Following the 4th of July holiday recess, the Senate is back in Washington, DC, and has already failed to meet its self-imposed deadline to turn the bipartisan infrastructure agreement into legislative text–a key next step in the legislative progress. While this may not be detrimental to the long-term prospects of the deal, every day that passes further complicates the tightrope act that Congressional Democrats are embarking on.
Following news of a delayed release of the bipartisan package, this week Senate Budget Chairman Bernie Sanders (I-VT) released budget instructions for the potential infrastructure budget reconciliation bill that includes an additional $3.5 trillion of spending. The plan will likely include portions of the American Jobs Act and the American Families Act that are unable to be agreed upon in the bipartisan agreement amongst many other provisions such as the expansion of Medicaid.
Few details exist beyond the broad outline that the budget agreement presents, however, this package will provide an additional opportunity for BDA and MBFA priorities that may not be included in the bipartisan package.
While the draft legislative text has yet to be produced for either potential package, included in the original bipartisan outline were two muni provisions:
- A new BAB like a direct-pay bond, the American Infrastructure Bond, with a flat 28% reimbursement rate likely exempt from sequestration (not included in the text, but the bills Sponsor Sen. Wicker (R-MS) says that is his intention), and
- Expansion of PAB limit for transportation infrastructure, doubling the limit to $30 billion dollars
The BDA and MBFA continue to press our partners on Capitol Hill to include key additional provisions in either package including:
- The reinstatement of tax-exempt advance refundings, and
- Raising of the BQ debt limit tying to inflation.
House and Senate Democratic Leadership as noted above continue working on a two-track approach: ensuring that the bipartisan agreement remains intact while developing the massive budget reconciliation package without losing a single vote of their narrow Senate majority. On the Republican side, Senate Minority Leader Mitch McConnell (R-KY) appears ready to allow passage of the bipartisan package, while messaging against the massive reconciliation package–an effort to gain traction heading into the 2022 election cycle.
At this time, it is too early to predict the outcomes of each package, however, we remain confident that munis will continue to receive ample consideration and are in a good position for passage.
Expectations for Municipal and Infrastructure
News of some muni provisions being included in the initial bipartisan outline is a step in the right direction, however many questions remain regarding the potential legislation’s reliance on private and state, and local investment as well as what additional provisions may be added to the initial draft. While this likely package presents a great opportunity to advance BDA and MBFA priorities, it is potentially the first of many infrastructure spending bills, including the recently introduced budget reconciliation agreement, that Congress will work to pass during the remainder of 2021.
What does this mean for municipals in 2021? Below is a legislative update of the status of individual muni priorities.
New Direct Pay Bond Exempt from Sequestration
Included in the bipartisan infrastructure agreement, a new category of tax-preferred financing for state and local governments to be known as American Infrastructure Bonds (AIBs). Similar to the previous Build America Bonds program, AIBs would be an alternative to tax-exempt financing. The Senate American Infrastructure Bond is exempt from sequestration and has a flat 28% reimbursement rate while the House is not while varied reimbursement. There is a general consensus that the new AIB will be included in any infrastructure package passed, however, sequestration provisions remain in flux.
**Included in Bipartisan Infrastructure Agreement
Expand the Usage of PAB’s
As a priority for the Administration, the expansion of PAB for transportation purposes was included in the initial bipartisan agreement. This follows the calls from the Biden Administration for an increase in the PAB limit for transportation infrastructure, doubling the limit to $30 billion dollars. There is legislation in the Senate that would expand the usage of affordable housing amongst other provisions. PAB for GSE use has also been a popular discussion item, but little legislative text has been produced and this has yet to be tied to the existing proposal.
** Included in Bipartisan Infrastructure Agreement
Restoration Tax-Exempt Advance Refundings
As a top legislative priority for the municipal market, the restoration of tax-exempt advance refundings remains in a strong position for advancement this year. The legislative text was reintroduced by the House Municipal Finance Caucus earlier this year (the bill was identical to the version introduced in the 116th Congress) and absorbed in the later introduced LIFT Act. Following the House release, Senators Wicker (R-MS) and Stabenow (D-MI) introduced the LOCAL Infrastructure Act which much like the House companion, would fully restore tax-exempt advance refundings to their pre-2018 form.