutes like Colorado’s.
- While a number of state legislatures have considered or passed legislation requiring remote vendors to collect sales tax at the state level, South Dakota’s law is the first to generate a lawsuit.