State of the Union Address Reveals Infrastructure Expectations
In his State of the Union address, President Trump outlined to Congress a series of expectations for a 2018 infrastructure legislative package, encouraging a bipartisan approach. As always, GFOA shares the same goal of bipartisan legislation. The president also stressed that rolling back certain regulations and permits would be key, setting a goal of less than two years for the permit process for certain projects.
The president also requested that Congress produce legislation that would generate at least $1.5 trillion for new infrastructure investment, suggesting that this be accomplished through partnerships with state and local governments and, “where appropriate, tapping into private sector investment.” GFOA will continue to work toward keeping any new proposed programs from cutting current funding programs or diminishing the vital and longstanding tax-exempt bond market.
Infrastructure funding and financing remain central to GFOA’s platform. The Federal Liaison Center will continue to share these policies and best practices with members of Congress as they consider infrastructure legislation in the coming months:
- The municipal bond interest exemption
- Public Policy Statement on Private Activity Bonds
- GFOA Member Alert on Private Activity Bonds
- Public-Private Partnership Overview
- Public-Private Partnership Advisory
Struggling Communities Might Benefit from Provision in New Tax Bill
A provision on page 130 of the new tax bill creates Opportunity Zones, “which will use tax incentives to draw long-term investment to parts of America that continue to struggle with high poverty and sluggish job and business growth,” the New York Times reported. These zones could revitalize neglected communities while helping investors avoid capital gains taxes. One of the main questions, of course, is “whether investors will steer dollars toward areas that really need investment” – rural or “rustbelt” areas, for example, as opposed to major metropolitan areas, where new jobs are concentrated.
The article explains: The new provision “instructs governors in each state and territory, along with the mayor of the District of Columbia, to designate Opportunity Zones from a pool of low-income, high-poverty census tracts, subject to certification by the Treasury secretary. States cannot nominate all their qualifying tracts for that status — they are limited to only a quarter of eligible tracts. Investors, like banks or hedge funds, then create Opportunity Funds to seed either new businesses in those areas, expansions of existing ones or real estate development.”
Remote Sales Tax Legislation Poised for Potential Action – Now is the Time for Grassroots Outreach
Federal remote sales tax legislation, a longstanding priority for GFOA, stands poised for potential action, given the U.S. Supreme Court’s recent decision to hear a case to determine the validity of a South Dakota law requiring remote sellers to collect sales tax. As it currently stands, the Supreme Court is expected to have a decision on the case by the end of June. With this development, GFOA and other proponents of establishing a federal framework are actively seeking opportunities to advance bills like H.R. 2193, the Remote Transactions Parity Act (RTPA), or S. 976, the Marketplace Fairness Act (MFA).
Both RTPA and MFA have seen a few iterations over the last decade or so, as the issue of taxing remote sales is nothing new to Congress. The issue dates back to mail-order businesses, but the debate has been revived in recent years due to state and local governments becoming keenly aware of the impact on sales taxes (a result of the substantial growth of remote sales over the Internet). GFOA has supported bills like RTPA and MFA because they establish a federal framework in the form of two options: States would either adopt the minimum simplification requirements detailed in the bill, or they could begin collecting if they are a part of the Streamline Sales and Use Tax Agreement (SSUTA). Twenty-four states participate in the SSUTA, providing a framework for tax simplification and a forum for the business and government communities to collaboratively work through tax administration issues.
Whether it is in the court or Congress, we should see some sort of resolution to the issue this year. GFOA encourages members to reach out to their congressional delegations and urge them to cosponsor the legislation and call on leaders in both chambers to act on the bills. GFOA will continue to monitor and report developments as they occur.
See GFOA’s Marketplace Fairness Act & The Remote Transactions Parity Act Resource Center for more information.
White House Releases Fiscal 2019 Budget Request
On February 12, the Trump administration released its FY 2019 Budget Request to kick off the annual federal budget process. Such requests rarely become law; they generally serve as an outline of what the current administration’s priorities are for the upcoming year. There are two larger challenges facing this year’s release of the budget request; Congress has yet to fund the remainder of fiscal 2018, and last week congressional leaders brokered a budget deal that included two-year spending caps. The caps, especially on non-defense spending, contrast the steep cuts proposed in the administration’s fiscal 2019 request, which totals a bit over $4 trillion. How much the request will guide spending talks on Capitol Hill is uncertain.
For state and local governments, issuers will continue to see cuts in federal bond subsidy payments in fiscal 2019 because federal sequestration remains in place. This applies to issuers of Build America Bonds or those that receive subsidy payments on existing qualified tax credit bonds issued before January 1, 2018. The request also affects infrastructure investment, proposing the elimination of grant programs like the Transportation Investment Generating Economic Recovery program and the Community Development Block Grant program. Click here for the general overview of the budget request from the White House. Over the coming months, GFOA will continue monitoring the spending talks as they progress and report any major developments.
Infrastructure Proposal Released for Congressional Consideration
On February 12, the White House released an infrastructure proposal detailing plans for a comprehensive approach for public infrastructure in the United States. According to the plan, the federal government will fund $200 billion (from unspecified services), and state and local governments will close the gap for a total of $1.5 trillion in spending, with the help of the private sector. The $200 billion breaks out as follows:
- $100 billion for the Incentives Program allocated to the Department of Transportation, the Environmental Protection Agency, and the United States Army Corps of Engineers. Other agencies will be able to petition those agencies to gain access to some of those funds for approved projects. No state can receive more than 10% of all the funds allocated to the Incentives Program.
- $50 billion in block grants to a Rural Infrastructure Program, 80% of which would be distributed directly to state governors based on a set formula. The remaining 20% would be reserved for rural performance grants, which require states to submit an application detailing the merit of proposed projects.
- $20 billion would be allocated for the Transformative Projects Program, which seeks to fund projects that “fundamentally transform the way infrastructure is delivered or operated” and “...have significantly more risk than standard infrastructure projects.”
- $20 billion would go to increasing credit access for infrastructure projects by increasing the capacity of existing federal credit programs and expanding availability of tax-exempt Private Activity bonds (PABs). The proposal also aims to eliminate the alternative minimum tax provision on PABs and remove state volume caps on PABs for public-purpose infrastructure.
- $10 billion would go toward a revolving fund for financing “large-dollar real property purchases.”
Members of Congress and the White House officials have said that a bipartisan effort is necessary to produce a successful infrastructure bill. However, concerns have already been voiced over the fundamentals of the bill, specifically the source of federal dollars and the major appeal to private investment in public infrastructure.
Legislation Introduced to Restore Tax-Exempt Advanced Refunding
Congressman Randy Hultgren (IL-14) and Congressman Dutch Ruppersberger (MD-2), co-chairs of the House Municipal Finance Caucus, introduced legislation this week that would restore tax-exempt advanced refunding. We are pleased to see Mr. Hultgren and Mr. Ruppersberger continue to exhibit leadership on tax-exempt advanced refunding in the wake of tax reform. Communities across the country achieved substantial savings though advanced refunding transactions through December 31, 2017. Advanced refundings made up nearly 20% of the market activity in 2017, with issuers saving 5 to 7% of par, on average.
Issuers are preparing to assess the feasibility of alternative market solutions for current and future issuances. In the meantime, GFOA will continue to advocate for the full restoration of tax-exempt advance refundings with our congressional advocates. We will also continue to work with the House Municipal Finance Caucus to ensure that it progresses as quickly as possible and enters the infrastructure discussion wherever possible.