U.S. Rep. Randy Hultgren (R-IL) has introduced a bipartisan bill that would reinstate the advance refunding bonds that got axed from national tax reform and provide for more favorable interest rates on municipal infrastructure projects.
“States and local governments need flexibility for managing their finances so they can invest in infrastructure like roads, bridges, hospitals, libraries and schools to support our communities,” Rep. Hultgren said.
H.R. 5003, which Hultgren and U.S. Rep. C.A. Dutch Ruppersberger (D-MD) introduced on Feb. 13, would restore the financing tool the final Tax Cuts and Jobs Act ended in the $3.8 trillion municipal bond market. Most issuers, including states, cities and schools, use advance refunding bonds to refund existing debt on a tax-free basis beyond 90 days of its call date.
“In recent years, tax-exempt advance refunding bonds have saved Illinois taxpayers $80 million per year on average,” Hultgren said. “Given that interest rates are expected to increase, this tool is especially important to states and local governments responsibly planning for the future.”
For example, the Village of Hawthorn Woods in Illinois has saved nearly $1 million over the last five years using advance refunding bonds to invest in its critical infrastructure, according to Mayor Joseph Mancino. “These savings have been passed on directly to our residents and would not have been possible without the use of tax-exempt bonds.”
Losing this tax-exempt status would remove “the additional incentive which helps make this an attractive tool and inhibits municipalities like the City of Harvard to better manage their debt service,” added Harvard City Mayor Michael Kelly.
Local governments in Maryland also rely on this tool to finance projects, said Rep. Ruppersberger. “We need to do what we can to help local governments create jobs while building roads, schools, hospitals, fire and police stations. When counties can issue an advance refunding bond, it saves taxpayers billions nationwide — and an average of nearly $37 million annually here in Maryland. This can translate into lower property taxes.”
H.R. 5003, which has five original cosponsors, has been referred to the House Ways and Means Committee.
Earlier this week, Rep. Hultgren continued his strong record of support for infrastructure investments by local governments in Illinois and across America by endorsing the proposed expansion of private activity bonds (PABs) in President Donald Trump’s newly released infrastructure plan.
“It is encouraging to see the administration’s … definitive support of these vital financing tools for our communities. These bonds help Illinois cities and towns build hospitals, schools, airports, seaports, water infrastructure and more at a time when large infrastructure improvements are at prohibitive cost,” said Hultgren, co-chairman of the bipartisan Congressional Municipal Finance Caucus.
Expanding the use of tax-exempt debt via expanded PABs is one of the newest items in Trump’s 53-page proposal released on Feb. 12. The president’s plan specifies upgrades for the nation’s roads, bridges, airports and other public works and describes how Trump intends to stimulate at least $1.5 trillion in new investment, streamline project permits to two years and better train workers, among other details.
PABs are tax-exempt bonds issued by or on behalf of local or state governments for the purpose of providing special financing benefits for qualified projects, according to Investopedia. The financing oftentimes is for projects of a private user and the government generally doesn’t pledge its credit. PABs are used to attract private investment for projects that have some public benefit, according to Investopedia, and they result in reduced financing costs because of the exception of federal tax.
Likewise, Rep. Hultgren introduced a bipartisan bill on Feb. 16, 2017 that he said would make industrial revenue bonds easier to use. Specifically, the Modernizing American Manufacturing Bonds Act (MAMBA), H.R. 1115, would expand the projects eligible to use qualified small issue manufacturing bonds, which are more commonly known as industrial development bonds (IDBs).
Among other provisions, H.R. 1115 also would expand the definition of “manufacturing facility” to encompass those that produce intangible property, such as software, patents or other intellectual property, enabling high-technology manufacturers access to IDBs, according to Hultgren’s office,
“Easing the ability of our manufacturers to expand their businesses, invest in new equipment and hire more workers should be at the top of our priority list and I encourage the President and Congress to include these provisions in any final infrastructure legislation,” Hultgren said this week.
H.R. 1115 has three cosponsors: U.S. Rep. Jim Renacci (R-OH), Richard Neal (D-MA), and Matt Cartwright (D-PA). The measure also awaits consideration by the House Ways and Means Committee.