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Republican legislators have placed tax-exempt bonds on the regulatory chopping block — as the cost to renew expiring provisions of President Donald Trump’s 2017 Tax Cuts and Jobs Act continues to grow — putting municipal leaders in the eye of a storm.
Public finance advocates are flocking en masse to Capitol Hill in an effort to convince representatives of how significant the exemption is for the markets, amid efforts to return tax-exempt advance refunding and lift the ceiling on bank-qualified debt.
But with lawmakers seeking to go beyond tax-exempt bonds and eliminate individual and business state and local tax deductions, municipal leaders are fighting battles on many fronts.
Read more about the top issues plaguing professionals in the bond markets and the proposals to keep an eye on.
Matt Stroshane/Bloomberg News
GOP policy cuts go beyond tax-exemption, to infrastructure, hospitals
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A House Republican menu of proposed cuts and revenue-raisers floated last month,
The Bond Dealers of America and other municipal market groups circulated
The estimated cost of extending the TCJA totals around $4 trillion, although Republicans have yet to name a final figure, which will be determined in part by the scoring process they use.
W.Scott McGill – stock.adobe.com
Tax-exempt bonds axed in menu of options floated by Ways and Means
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The House Ways and Means Committee is considering the total elimination of tax-exempt bonds, according to a 51-page list of targeted programs, policies and plans for a reconciliation bill obtained last month by The Bond Buyer.
It’s a wide-ranging and tentative wish list, but marks a nightmare-come-true for the municipal bond market, which has spent months
Sources on the Hill indicate that whatever gets cut will come from that list. But that doesn’t mean that everything’s going to get cut.
Center for American Progress
Reconciliation math will help determine fate of tax exemption
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The scoring method that Republicans use to determine the price tag of their massive budget reconciliation bill could shape the threat facing the municipal bond tax exemption.
Negotiating a paper-thin Congressional majority, GOP leaders and the Trump administration are debating the most politically viable path to extending the Tax Cuts & Jobs Act’s major provisions set to expire this year.
That includes a debate over how to estimate the cost of the tax reforms. The Congressional Budget Office puts the cost at $4.6 trillion over the next decade. But that figure — which Republicans have yet to agree to — could be affected by different methods of pricing the tax provisions.
Jacob Kepler/Bloomberg
Affordable housing developer’s deal a municipal market first
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BRIDGE Housing Corp. has created a financing source for not-for-profit housing providers as the first to issue publicly offered tax-exempt bonds to finance construction of a new development.
The milestone was achieved when KeyBanc Capital Markets priced $70.7 million in tax-exempt multifamily housing revenue bonds Oct. 31 for BRIDGE through conduit Oregon Housing Community Services Department.
The bonds will help fund the 224-unit Hollywood Hub affordable housing apartment community in the Hollywood district of Portland, Oregon. This is being constructed on a half-acre site leased for 99 years from the Tri-County Metropolitan Transportation District of Oregon.
Donna Alberico
Muni advocates respond to tax-exempt threat
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The municipal market’s advocates are responding to the threat of canceling the tax-exempt status of municipal bonds, with a multi-pronged approach that includes Capitol Hill visits and a
“Elimination of the tax exemption would correspondingly raise borrowing costs $823.92 billion, a cost that would be passed onto American residents and amount to a $6,554.67 tax and rate increase for each American household over the next decade,” GFOA told lawmakers in the letter.
The letter is in response to a 50-page list of budget reconciliation targets that circulated in the House of Representatives
The Proton Center of Arkansas
Proton facilities default on payments
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The new year rang in fresh signs of distress at a pair of long-struggling cancer treatment centers in Maryland and Arkansas. These centers are financed with bonds through Wisconsin’s conduit issuer the Public Finance Authority.
The Maryland Proton Treatment Center defaulted on an $8.7 million interest payment due Jan. 1 on $267 million of unrated municipal bonds, according to a
The Proton International Arkansas, LLC
Bloomberg News
Wood pellets burn Enviva muni bondholders in bankruptcy
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Enviva Inc. is the latest corporate bankruptcy to give a massive haircut to holders of municipal private activity bonds issued to fund green technology projects.
“Over the last four to five years companies have financed numerous green technology manufacturing products utilizing the municipal market,” said David Dubrow, partner at Arentfox Schiff LLP. “Many of these green companies have defaulted on their bonds and filed for bankruptcy.”
Enviva, based in Bethesda, Maryland,
Bloomberg Creative Photos/Bloomberg Creative
Muni lobbyists schedule Capitol Hill ‘fly-ins’ to tout tax exemption
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With a “defense wins championships” strategy in mind, the municipal market lobby will head to Capitol Hill in the next few weeks for meetings with lawmakers and staff in a high-stakes play to protect the municipal bond tax exemption as
The muni lobby’s top priority in the 119th Congress will be preserving the tax exemption even as it continues to push other agenda items, such as the return of tax-exempt advance refunding and lifting the ceiling on bank qualified debt.
In 2017, the Republicans crafting the Tax Cuts and Jobs Act, which eliminated tax-exempt advance refunding, maintained the philosophy that “everyone need[s] to feel a little bit of pain because that’s the nature of tax reform,” recalled Government Finance Officers Association federal liaison Emily Brock. “That philosophy is weighing heavily on my mind,” Brock said. “It’s becoming abundantly clear that the best defense is a good offense.”
Rating watches underscore hazy credit outlook from California wildfires
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Public finance credits in Southern California are beginning to feel the heat from the massive wildfires that have destroyed parts of the city and county of Los Angeles.
The city’s AA-rated general obligation bonds were placed on CreditWatch with negative implications by S&P Global Ratings late Jan. 15.
Kroll Bond Rating Agency put bonds issued by the city and its Department of Water and Power on Watch Downgrade on Jan. 16. S&P had already
Jill Connelly/Bloomberg
Los Angeles wildfires bring wider spreads, downgrade for DWP
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The Los Angeles-area wildfires are affecting the ratings and yields on the city’s bonds.
On Jan.14, S&P Global Ratings lowered its long-term and underlying ratings on the Los Angeles Department of Water and Power to A from AA-minus for its power system revenue bonds and to AA-minus from AA-plus on its water revenue bonds. It also placed the ratings on CreditWatch with negative implications.
The DWP on Jan.13 moved to the day-to-day calendar a water revenue bond deal initially set to price on Jan.15.