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Politics 2023
By Brett Bolton, BDA
BDA’s Bonding Time Podcast with Emily Brock of GFOA – Capitol Hill Dysfunction While Advancing Municipal Bond Provisions
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Brett Bolton:
Brett Bolton:
Welcome to another episode of Bonding Time. I'm your host, Brett Bolton, and today we have a friend of the BDA and the industry, Emily Brock of the GFOA. Emily, it's been a while since you've been on here, but it's always a great conversation. How have you been?
Emily Brock:
Emily Brock:
Hey, Brett. I've been great. Thank you so much for having me again.
Brett Bolton:
Brett Bolton:
Let's start with an exciting topic, a potential government shutdown. As of recording today on September 18th, there are 13 days left to keep the government open. You sent around earlier today some draft legislation from House Republicans that could possibly keep the government open through October 31st. Anything to dig in there? Do you think there's a chance that it can actually pass the House? While some House Republicans agreed upon it, it still might not pass the House and the Senate's a whole separate conversation. So where do you think things stand today?
Emily Brock:
Emily Brock:
Well, Brett, it kind of feels like Groundhog Day around here. Anytime we talk about the federal budget, we are inevitably also talking about a federal government shutdown, and that's particularly because of the dynamic of Congress right now. Obviously you have a Republican House, you have a Democratic Senate, and you have got a Democrat sitting in the presidency. So we are going to have to wade through the sticky politics of what should be funded and how.
Now, there's a lot of things on the table. Of course, there are discussions about impeachment proceedings, there are discussions about a lot of international affairs that we're involved in that are taking up a large part of this discussion in a lot of different directions. And when you talk about an omnibus that funds all the different varieties of a federal government, you're going to have a lot of interest coming to the table. And when you don't even have a House that's put together on their priorities, we're going to have a little bit of a potential for a shutdown.
A lot of folks are saying, "Well, what does that mean for munis?" Well, I think fundamentally there are lots of federal spending programs that have impacts on local governments. So we do depend a lot of our operating budgets and capital planning budgets on funding from the federal government. So when the federal government does come to a shutdown, we are concerned about that. But in addition, we can talk about the federal subsidy programs like Build America Bonds and the potential for a shutdown would have on those types of things, which again, there's still significant amount of BABs outstanding, so we're watching it.
That said, I mean, Brett, you shared, we've got a House document that's talking about delaying it until Halloween, spooky, which is very appropriate. We've also seen in our lifetime continuing resolutions that last until the end of the year, the calendar year, not just the federal fiscal year. So I wouldn't be surprised if the can gets kicked a couple of times while decisions are being made on a much larger omnibus.
Brett Bolton:
Brett Bolton:
I mean, what's a muni podcast without talking about impeachment over the last five years? With government shutdowns do come some issues. What about the SLGS window? Have you heard anything from treasury about that potentially closing down? I know we're still two weeks out and they tend to wait till the last few days, but it's got to be a conversation that's being had, I assume.
Emily Brock:
Emily Brock:
It's usually a fun surprise, but of course we are still waiting on more information, as we always are, with the Office of Tax Counsel in the United States Treasury. And of course John Cross vacated that position a long time ago. So we tend to try to find the right person to ask between Treasury, IRS to make sure that we understand when the SLGS window will be closed. But to your point, Brett, we know what date it comes. We know what day the federal government stops being funded, and so therefore we make sure that issuers understand when the drop dead date is and if the can gets kicked down the road, what kind of extensions we see.
Brett Bolton:
Brett Bolton:
Sure, and you brought up PABs, and this is always an important conversation. It's at least biannual. But you're right, at this point, talking about budget and sequestration and PABs.
Just reading through the Continuing Resolution document for our listeners, that's just an extension of government spending at current levels, not the typical appropriation process where you can adjust. But PAYGO, the pay-as-you-go mechanism. Section 101 was a discussion on PAYGO and reports. You got to think, especially with Conservatives in charge and even the Democrats are making noise at this point, deficit and debt is out of control, many believe, at this point in time. Pay-for’s. When is that going to become a conversation? And you got to think PABs, if that conversation pops up, are going to be part of the conversation.
Emily Brock:
Emily Brock:
Well, all that we got last time when we were talking about PAYGO was a continuance until the next budget conversation. So I mean, we have a lot of folks in the house that are just, I believe it was kind of a clever saying at the time that it wasn't PAYGO, it was PAYNO.
However, when direct pay subsidies like Build America Bonds are lumped together with fundamental spending of the federal government, fundamental sequestrable spending, like farm subsidies, like medical and hospital subsidies are kind of lumped together with us, we are as a community going to be rallying for support to ensure that PAYGO continues.
Brett Bolton:
Brett Bolton:
There was an amicus brief by the American Public Power Association and the Public Finance Network here in D.C. submitted to the Supreme Court. Any updates? And how about some background on that case if possible, and then any update on where efforts may stand?
Emily Brock:
Emily Brock:
So the public power entities in Indiana and Ohio have sued the federal government for sequestration of Build America Bond subsidies. It was in Circuit Court in Ohio twice, and it was appealed. And now we are awaiting cert at the Supreme Court. So essentially, although the cases were declined to be heard, we have now appealed it to be a part of the pool of cases that the Supreme Court may hear next year. We don't know whether we're granted cert until November.
By the time I think this comes out, we'll probably have a sense of whether or not we will be heard by the Supreme Court. But it's been a while and maybe many of your listeners probably know, it's been a while since we've been at the Supreme Court, but this is a unique opportunity for municipal bonds to become front and center at the highly volatile third branch of the federal government that is the Supreme Court.
But truly the question is whether or not these subsidies are constitutionally able to be sequestered. We had this conversation when BABs were being proposed, throughout the implementation of BABs. We lost those arguments at the Treasury, but I think that this case in particular has a really interesting sort of backing. Now, one thing that I did note when I was talking with AMP-Ohio and with Indiana public power, this isn't just a public power case. And so what we were able to do is to write an amicus brief with a ton of issuer organizations, including National Association of State Treasurers, school budget officials, public gas, public power. We've got a lot of varieties of issuers out there who are impacted by this, and we were able to write an amicus brief that showed the variety of issuers that are out there.
So if we can dream that the Supreme Court hears our case and we can dream the Supreme Court allows for us to confirm that the sequestration of direct pay subsidies is unconstitutional, what does that mean for back pay? What does that mean for potential future pay? What does that mean for the variety of issuers that are affected? At the end of the day, I mean, we are certainly talking about the billions of dollars of interest over the last 14 years. We certainly are hopeful that we at least get the chance for the time to shine in the Supreme Court.
Brett Bolton:
Brett Bolton:
Yeah, I mean, you got to think the spirit of the law as written back in the day. I doubt they expected it to be open to sequestration. It seems like it's on pretty good footing that we're excited to hear about any next steps as they may happen here in the Fall.
Let's turn real quick to another piece of legislation that passed last year. The Financial Data Transparency Act honestly passed at midnight with the National Defense Authorization Act. Yes, we're talking about issuer disclosure in the National Defense Authorization Act. I know it doesn't make a whole lot of sense, but it's where we are. Anything happening there? I know we're, what, a couple months into the two-year period, the first two-year period as you like to say, of implementation and rule writing. Anything our members, our listeners may be interested in hearing?
Emily Brock:
Emily Brock:
Talk about the wrong time to shine, finding ourselves in the National Defense Authorization Act. It certainly was an opportunity for GFOA and BDA to come together to talk about the future state of disclosure. That said, the Financial Data Transparency Act has a four-year implementation timeline. There's a first two years where the community along with Treasury and the Securities and Exchange Commission have to come together to do two things in these first two years. Number one, we have to pick the technology, and by we, I mean Treasury and the SEC are going to come out with notice and comment and they're going to say, "What about these technologies? Everyone respond." And there's going to be a ton of communication that's going to occur between the issuer community and probably the analyst investor community on how and why what technologies might work.
But the second part of it, which I think is especially interesting, especially for the broker dealer community, is we have to pick technically what's called a legal entity identifier. Now, they don't capitalize L, E, and I in the legislation. They say you have to pick a legal entity identifier. And the hard thing for issuers about the notion of the legal entity identifier is that we already have several entity identifiers. We've got our tax identification number, we've got a unique entity identifier, which is the federal government grant tracking system. If we add an LEI on top of that in addition to the CUSIPs that we maintain, that's a lot of tracking and maintaining of identifiable information.
Now, I think another thing that needs to be said is that LEIs, while they've been assigned to entities that have issued swaps over the past decade or so, this would be a new mandate that does come at a cost. And so that's going to be a part of our conversation with the Securities and Exchange Commission and Treasury is that another categorical identifier that really doesn't do a whole lot with the challenges that we've noted with the naming conventions of EMMA or challenges that we've had with searchability of EMMA. It's only going to add just another layer of complexity. We'd like to try to make sure that it's not just another number and instead it is more deliberate than that.
Brett Bolton:
Brett Bolton:
That's very helpful and I think there'll be plenty of comments coming from our community as well as yours, the SEC and beyond. So it'll be an interesting couple of years, that's for sure. One more quick turn. Let's talk muni provisions. I know we opened with maybe a little bit more of a defensive conversation. The BDA, much like the GFOA, we continue our educational efforts, whether that be on the tax exemption or few outstanding priorities like advance or funding. Just where do you see things standing today for AR or even BQ, which I don't believe has been introduced in either House at this juncture, which is interesting, I guess, starting point. Where do you think they start today in 2023, and what are you guys looking for for 2024 and I guess even into 2025 when the Tax Cuts and Jobs Act provisions expire? That might be a pretty interesting opportunity.
Emily Brock:
Emily Brock:
So BDA has been so good at ensuring that the education of the new members of Congress and the continuing members of Congress understand what our market is, what are we asking for and why are we asking for it? I would say BDA in conjunction with GFOA to show the dealer story, but also the issuer story allows for us to show we're not in contention with each other. All we want is for the restoration of these tools that have been taken away. Now, that said, obviously, Brett, we just kind of started this out with saying we've got a Democratic Senate and we've got a Republican House. There are a lot of competing interests even among the Republicans in the House.
And so while we are continuing to hear from members, especially our allies in Congress, that ensuring the strength of the municipal bond market and restoring advancer fundings is a priority for them, the ability to find something to ride on is probably the biggest challenge. If there's even this much contention that's happening over the budget, where in the world do we stick advancer funding, which actually does come at a price tag. It's under the $10 billion mark, but it's still under the $10 billion mark. I think what's the most important strategy right now is to try to ensure that when we come to the 119th Congress that starts in 2025, that we come at it with a fully prepared, fully engaged freshman congressional member class, but also longstanding congressional member class to make sure that we have the support that we need from the tax writing committee when there may be opportunities.
Brett Bolton:
Brett Bolton:
That's very helpful. So before we sign off here, I want to give you that opportunity to talk about what's going on at the GFOA, that's such a massive organization. Let's focus in particular the D.C. presence. What do you guys have going on the rest of this year? I can't believe it's already mid-September, but anything exciting to share with us what you've been working on?
Emily Brock:
Emily Brock:
Exciting, some frustrating, some exciting. So I would say something that hasn't kind of left us, I was mentioning this to some colleagues the other day, is the federal stimulus project. So the American Rescue Plan Act, not just the American Rescue Plan Act, but also IIJA, IRA, the Inflation Reduction Act. All of those things are still omnipresent for us and our members. And so the communication that we have with the White House and all of the distributing agencies here is to try to encourage them to keep applications simple, just to try to help them understand.
We have to do that in conjunction with also helping for the Administration to understand that we need at least the base to be restored. We need for the municipal market to be there, even in the event that there are these stimulus funds available for us for transportation and transit, for economic recovery, and for renewable and green infrastructure as well. So we're dancing that dance between and among Congress and the Administration. There's a lot of that going on. In so doing we're also having the fifth Annual Mini Muni Conference will be on October 11th through the 13th. And we've got, at this point, many dozen issuers who are going to be speaking on issues of a wide range all across the municipal market and in all of our mutual interests. So we'd love to see you guys there and excited for what the future may hold.
Brett Bolton:
Brett Bolton:
Speaking of spooky, ending that on Friday the 13th.
Emily Brock:
Emily Brock:
It's true. We are.
Brett Bolton:
Brett Bolton:
It'll be good October. Emily, we're looking forward to see you at our conference in a couple of weeks in D.C., but it's always a pleasure speaking with you and thanks for taking the time.
Emily Brock:
Emily Brock:
Same here, Brett. Thanks so much.