U.S. Sen. Roger Wicker (R-MS) earlier this month unveiled two bipartisan bills to ramp up investment in local infrastructure projects during the COVID-19 pandemic.
“Empowering our local leaders to start important infrastructure projects is a proven, cost-effective way to help our communities emerge from severe financial hardship with assets that provide value to the area for years to come,” Sen. Wicker said.
The American Infrastructure Bonds Act of 2020, S. 4203, which Sen. Wicker sponsored on July 2 with cosponsor U.S. Sen. Michael Bennet (D-CO), would provide a credit to issuers of American infrastructure bonds (AIBs), a new class of “direct-pay” taxable municipal bonds to help financially strapped governments finance critical public projects.
If enacted, S. 4203 would authorize creation of the new bonds to enhance the existing model of Build America Bonds, which were issued following the 2008 financial crisis to attract more investment in public infrastructure.
The measure “would improve upon previous efforts to expand investment in the state and local bond market by increasing flexibility for communities and adding assurances for the bondholder,” Wicker explained, noting that the bill would allow state and local governments to issue taxable bonds for any public expenditure that would be eligible to be financed by tax-exempt bonds.
The bonds then could be used to support myriad infrastructure projects, including roads, bridges, water systems, and broadband internet, he said.
As a direct-pay taxable bond, the U.S. Treasury would pay a percentage of the bond’s interest to the issuing entity, thereby reducing costs for state and local governments, according to a bill summary provided by Wicker’s office.
Such payments would encourage economic recovery by subsidizing AIBs issued through 2025 at a higher percentage of the bond’s interest, according to the summary, and the payments would revert to a revenue-neutral percentage for projects after 2025, reducing long-term costs for the federal government and providing a permanent financing option for localities.
The bill is supported by the American Society of Civil Engineers (ASCE), the National League of Cities, the National Association of Counties, the Government Finance Officers Association, the American Public Gas Association, and the Securities Industry and Financial Markets Association (SIFMA), among others.
Kenneth Bentsen, Jr., president and chief executive officer at SIFMA, which is the trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets, commended Sens. Wicker and Bennet on their commitment to infrastructure investment by introducing S. 4203.
The direct-pay subsidy for AIBs authorized under the bill would allow “state and local governments to attract taxable bond investors, such as pension funds and foreign investors, to invest in infrastructure projects,” said Bentsen on July 8. “Increasing the demand for municipal securities is particularly helpful now, as state and local governments are experiencing much higher costs due to the COVID-19 pandemic.”
On July 1, Sen. Wicker sponsored another bipartisan bill that would amend the federal tax code to restore advance refunding bonds, which allow states and local governments to manage bond debt and reduce borrower costs for public projects.
“The coronavirus outbreak has placed enormous pressures on state and local governments,” said Sen. Wicker, who sponsored the Lifting Our Communities through Advance Liquidity for Infrastructure Act, or the LOCAL Infrastructure Act, S. 4129, with seven cosponsors, including U.S. Sen. Debbie Stabenow (D-MI).
“Restoring advance refunding is a proven way to give our local leaders the ability to manage existing debts, reduce costs and free up additional money for much-needed local infrastructure projects,” he said.
Advance refunding would allow state and local governments to refinance outstanding municipal bonds to more favorable borrowing rates or conditions before the end of the initial bond term on a tax-exempt basis, a process that’s similar to how homeowners might refinance the mortgage on their property to lock in a lower interest rate.
Under S. 4129, the federal tax-exempt debt could be refinanced only once, but local communities would be able to take advantage of the lower interest rates to generate additional savings on existing bonds and then reinvest the savings to fund infrastructure, education, healthcare, or other capital improvement projects.
For decades, advance refunding has saved state and local governments billions of dollars, according to Sen. Wicker, but has been unavailable to state and local governments since 2017. “At a time when interest rates are at historic lows, Congress should allow our local governments to seize this opportunity and pass along savings to their communities,” he said.
The legislation comes in response to calls from state and local leaders for the federal government to provide additional support to communities as they assess the impact of the coronavirus pandemic on their budgets and start planning for the future.
The COVID-19 pandemic has placed “extraordinary strain” on state and local budgets that “will last years and make it that much more difficult to fund important infrastructure projects,” said Sen. Stabenow, who added that S. 4129 “will make it less expensive for state and local governments to invest in hospitals, roads, schools, and other critical infrastructure.”
The measure has found a wide swath of support from 40 organizations, including SIFMA, ASCE, the National League of Cities, the U.S. Conference of Mayors, the National Association of Counties, the American Public Power Association, the American Public Works Association, the National School Boards Association, and the National Association of Towns and Townships, among many others.
For example, National Association of Counties Executive Director Matthew Chase pointed out that federal financial support is needed by America’s counties, which are on the front lines of the COVID-19 pandemic supporting nearly 1,000 hospitals, more than 1,900 public health authorities, and other services essential to residents’ safety and well-being.
“The estimated financial impacts of addressing this health and economic emergency are staggering,” said Chase. “By restoring our ability to advance refund tax-exempt municipal bonds, [S. 4129] would lower borrowing costs and optimize our stewardship of taxpayer resources.”
Clarence Anthony, CEO and executive director of the National League of Cities, called S. 4129 “critically important to helping cities, towns and villages continue to be great fiscal managers.”
Anthony said that advance refunding bonds have been a long-standing tool for local governments to minimize their borrowing costs. “With this legislation’s reinstatement of the provision, cities, towns and villages will be allowed more liquidity in their municipal budgets, which is especially critical now during the COVID-19 pandemic when so many cities are struggling financially,” he said.
“Simply put, the need to invest is great and we need multiple financing tools to help improve our infrastructure,” ASCE said in a statement. “By reinstating tax-exempt advanced refunding bonds, state and local governments will be able to take advantage of favorable interest rates to help build essential infrastructure projects.”
Both of Wicker’s proposals have been referred to the U.S. Senate Finance Committee for consideration.