On November 2, House Ways and Means Committee Chairman Kevin Brady (R-Texas) released H.R. 1, the Tax Cuts and Jobs Act. This comprehensive tax reform legislation would alter nearly every portion of the current U.S. tax code. One major county priority, the tax-exempt status of municipal bonds, is largely preserved under the new bill. However, H.R. 1 includes other changes to various bond provisions, many of which could impact county finances and projects: it eliminates the tax exemption for both Private Activity Bonds (PABs) and advance refunding bonds, which counties use to refinance their municipal bonds at lower interest rates. The combined impact of all the bond proposals in H.R. 1 would be an additional $60 billion in federal revenue at the expense of local governments and infrastructure development.
On November 6, NACo, in partnership with other national organizations representing members of the municipal bond issuer and user community, wrote a letter to U.S. House Ways and Means Chairman Kevin Brady (R-Texas) urging the chairman and committee members to reconsider the PABs and advance refunding bonds provisions in H.R. 1. The letter notes these provisions would eliminate crucial financing tools utilized by local governments “to provide critical investments in infrastructure and save tax payer money.”
PABs are tax-exempt bonds issued by or on behalf of local or state governments to providing special financing benefits for qualified projects. Counties use PABs extensively for airport facilities, hospitals, solid waste facilities, affordable housing and other large construction projects. Advance refunding bonds are most commonly used by state and local governments and provides substantial savings to taxpayers throughout the country as interest rates fluctuate. Under current law, counties may only refinance a bond once. According to the letter, “in 2016, the advance refunding of more than $120 billion of municipal securities saved taxpayers at least $3 billion.”
The House Ways and Means Committee began marking up the Tax Cuts and Jobs Act on November 6, and could finish as soon as November 9. The Senate Finance Committee plans to release their version of the bill after the House finishes its markup.
Municipal bonds have been a fundamental feature of the United States tax code since 1913 and remain the primary method used by states and local governments to fund public infrastructure projects, including our roads, bridges, schools, hospitals, water infrastructure and much more. As tax reform discussions continue, NACo will continue working with Congress to ensure counties’ interest are represented and maintained in a comprehensive tax overhaul.
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