States Pushing Tax-Exempt Bonds for Trump Infrastructure Plan

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By Che Odom

State treasurers are urging Congress to push the use of tax-exempt bonds to help carry out President Donald Trump’s $1.5 trillion infrastructure plan that he unveiled this week.

The National Association of State Treasurers (NAST), meeting in Washington, issued a Feb. 13 statement calling for expanded use of municipal bonds and private activity bonds as ways of financing a nationwide rebuild of roads, bridges, a deteriorating water system, and other forms of infrastructure.

A centerpiece of his presidential campaign, Trump said rebuilding the country’s infrastructure would be a priority in his administration. On Feb. 12, the White House released its long-awaited plan that relies heavily on public-private partnerships and funding from state and local governments.

The federal government would contribute $200 billion under the plan, which Democrats call insufficient. Most of the projects would fall under state and local control.

“State and local governments finance more than 75 percent of all U.S. infrastructure projects,” Vermont Treasurer and NAST President Beth Pearce said in the statement, “and while we are pleased to see that the proposal recognizes the importance of partnering with state and local governments, policymakers must ensure we have access to the funding mechanisms needed to execute this robust plan.”

Last year, 30 states saw revenue come in below what they budgeted to collect, the largest number since 2010, according to the National Association of State Budget Officers. That means determining how to pay for $1.5 trillion in infrastructure is a concern for states.

Funding Tools

Trump is requesting $6 billion to expand the use of tax-exempt private activity bonds for public projects—a cornerstone of his infrastructure plan. “The initiative would expand flexibility and broaden eligibility for PABs, which play an important part in delivering many large, regionally- and nationally-significant projects,” according to the president’s fiscal year 2019 budget proposal released Feb. 12.

In addition, co-chairs of the House Municipal Finance Caucus, U.S. Reps. Dutch Ruppersberger (D-Md.) and Randy Hultgren (R-Ill.), introduced legislation Feb. 13 to restore the tax exemption for advance refunding bonds that was repealed in the 2017 federal tax act ( Pub. L. No. 115-97).

“This financing tool allows states and local governments to take advantage of favorable interest rates to build essential infrastructure projects,” according to a joint statement from the lawmakers.

During the NAST meeting Feb. 13, Utah Treasurer David Damschen explained that tax-exempt advance refunding bonds helped save his state’s taxpayers more than $105 million over the past five years by allowing the state to refinance bonds at lower interest rates.

Last year, states issued more than $100 billion in advance refunding bonds. “This refinancing tool was a common practice in states and allowed them to save hundreds of millions of taxpayer dollars per year, which could be reinvested in vital infrastructure projects,” according to NAST.

Principles for Congress

During their 2018 Legislative Conference in Washington, NAST members developed a set of principles to guide Congress as it considers Trump’s plan.

The first is that the country’s “aging infrastructure requires significant upgrades, which will require substantial investments from a variety of sources,” NAST said in its statement.

Second, state and local governments fund more than three-quarters of the country’s infrastructure, including bridges, roads, schools, water-management projects, and hospitals. That means state and local officials “understand the financial tools needed to implement” the plan and must be involved in the decision-making process surrounding spending.

Finally, Congress must support tax-exempt financing, which includes “maximizing the use of tax-exempt municipal bonds, private activity bonds, and reinstating access to tax exempt refunding bonds.”

To contact the reporter on this story: Che Odom at codom@bloombergtax.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bloombergtax.com

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