GFOA Secures Wins in End-of-Year Federal Legislation
On December 18 Congress approved a $1.1 trillion fiscal 2016 omnibus spending package that includes two GFOA priority items: a two-year extension of the Cadillac Tax and a one-year extension of the Internet Tax Freedom Act.
The Cadillac Tax: The omnibus spending bill contains a two-year delay of the implementation of the Cadillac Tax. Thanks in part to an informational campaign conducted by GFOA with a broad coalition of public and private employers, retirement systems, and many other interested groups, repealing the Cadillac Tax levied on high-cost employer-sponsored health coverage gained bipartisan and bicameral support throughout the last few months of 2015.
The Cadillac Tax, originally to become effective in 2018, has met with opposition by well over half of the members in both chambers who cosigned legislation that would fully repeal the tax. On December 3rd, for example, an amendment to repeal the tax easily passed the Senate in a 90-10 vote. This vote was merely symbolic, though, as the measure was tacked to the reconciliation bill which the White House vetoed.
While the White House does not support a two-year delay, the President has indicated he will not veto the omnibus legislation based on the postponement.
The Internet Tax Freedom Act: The fiscal 2016 omnibus spending bill extends the Internet Tax Freedom Act for just one year. This one-year extension is welcome in contrast to the alternative – a permanent extension of the ITFA, which GFOA strongly opposes.
Congressional champions of a permanent ITFA extension actually snuck the language of their ITFA bill (HR 235/S 431) into an unrelated measure (HR 644), which the House approved on December 11. However, Senate leadership soon realized that they lacked the votes to pass the a measure with permanent ITFA language included in it, thanks to a swift and direct information campaign from the GFOA, our state and local government association partners, and a coalition of Senators who support our position on ITFA. Our successful advocacy efforts stalled Senate consideration of HR 644 until February 2016. Ahead of the vote, GFOA is asking our members to send letters to their Senators urging them to oppose HR 235/S 431, the Internet Tax Freedom Forever Act, and strip the language of this measure from the conference report on HR 644. A draft letter is available for your use here.
Urge Congress to Classify Municipal Securities as High Quality Liquid Assets!
- Now Through February 1, 2016 – Ask Your House Member to Cosponsor HR 2209
On November 3 the House Financial Services Committee voted 56-1 to approve HR 2209, bipartisan legislation that would require federal regulators to classify all investment-grade, liquid and readily marketable municipal securities as High Quality Liquid Assets (HQLA). This important legislation is necessary to amend the Liquidity Coverage Ratio rule approved by federal regulators last fall. The rule classifies foreign sovereign debt securities as HQLA while excluding investment grade municipal securities in any of the acceptable investment categories for banks to meet new liquidity standards!
Not classifying municipal securities as HQLA will increase borrowing costs for state and local governments to finance public infrastructure projects, as banks will likely demand higher interest rates on yields on the purchase of municipal bonds during times of national economic stress, or even forgo the purchase of municipal securities. The resulting cost impacts for state and local governments could be significant, with bank holdings of municipal securities and loans having increased by 86 percent since 2009.
The House is expected to vote on HR 2209 in February of 2016. As the bill makes its way to the floor, the GFOA is urging our members to send letters to their House members asking them to sign on as cosponsors of the bill. A draft letter has been developed for your use which is available here.
- Starting in February 2016 – Ask Your Senators to Introduce a Senate Companion to HR 2209
In addition to the House legislation, the GFOA is working with a group of Senators to introduce a Senate companion bill to HR 2209. As part of this effort, we are asking our members to reach out to their Senators and urge them to join in being original cosponsors of this emerging bill. A draft letter has been developed for your use to support this campaign which is available here.
In September of 2014 the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (OCC) approved a rule establishing minimum liquidity requirements for large banking organizations. The liquidity coverage ratio rule was designed to ensure that large banks maintain liquid assets that can easily be converted to cash during times of national economic crisis. The rule identifies High Quality Liquid Assets (HQLA) to meet this requirement, but fails to include municipal securities in any of the acceptable investment categories (despite including foreign sovereign debt!).
Following approval of the new rule, the GFOA and our state and local association partners have urged the Federal Reserve, FDIC and OCC to amend the rule to classify investment-grade, liquid and readily marketable municipal securities as HQLA. On May 21, 2015, the Federal Reserve Board issued a proposed rule that would designate certain investment grade municipal securities as HQLA. While the GFOA is extremely grateful for the Federal Reserve’s recognition of the liquidity features of municipal securities, we have some concerns with the proposal, which we raised in our comment letter. Such concerns include the proposal’s failure to include revenue bonds as HQLA, and the limit on the total amount of general obligation (GO) securities that a financial institution can hold of no more than 5 percent of the institution’s total amount of HQLA.
Meanwhile the FDIC and OCC refuse to modify the rule for municipal securities. In the absence of cooperation from these agencies, the GFOA is working with bipartisan champions in Congress to change the rule through legislation (HR 2209) and preserve low-cost infrastructure financing for state and local governments and public sector entities.