Wicker proposes bipartisan bill to establish new infrastructure bonds

U.S. Sen. Roger Wicker (R-MS) on July 2 unveiled bipartisan legislation that would provide a credit to issuers of American infrastructure bonds (AIBs), a new class of “direct-pay” taxable municipal bonds to help financially strapped governments finance critical public projects during the COVID-19 pandemic.

“Empowering our local leaders to start important infrastructure projects is a proven, cost-effective way to help our communities emerge from severe financial hardship with assets that provide value to the area for years to come,” Sen. Wicker said.

Sen. Wicker sponsored the American Infrastructure Bonds Act of 2020, S. 4203, with original cosponsor U.S. Sen. Michael Bennet (D-CO) to authorize creation of the new bonds, which would improve upon the model of Build America Bonds (BABs) that were issued following the 2008 financial crisis to attract more investment in public infrastructure.

“The American Infrastructure Bonds Act of 2020 would improve upon previous efforts to expand investment in the state and local bond market by increasing flexibility for communities and adding assurances for the bondholder,” said Sen. Wicker.

The legislation, if enacted, would allow state and local governments to issue taxable bonds for any public expenditure that would be eligible to be financed by tax-exempt bonds, according to a bill summary provided by Sen. Wicker’s office.

The bonds could be used to support myriad infrastructure projects, including roads, bridges, water systems, and broadband internet. As a direct-pay taxable bond, the U.S. Treasury would pay a percentage of the bond’s interest to the issuing entity, thereby reducing costs for state and local governments, according to the summary.

Such payments would encourage economic recovery during the pandemic by subsidizing AIBs issued through 2025 at a higher percentage of the bond’s interest, the summary says, noting that the payments would revert to a revenue-neutral percentage for projects after 2025, reducing long-term costs for the federal government and providing a permanent financing option for localities.

The bill is supported by the National League of Cities, the National Association of Counties, the Government Finance Officers Association, the American Public Gas Association, the National Association of Bond Lawyers, the Bond Dealers of America, the American Society of Civil Engineers, the American Council on Education, the Securities Industry and Financial Markets Association, and the American Planning Association.