As we enter the final stretch of 2022, members in both chambers will be in their respective home states for most of August and are not anticipated to return to DC until after Labor Day. But even after the recess, there remains little time on the legislative calendar as members are expected to be out for extended periods of time over the next few months given the November midterm elections.
Although issues like COVID-19 variants, inflation, gun control, and reproductive rights have garnered much of the spotlight in recent months, the fact that 2022 is an election year means these and many other issues are certainly on the minds of lawmakers as they try to find the right message to resonate with voters. Some critical items remain on the congressional agenda, such as completing appropriations work for FY 2023 as well as possibly advancing some semblance of President Biden’s Build Back Better package.
Funding the federal government for the next fiscal year must be resolved before the end of September, otherwise we face a possible government shutdown. Before heading to their home districts, lawmakers in the House managed to pass a massive spending bill in an effort to keep the federal appropriations process on track before current spending expires. But the Senate has yet to act on their appropriations bills which could make September interesting, setting the stage for a scramble to pass major pieces of funding legislation.
The limited number of legislative vehicles with a chance of floor action provides few options to advance public finance priorities. Provisions to reinstate tax-exempt advance refunding and increasing the small issuer exception (aka bank qualified) saw some of the most progress to date in 2021, both were included in an early House-passed version of the infrastructure package. Since then, their fate has remained in limbo after the pared-down Infrastructure Investment and Jobs Act was enacted last November.
But that does not mean all hope is lost, as some opportunities remain before the end of the 117th Congress. At a minimum, raising public finance priorities now could lay the groundwork for the next Congress. With lawmakers back home, now is the time for GFOA members to be heard by contacting members of your congressional delegation. This is a powerful way to advocate to members of Congress and the GFOA needs your support!
Ideas for Outreach
In the 117th Session, Congresswoman Terri Sewell (D-AL) introduced H.R. 2634, the Local Infrastructure Financing Tools (LIFT) Act that includes – among other bond provisions – an increase to the small issuer exception to $30M and permanently pegs future increases to inflation. A similar provision was included in the House-passed versions of the Build Back Better Act in 2021, as well as the Moving Forward Act in 2020.
This notable momentum was building off progress made in 2019, when Congresswoman Sewell and Congressman Tom Reed (R-NY) introduced H.R. 3967, the Municipal Bond Market Support Act of 2019, to expand access to financial resources for local governments, non-profits, and other public-serving entities that issue relatively smaller amounts of tax-exempt debt.
By making the proposed changes more tax-exempt bonds can be deemed as “bank qualified,” allowing borrowers that issue less than $30 million per calendar year to forego traditional underwriting processes. These changes would expand access to resources for many public-serving infrastructure projects and services including schools, hospitals, roads, and more.
· Since bank-qualified bonds were created in 1986, the program’s $10 million cap has not kept pace with inflation or the cost of labor, land, and materials associated with most public infrastructure projects.
· Increasing the cap to $30 million not only brings the program into the modern age but also enables smaller governments to increase the amount of bank-qualified bonds they can issue and realize corresponding cost savings.
· Small issuers selling these bonds directly to banks decreases debt-issuance costs for governments by an estimated 25-40 basis points because smaller, less-frequent issuers do not have to pay higher yields to investors due to investor unfamiliarity with the issuer’s jurisdiction, and these small issuers do not have to pay transaction costs associated with traditional bond sales.
· Urge your Representatives to cosponsor this legislation and to call on House leadership to include this in any year-end package. In conjunction, urge your Senators to introduce companion legislation.
Click here for GFOA’s Bank Qualified Debt resource page.
In the 117th, a bipartisan Senate bill was introduced S. 479, the Lifting Our Communities through Advance Liquidity for Infrastructure (LOCAL) Act - by Sens. Roger Wicker (R-MS) and Debbie Stabenow (D-MI). Subsequently, the Co-Chairs of the House Municipal Finance Caucus (Dutch Ruppersberger (D-MD) and Steve Stivers (R-OH)) reintroduced their bill, H.R. 2288, the Investing in Our Communities Act. Further, Congresswoman Terri Sewell introduced H.R. 2634, the Local Infrastructure Financing Tools (LIFT) Act, that, among other municipal bond provisions, includes a restoration of tax-exempt advance refunding.
Like the progress of the small issuer exception, the reinstatement of tax-exempt advance refunding was included in the House-passed versions of the Build Back Better Act in 2021, as well as the Moving Forward Act in 2020. This success is attributable to the substantial support and progress the issue witnessed in the 116th and 115th Sessions of Congress.
· The 2017 Tax Cuts and Jobs Act (TCJA) repealed this critical cost-savings tool for state and local governments and has limited the options to refinance debt, which could free up capital and be put to immediate public works purposes.
· Having the option to refinance debt is a valuable financial management tool, especially since interest rates will certainly fluctuate over the lifetime of outstanding governmental bonds (which in many cases is 30 years). Without tax-exempt advance refunding bonds, state and local governments will pay more in interest, a cost that must be paid by state and local taxpayers.
· Urge your Senators/Representatives to cosponsor these important bills and to call on leadership of their respective chamber to include this in any year-end package.
The FLC has produced multiple research and advocacy materials to inform Congress of the impact the loss of advance refunding has had on public finance officers and the communities they serve.
Click here for GFOA’s Advance Refunding resource page.
After more than two years since the start of the COVID-19 pandemic, state and local governments continue to respond to the evolving needs of their communities as variants emerge. The infusion of federal funding at critical points throughout the pandemic have certainly benefited local communities and enabled state and local governments to weather the highly unpredictable fiscal environment. While state and local governments are not requesting additional funding, providing additional flexibility in how funds may be used is critical for state and local governments to continue tailoring their responses based on the evolving needs of their constituents. There are currently two such initiatives in Congress (discussed below) that GFOA supports.
S. 3011, the State, Local, Tribal, and Territorial Fiscal Recovery, Infrastructure, and Disaster Relief Flexibility Act, would allow state and local fiscal recovery fund recipients to use funds for new categories of spending, including for natural disasters and infrastructure projects. The language was initially proposed as an amendment to the Infrastructure Investment and Jobs Act but was subsequently passed as a standalone bill by the Senate on October 19, 2021. It is undetermined if and when the House might act on the legislation, and the House companion bill is H.R. 5735.
· Urge your Representatives to cosponsor H.R. 5735 and to call on leadership to swiftly take up the bill and follow the Senate’s action.
August Recess Toolkit Video
Why Your Voice is Important
With members of Congress in their states and districts over the next few weeks, public finance officials have a great opportunity to draw attention and educate federal lawmakers on key policy issues that are impacting your jurisdiction now and in the future. GFOA members are urged to reach out during this critical time. YOU CAN HELP SHAPE THE FEDERAL LEGISLATIVE AGENDA when Congress returns in September. Please share any outreach you conduct with GFOA’s Federal Liaison Center and let us know if we can provide any follow up with member offices in Washington, DC.