State Treasurers Seeking Preferred Status for Municipal Bonds

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Che Odom

State finance officers are asking Congress to reconcile two bills so that certain municipal securities are defined as “high quality” and made more attractive to investment banks.

“The ability to finance public infrastructure at the lowest possible cost to taxpayers is a top priority,” the National Association of State Treasurers (NAST) said in a March 22 letter to congressional leaders.

Municipal securities are bonds issued by states, cities, counties, and other governmental entities to raise money to build roads, schools, and other projects for the public good.

The status of “level 2B high quality liquid assets” is needed to ensure the lowest possible borrowing costs for states, cities, and counties, and to provide the necessary funding for infrastructure improvements throughout the country, the letter said. Language in two bills before Congress, H.R. 1624 and S. 838, isn’t in harmony when it comes to granted preferred status on the securities.

A staff member of a leading Republican member of Congress told Bloomberg Tax that the reconciliation on the matter should happen soon, and that counties will “probably be satisfied with the outcome.”

Infrastructure Money

Infrastructure funding was a key part of the omnibus spending bill, a collection of measures related to the federal budget, signed into law March 23 by President Donald Trump. It included $21.2 billion to pay for airports, Amtrak upgrades, water projects, highways, rural broadband, and other types of infrastructure improvements, much of it in involving local and state governments.

The National Governors Association and other state-and-local groups praised the president and Congress, applauding the increased funding for “transportation, energy, water and cybersecurity.”

Matthew Chase, executive director of the National Association of Counties, said in a statement March 23 that his group is “pleased to see legislation that recognizes the important federal-state-local partnership.”

State and local governments also were happy the 2017 federal tax act ( Pub. L. No. 115-97) preserved the exemption for municipals bonds. Still lingering, however, is the preferred status of certain municipal securities, which are important to financing the state obligations related to infrastructure maintenance.

Federal banking regulators, by rule, exclude municipal securities as high quality liquid assets, “which dampens banks’ demand for investment grade municipal securities, ultimately increasing the rates at which issuers of those securities can borrow,” the NAST letter said.

The rule overlooks “a number of key attributes of municipal securities, including their limited price volatility and the depth and stability of the markets from which they are funded,” the letter said.

To contact the reporter on this story: Che Odom in Washington at

To contact the editor responsible for this story: Ryan C. Tuck at

For More Information

Text of the NAST letter is at

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