ACTION NEEDED:

Urge your members of Congress to introduce and support passage of legislation that would restore advance refunding bonds.

BACKGROUND:

Tax-exempt bonds are a well-established financing tool written into the first tax code in 1913. They are predominantly issued by state and local governments for governmental infrastructure and capital needs purposes, such as the construction or improvement of schools, streets, highways, hospitals, bridges, water and sewer systems, ports, airports and other public works.

Prior to 2017, advance refunding bonds were also tax-exempt and allowed counties to refinance municipal bonds once over the lifetime of the bond. Advance refunding bonds, when tax-exempt, allow state and local governments to lower borrowing costs and take advantage of more favorable interest rates. This frees up resources to be used for other important capital projects and minimizes costs to taxpayers. Advance refunding bonds also allow localities to address problematic bond terms and conditions or to restructure debt service payments for budget flexibility.

On December 23, 2017, President Trump signed the Tax Cuts and Jobs Act (P.L. 115-97), the first major rewrite of the tax code since 1986. While the final bill retained tax-exempt status for municipal bonds, it eliminated the tax-exempt status of advance refunding bonds.

Prior to this elimination, advance refunding bonds made up about a third of the municipal bond marketplace, with over $475 billion in advance refunding bonds issued between 2012 and 2017. Over that time frame, municipalities saved more than $14 billion of taxpayer money through this financing tool.

As counties continue to implement the American Rescue Plan Act and Bipartisan Infrastructure Law and invest federal funds in infrastructure projects, restoring this important financial management tool is critical to future capital investments.

KEY TALKING POINTS:

• A fundamental feature of the first federal tax code from 1913, tax-exempt financing is used by state and local governments to raise capital to finance capital improvements and other projects, including infrastructure facilities that are vitally important to sustained economic growth.
• Between 2008 and 2018, counties, localities, states and state/local authorities financed $3.6 trillion in infrastructure investments through tax-exempt municipal bonds.
• Advance refunding bonds allow local governments to be good stewards of taxpayer dollars and should also be tax-exempt. Advance refunding bonds accounted for roughly one third of the municipal bond marketplace from 2012-2016.
• Advance refunding bonds save counties and taxpayers money. States and municipalities issued $475 billion in advance refunding bonds from 2012 to 2017, saving more than $14 billion.