On May 9, U.S. Sens. Roger Wicker (R-Miss.) and Debbie Stabenow (D-Mich.) led a bipartisan group of 15 Senators to introduce the Lifting Our Communities through Advance Liquidity for Infrastructure (LOCAL Infrastructure) Act that, if enacted, would restore the tax-exempt status of advance refunding bonds for state and local governments and other issuers. Issuing advance refunding bonds at a tax-exempt status has been unavailable to counties since the enactment of the Tax Cuts and Jobs Act in 2017. Counties support the restoration of the tax-exempt status of advance refunding municipal bonds and NACo has endorsed this legislation.

Municipal bonds are predominantly issued by state and local governments, including counties, to finance critical infrastructure projects and capital improvements. This includes the construction or improvement of schools, streets, highways, hospitals, bridges, water and sewer systems, ports, airports and other public works.

Prior to 2017, counties could refinance a municipal bond once over its lifetime and more than 90 days prior to the bond’s redemption date at a tax-exempt status. This practice, also referred to as advance refunding, allowed counties to lower borrowing costs and take advantage of more favorable interest rates. Advance refunding bonds allows counties to address problematic bond terms and conditions or restructure debt service payments for budget flexibility. It also frees up county funds to be used for other important capital projects and minimizes costs to taxpayers.

Although the tax-exempt status of advance refunding bonds was eliminated as a spending offset, it has historically been critical for counties across the nation. Before 2017, the savings that local governments experienced from this practice resulted in advance refunding bonds making up a third of the municipal bond market.

The LOCAL Infrastructure Act has been sponsored in the U.S. Senate by Sens. Wicker and Stabenow since the 116th Congress. Although a companion bill has not yet been introduced in the U.S. House, House Municipal Finance Caucus co-chair Rep. Dutch Ruppersberger (D-Md.) and Rep. David Kustoff (R-Tenn.) recently re-introduced the Investing in Our Communities Act (H.R. 1837) which would also restore the tax-exempt status of advance refunding municipal bonds.

As counties continue to invest federal funds in critical infrastructure projects, counties urge federal lawmakers to enact legislation, such as the LOCAL Infrastructure Act and Investing in Our Communities Act, to restore the tax-exempt status of advance refunding bonds.