The Bond Buyer: Dealers Push for Bond Provisions in Next Coronavirus Bill

Advance refundings would allow states and municipalities across the country to lower their borrowing costs

IN CASE YOU MISSED IT

5.7.2020

By Sarah Wynn

Dealers are making a renewed push for lawmakers to include certain municipal bond provisions in a potential future coronavirus stimulus bill to help states and local governments suffering severe revenue shortfalls due to the pandemic.

In a letter sent to Congressional leaders, the Bond Dealers of America and American Securities Association both made tax provision asks such as the reinstatement of advance refundings.

“The crisis has put enormous strains on state and local budgets,” wrote Mike Nicholas, BDA CEO. “As constructive as the CARES Act is in helping state and local government stay afloat during the crisis, it will not be enough to fully restore state and local finances. The nation needs fiscally healthy state and local governments to continue to fight the pandemic and lead the economic recovery.”

The House is expected to release a stimulus package in the next few days.

In late March, the Coronavirus Relief Fund provided $150 billion to state, local and tribal governments.

In addition to cash assistance, Nicholas said incentives to plan and finance infrastructure would contribute significantly to the recovery of the economy.

“The most important tool available to state and local governments for infrastructure finance is the municipal bond market,” Nicholas wrote.

BDA and ASA both asked Congress to bring back advance refunding. Tax-exempt advance refunding was taken away after the Tax Cuts and Jobs Act in 2017. Nicholas said market interest rates for state and local governments are near historic lows, making it the perfect time to lock in low interest rates, saving municipalities’ money.

“Unfortunately, one of the most important tools for refinancing government bonds—advance refundings, the ability to issue new bonds to replace old, high-interest debt before the old bonds become 'callable'—was taken away in the Tax Cuts and Jobs Act of 2017,” Nicholas said. “We urge Congress to reinstate this authority.”

ASA wrote a letter to House Ways and Means Committee Chair Richard Neal, D-Mass., this week urging his committee to help states and local governments through the pandemic through reinstating tax-exempt advance refunding.

“Advance refundings would allow states and municipalities across the country to lower their borrowing costs and take advantage of an unprecedented low interest rate environment while still honoring outstanding bonds that fund longer-term projects,” wrote Chris Iacovella, ASA CEO.

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