House Ways and Means approves key muni provisions, SALT debate on tap

Bonds

Key municipal market provisions will advance after the House Ways and Means Committee approved the measures yesterday after a four-day markup of a portion of the Biden Administration’s $3.5 trillion Build Back Better proposal.

The muni provisions, including the restoration of advance refundings, a direct-pay bond program, raising the threshold for muni bonds to be considered bank qualified, and the expansion of private activity bonds, are likely to be included in a final bill, said Emily Brock, director of the federal liaison center at the Government Finance Officers Association.

That’s partly because the provisions are relatively inexpensive, an important consideration as the bill’s $3.5 trillion price tag has become the focus of debate.

“I feel very, very confident [the provisions] will pass,” Brock said.

A bigger uncertainty for the muni market is the fate of a $10,000 cap on federal deduction of state and local taxes, or SALT. SALT carries an annual estimated cost of $85 billion, according to Brock. It’s currently slated to sunset in 2025.

The cost will likely need to be offset or whittled down, Brock said.

“They want to make sure that they’re going to fit that in, but they have to pay for it,” Brock said.

One possibility is trimming the cost of the program, for example by exempting certain incomes or raising the cap, she said.

Yesterday’s Ways and Means approval marks a key step toward meeting House Speaker Nancy Pelosi’s Sept. 27 deadline for a vote on both the reconciliation bill and a bipartisan infrastructure bill the Senate has already passed.

SALT will likely be debated between September 20th, Pelosi’s deadline for a final bill, and September 27, Brock said.

If the House passes the bill, a tough battle looms in the Senate, and with no hard deadline for passing the bill, it could end up being debated over the next several months. A key Senate Finance Committee hearing on the bill has yet to be scheduled, Brock said.

“I think the Senate has their popcorn and Twizzlers and is watching what happens in the House,” she said.

Restoring advance refundings is estimated to cost $14 billion over 10 years and the direct-pay program is estimated at $22 billion. The bank-qualified provision carries a $5 billion price tag over the next decade.

The direct-pay bond program, which echoes the 2009 Build America Bonds program, would provide issuers with credits to offset their interest costs, ranging from 28% on bonds maturing in 2027 and later to 35% for bonds maturing in 2022 through 2024.

The committee’s passage yesterday included $2.1 trillion of new taxes, including raising corporate and top individual rates, to help pay for the spending package.

“By reinstating tax-exempt advance refundings, raising the bank qualified debt limit, expanding the usage of PABs and creating a new direct pay bond exempt from sequestration, this package would further enhance and expand issuers tool box and enable the construction, maintenance and retrofitting of infrastructure at low cost to taxpayers, which is much overdue,” said Brett Bolton, vice president of federal legislative and regulatory policy at the Bond Dealers of America, in a statement. “We call on the full House to advance these key provisions and for the Senate to take quick actions to ensure these financing tools become law. We plan to continue to work with our friends in the state and local advocacy community and with our partners on the Hill and in the administration promoting these key provisions.”

In a statement, the American Securities Association praised the committee’s passage of the muni provisions.

“Municipal bonds are key to modernizing America’s infrastructure and ASA applauds Chairman Neal and members of the committee for including our infrastructure financing recommendations into the Build Back Better Act,” said ASA CEO Chris Iacovella.

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