The House is expected to vote next week on the reauthorization of the surface transportation bill (HR2). Although exact timing is still uncertain, Speaker Pelosi has already indicated she intends to hold the vote before the chamber adjourns for the July 4 holiday. In addition to providing critical funding for transportation initiatives, several GFOA priorities have been included. Please see below for the bill text and quick summaries of the GFOA priorities currently in the bill.

Restoration of Advanced Refunding of Municipal Bonds:

• Section 90102 of HR2 restores advance refunding bonds. The 2017 Tax Cuts and Jobs Act (TCJA) repealed this critical cost-savings tool for state and local governments and has limited the options to refinance debt, which could free up capital and be put to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 advance refunding bonds, state and local governments will pay more in interest, a cost that must be paid by state and local taxpayers.

Increased Small Issuer Exception:

• Section 90103 of HR2 addresses a longstanding priority by increasing the bank qualified borrowing limit from $10 million to $30 million, tie any future increases of the limit to inflation, and apply the limit at the borrower level so that more small local governments and nonprofits could access capital for immediate project needs. The limit has not changed since 1986, but a temporary increase in the late 2000s created a market for thousands of small borrowings that helped stimulate the economy.

Direct Subsidy Bonds:

• Section 90101 of HR2 would provide direct subsidy bonds – similar to the Build America Bonds (BABs) program introduced in the late 2000s – where municipal bond issuers receive a direct payment from the U.S. Treasury in the form of a subsidy of the interest paid to investors. The subsidy payments would not be subject to sequestration.

Although not exhaustive, the above highlights issues particularly important to public finance officials. Below are links to the bill text and section-by-section explainer.

Text:  https://transportation.house.gov/download/bill-text-moving-forward-act

Section-by-section:  https://transportation.house.gov/download/sec-by-sec-moving-forward-act

It is still not too late to let your voice be heard on these issues critical to state and local finance. You may download the letter template below to draft a personalized message to your Representative and urge them to support these initiatives in HR2.

Contact My Representative

• Publication date: June 2020