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Politics 2023

By Brett Bolton, BDA

Bonding Time – A BDA podcast with the GFOA’s Emily Brock

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User 631176803 · BDA Bonding Time with GFOA

A BDA podcast with the GFOA’s Emily Brock on the fall elections, municipal bond provisions on Capitol Hill, what to expect in 2023 and the strong working relationship between GFOA and BDA.

Brett Bolton, BDA:

Welcome to another episode of Bonding Time. I'm Brett Bolton, and today we have an old friend, Emily Brock of the Government Finance Officers Association. Emily, I know we had you in Charlotte a month back, but it's been a while since you've been on a podcast, so it's always a pleasure to have you back. How are you doing today?

Emily Brock, GFOA:

Brett, the pleasure is mine. I did enjoy joining you and all of your members in Charlotte, it sure was a very, very interesting high-level quality panel presentations and I really enjoyed hanging out.

Brett Bolton, BDA:

Good. Well, today we're recording, it's December 16th, Friday morning, and there was some news that I think will impact the municipal market... A bill we don't ever talk about, I don't think, prior to this year, the National Defense Authorization Act, passed the Senate and will be signed by the president sometime before Christmas, I assume. Why do we care about that, Emily? A little thing... The Financial Data Transparency Act, do you mind giving a high-level overview of what that is for folks that don't quite know?

Emily Brock, GFOA:

Sure, Brett. So while financial data might be outside of the wheelhouse of some in public finance, it is squarely inside of our auspice at Government Finance Officers Association. In particular because the vast majority of our members are responsible for preparing a reconciliation of financial statements. And typically, what we do is, obviously, some organizations that adhere to GASB, report according to GAAP, and that's the standard that a lot of our members have gone by, since the evolution of GASB began. But here we are at GASB statement number 100... The rules are complex, the rules are emphasizing specificity, and for that reason, the annual comprehensive financial reports or the ACFRs, are getting hundreds of pages long, even for some municipalities.

And so that's a big amount of financial information for a lot of people to digest, including our investors. And so we're communicating that information as we have historically, and suddenly what we have now is the federal government taking interest on how we display data, in particular financial data. The Financial Data Transparency Act, which was sponsored by Senator Warner out of Virginia, Senator Crapo out of Idaho, introduced this bill, which was... And almost identical to the Financial Transparency Act, that was sponsored in house, that was attached to the house version of the National Defense Authorization Act. As you can imagine, Brett too, we have been busy, we have been watching ARPA, we've been watching Infrastructure Act, we've been watching Inflation Reduction Act.

We don’t typically follow national defense legislation, so it was almost by accident that we found that this bill made it into the National Defense Authorization Act. So we looked deeper, we looked at what it said, and what it says is that financial data, or rather data, that's collected by and distributed by municipal organizations has to be reported by machine readable open source format. It took a little bit of learning there. What does machine readable mean? What does open source mean? Does it mean costs, increased costs? I think the question-

Brett Bolton, BDA:

Did they think about any of these items when writing the legislation?

Emily Brock, GFOA:

I think that's a fair question. Now, obviously, there's a lot of vested interest around how this might work out. The vested interest certainly comes in the form of technology firms, they would have vested interest. Of course, investors would have vested interest on what types of data should be distributed out. But of course, issuers need to be involved in that as well, because we are the ones who compile the financial data. So as you can imagine, it was a little bit of an unwelcomed surprise to the bill sponsors, when we came in at 11:59 PM and said, "We can't have this in this bill. It needs to have a lot more thought. In fact, it should be guided by industry conversation, not just technology conversation, and we need to be able to make sure that we produce the information that our investors want."

And so it's been a bit of a challenge. There was a ton of outreach from BDA members and certainly from GFOA members, to the point where we had a conversation about scope. Initially, Financial Data Transparency Act was written to be under the auspice of the Municipal Securities Rulemaking Board or the MSRB. Which as many of your members know, is a self-regulatory organization, it's outside of the official presidential administration... And so of course, that is a bit of a challenge, when you have a potential rulemaking organization, whose responsibility is to protect issuers and investors, writing rules for issuers. So that was a bit of a challenge. And as we're thinking too about, okay, well if it doesn't fit under the MSRB, where does it fit? And the only other organization where it fit, where we know that we can depend on the Administrative Procedures Act and congressional oversight is at the Securities and Exchange Commission. Now, that said, we realize that puts us dangerously close on the razor's edge, to Tower that-

Brett Bolton, BDA:

You read my mind. That keeps popping up in my inbox. This involves the Tower Amendment, does it not?

Emily Brock, GFOA:

Yes, it puts us dangerously close, but I think the good thing, or at least what affirm in our resolve is that we all know that to be the case, and should it get dangerously close to Tower, this industry is not going to let that happen.

Brett Bolton, BDA:

It's good timing. I saw the Chairman Gensler and OMS announced yesterday, a municipal market disclosure conference in May, so I assume this will be still a hot topic in a couple months.

Emily Brock, GFOA:

I think this will be a large part of that conversation.

Brett Bolton, BDA:

Very good. Well, that's very helpful. So next, another breaking news this week, Congress extended funding as is for a week, to continue to work out details for a robust omnibus package to get us through fiscal year '23 before Congress... At least the house changes power. One thing that I know you have been working tirelessly on is Pay As You Go, which would directly impact federal payments on direct pay bonds that have been floating around for what? At least a decade plus here... Thinking of BABs. Any update on that? I know that the Public Finance Network, yesterday, sent an issuer letter to the big foreign Congress, as well as committee chairs. Any feedback on that or any outlook on where this may end up in the next week or so?

Emily Brock, GFOA:

I can tell you, I got a lot of thank you notes from committees of jurisdiction, from appropriations, from budgets, also heard back from leadership... Just thanks for this outreach. I think what's important to note here about the subsidies is that we're part of a larger laundry list of subsidies that are rolled up under the Pay as You Go provision. And so, Congress has an interest in this, not only because of Build America Bonds and the subsidy payments that they've promised, but I can say that we are 11th in line, under physicians payments, hospital payments and farm subsidy payments.

Brett Bolton, BDA:

Good allies, right? Good allies.

Emily Brock, GFOA:

Exactly. We've been calling American Hospital Association on a regular clip. In fact, they have a Dear Colleague letter that's going around. So again, if Medicare is successful or if farms are successful, or if these other big lobbies are successful, we're all working toward the same goal, and we will get it across the finish line. But it is not a guarantee, unless to your point, the omnibus is addressed. If they do another CR, we run the risk of just a temporary extension, which PAYGO gets caught in the crosshairs of a divided Congress, which is not what anybody wants.

Brett Bolton, BDA:

And let's be honest, there has been religion found over the past couple weeks about spending, and I know that House of Republicans are pushing to get just a March extension. So that's definitely a red flag, because if it gets pushed to that point, it could get a little sketchy going forward. Any chance of a longer waiver you think? Or are we looking at a 12-month just with omnibus? Or is it too early to tell at this point?

Emily Brock, GFOA:

Well, it's too early to tell. I think our best hope is a PAYGO that extends as far as the omnibus. Let's put PAYGO into perspective... They've had to waive PAYGO every year since PAYGO was a thing in our world, unless, as conservative Republicans will often say, we don't want to pay PAYGO, we don't want to pay those promises that were made in years past. We just want to pay the bills that we pass, at the time that we passed them, and we want to forget about those past promises. That is certainly a sentiment that's floating around right now in this conversation.

Brett Bolton, BDA:

It certainly is, and I'm sure we'll keep talking and watching it going forward. So I had a really depressing conversation earlier this week with a Ways and Means staff member about a potential lame duck tax bill. Now, don't get me wrong, my hopes for any of our municipal market priorities being included in said tax bill was pretty low, but they nearly shut the door on any tax bill passing in 2022. Is that kind of what you're hearing as well?

Emily Brock, GFOA:

Yeah. It's funny that you were depressed in this conversation, I almost characterized it as nihilism... We just don't feel anything anymore.

The tax bill is a fair conversation and a current conversation. In fact, we have been working with our advanced refunding champion to try to reprice, at least have a better understanding of what JCT would score advanced refunding at. Now, obviously, rising interest rate environment... Obviously, reasons why people wouldn't issue advanced refunding at this current time... They did rescore it and they got a score under $10 billion, which is actually low number. Sub 10 is a low number... It was 9.1. We're having this conversation. We're saying, well shoot, if there is a tax package, let's make sure that this gets in there. So those are the types of conversations that we're having... But broadly to your point, Brett, any member of Congress has a bit of nihilism right now going on. They're trying, they sure would like to, but the possibility of inclusion of that in a much broader top line omnibus funding conversation has been cut short.

Brett Bolton, BDA:

I tend to agree, and that that's a good outlook. Speaking of outlooks, somehow it's again, December 16th, we're heading into the holiday season, and we'll blink and it'll be January 1st. What's your outlook for 2023? I know there's several bills we've discussed and several we haven't... Maybe that could impact that question, as well as anything the GFOA has on deck for the new year.

Emily Brock, GFOA:

So I think number one, GFOA and BDA together, can speak volumes to the education that's going to be needed in 2023. We've got 80 new members of Congress and they don't know a whole lot about our market and the benefits of our market.

Brett Bolton, BDA:

That's an understatement. Absolutely. There's tons of educational opportunities that will be presented, I have no doubt.

Emily Brock, GFOA:

And I think it's fair for us to combine efforts on a couple of those things to make sure that we are present and they understand what's going on. The main thing that we need to keep emphasizing with these folks is the difference between funding and financing. There will be legacy effects of the last stimulus bills. For example, the new Republican leadership in the House has started to talk about hearings for ARPA. It's time for the municipal lobby to disassociate itself and talk about financing specifically. When you talk about these short-term spending bills like ARPA, like the Infrastructure Bill, like the Inflation Reduction Act, that's five or six years of funding, and it's project specific funding. Now, when we talk about financing, we're talking about a market that supports 15, 20, 30 year life of the asset. And so having that [inaudible 00:12:36] conversation is certainly warranted.

The other thing that I did want to mention is 2023 is really going to be a production year for the Infrastructure Bill and the Inflation Reduction Act. ARPA right now is kind of in our rear view mirror. The Infrastructure Bill, they are presently in the process of finalizing what are called Notices of Funding Opportunities or NOFOs. So the NOFOs are coming out, communities are looking at that and assigning potential projects to them, and so we're working with members of the administration to make sure that those are accurately written. Now, importantly, again, the IIJA or the Infrastructure Bill, is bipartisan. So it's not likely that it'll be nitpicked by Congress, I think that will go smoothly. On the other hand, the Inflation Reduction Act was a reconciliation bill, that is it only was voted on by Democrats.

Brett Bolton, BDA:

Yeah, there's a ton of oversight anticipated in 2023.

Emily Brock, GFOA:

Tons of oversight already. Last night, we saw the White House put out a fact sheet on the Inflation Reduction Act, and what I think that was, is actually to preempt a divided Congress to say, here's what the law says, and here's the way that we think that it is going to be interpreted. It is a really interesting... An administration stepping in before the chaos begins, to say, here is the letter of the law and here is where we think we're going. So we're certainly going to be watching that because inside of the Inflation Reduction Act is billions of dollars of tax credits for climate justice programs and renewable energy projects for state local governments, nonprofits, and instrumentalities.

Brett Bolton, BDA:

No, that's very helpful, and I think you're right. We've got a lot to pay attention to in the next couple weeks. I think there will be a lot of projection of what to expect over the first six months of the next Congress, so that's something to look forward to, I guess. Well, Emily, anything else we missed or we covered about everything here?

Emily Brock, GFOA:

I, again, appreciate the partnership that we have, Brett, you and I, and team at BDA, but also between and among our membership, it is certainly something that we're going to need going into 2023, the 118th Congress. The last thing I just wanted to put an exclamation point on is we've got a caucus that looks out for us in Congress. It's called the House Municipal Finance Caucus. And Chairman Ruppersberger, who is from Maryland, has been the chair of this caucus for a very long time... Unfortunately, sadly, we lost his co-chair this year. What we need to do is focus on the strength and rehabbing of that Congress. It's been a while, we haven't nurtured that, we haven't got equal numbers of Democrats and Republicans on that, which is ideal for us. So to the extent that we're able to do outreach, especially to your Republican members of Congress, to join us, we would be very, very happy to send an issuer, send folks on buy-side, sell-side, out there just to encourage their participation in this caucus.

Brett Bolton, BDA:

Thank you. I think that's a perfect bow to put on this holiday package, the final episode of 2022. So thank you, Emily, and thanks to all for listening. We'll touch base next year.

Emily Brock, GFOA:

Thank you, Brett.