Direct Pay Bonds Remain in the Spotlight

Following the release of the LIFT Act municipal bond financing package and the continued momentum towards a robust infrastructure bill, this morning Politico Pro produced a spotlight piece on bonds, specifically a BABs revival which remains a priority for the MBFA and BDA

The article can be viewed here.

The Politico piece tracks closely to recent conversations the BDA Board had with House Ways and Means Chairman Richard Neal (D-MA) in which he reiterated his support for a new direct-pay program, along with the reinstatement of tax-exempt advance refundings and raising the BQ debt limit among other fixed-income provisions.

LIFT Act Creates New Direct-Pay Bond

Following extensive advocacy efforts, House Ways and Means Member Terri Sewell (D-AL) recently released the LIFT Act.  The bill would reinstate tax-exempt advance refundings and raise the BQ debt limit to 30 million while tying to inflation among other changes.  Of particular note is the direct-pay restoration.

The bill would establish a new category of tax-preferred financing for state and local governments to be known as Qualified Infrastructure Bonds (QIBs). Similar to the previous Build America Bonds program, QIBs would be an alternative to tax-exempt financing. Issuers would sell taxable bonds and receive a cash reimbursement from the federal government for a portion of their interest expense.

Reimbursement payments to issuers would be subject to sequestration, and projects financed with QIBs would be subject to Davis-Bacon prevailing wage laws.

Reimbursement rates would vary based on the calendar year of issuance according to the following schedule:

  • 2020-2024: 42%
  • 2025: 38%
  • 2026: 34%
  • 2027 and thereafter: 30%

The MBFA will continue to provide updates as they become available.

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