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Politics 2023
By Brett Bolton, BDA
Bonding Time – A BDA podcast with the CDFA’s Mitchell Smith
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Brett Bolton:
Brett Bolton:
Welcome to another episode of Bonding Time. I'm Brett Bolton with the BDA. And today, we have Mitchell Smith, who is the director of Government and External Affairs at the Council of Development Finance Agencies. Mitchell, how are you doing today?
Mitchell Smith:
Mitchell Smith:
I'm doing well, Brett. Thanks for having me.
Brett Bolton:
Brett Bolton:
Absolutely. And so for our listeners, we're currently recording on Tuesday, March 21st, in case something happens in the meantime. So let's start here, nice and easy, Mitchell, tell me a little bit about the Council of Development Finance Agencies and who you represent and also what your role within the organization is.
Mitchell Smith:
Mitchell Smith:
Yeah, great. This sounds great. The Council of Development Finance Agencies is now entering its 41st year as a trade association, and we reformed in 1982 when President Reagan was reforming the private activity bond space within the Internal Revenue Code. We are comprised of the nation's leading and most knowledgeable members in the development finance community, and they represent large organizations, small organizations. Some of our members include the Illinois Finance Authority, we also have some tribal governments that are members, non-profits, banks. It's a wide array of organizations and we're really happy to have each of them as members.
Brett Bolton:
Brett Bolton:
Great. And as the director of government affairs, I assume you're mostly DC focused as a more legislative regulatory. How do you guys approach that?
Mitchell Smith:
Mitchell Smith:
Yeah, we are specifically focused on the federal level with all the different jurisdictions, state, tribal, territorial. It would just be too much, we're a 21 person team. And so we pay attention to state and local stuff, but we are primarily focused on federal regulatory and legislative issues. We work pretty closely with some federal agencies like the EPA or the USDA to help with education and training grant programs. That's one of our vital components for our members, we provide a lot of education and training on how to pursue those grants, administer them, things like that.
Brett Bolton:
Brett Bolton:
That's great. So pretty broad reach.
Mitchell Smith:
Mitchell Smith:
Yes.
Brett Bolton:
Brett Bolton:
You mentioned that you guys were created around the PAB discussions in the 1980s, so that's a good kickoff from my next question. What are some key legislative priorities for the 118th Congress for the CDFA membership, and I assume this is where we probably have a lot of crossovers organizations.
Mitchell Smith:
Mitchell Smith:
Yes. The bond space, obviously the private activity bond space is our bread and butter that's our foundation as an organization. And our biggest priority, and it has been for a few years now, is reforming small issue manufacturing bonds, which are more commonly known as industrial development bonds. And then also alongside that, first-time farmer bonds, which are known more as Aggie Bond. We have a piece of legislation that has been introduced several congresses now, it's called the Modernizing Agriculture and Manufacturing Bonds Act or MAMBA, which is a great name.
Brett Bolton:
Brett Bolton:
That is a great name.
Mitchell Smith:
Mitchell Smith:
To shorten it up, it sticks in your mind there. And it has been pushed through a couple of congresses, it was included in Build Back Better, but was taken out in the Senate, but it has six core reforms for private activity bonds in that space. We want to expand the definition of manufacturing facility. Most of these definitions were written in the 1980s, and as you can imagine, manufacturing has changed a lot in almost 40 years. So we want to expand that definition to include a wider array of things that are now part of the manufacturing process.
Second, we want to eliminate some restrictions on what are considered directly related in ancillary facilities, which again, when it was written, didn't include cafeterias, clean rooms, locker rooms, none of those spaces can be financed with private activity bonds. So that's an important element in the manufacturing process. You want workers to be safe and clean and have a nice space to work, that work life balance is important, and so that changing that definition, or at least easing those restrictions would help with that. Third, in the IDB space, we want to increase the overall issue limit to $30 million from $10 million.
Brett Bolton:
Brett Bolton:
Sorry to cut you. The bank qualified debt conversation, right? I mean, that's just upping the limit and tie into inflation. That seems to be a common trend and should be a layup legislation, but it seems to struggle to catch traction.
Mitchell Smith:
Mitchell Smith:
Yeah. There're little tweaks in the IRS code. The bill itself is only six pages, and that tweaks both the IDB and the Aggie Bond space. The $30 million inflation, $10 million in 1986 is equivalent to $2.5 million today, maybe even less. So increasing it to $30 million would help with making it a more reasonable ask for financing a small manufacturing facility. And then obviously tying it to inflation. Yes, that's just a necessary, and yeah, it seems like a common sense thing, but sometimes it's just one of those little tweaks that gets taken out at the last minute on those big vehicles.
Brett Bolton:
Brett Bolton:
Right. And that reminds me of the advance refunding as well taken out 2017, and we've been up on the Hill a good bit this year, and I think giving leverage to state locals to finance instead of federal funding projects is seeming to catch on, but there's such intricate detailed proposals, it's hard to get the ball rolling up on Capitol Hill, that's for sure.
Mitchell Smith:
Mitchell Smith:
Yeah. We have similar feelings, the Inflation Reduction Act, the IIJA, the American Rescue Plan Act, those are great sources of revenue for state and local communities. However, there's still a lot of capital that needs to be leveraged to pay for these to finance these infrastructure projects and allow communities to make targeted investments in the projects they need. And advance refunding is important in that space as well.
Brett Bolton:
Brett Bolton:
Yeah, absolutely. I mean, it all goes together in the end, so it's just telling a good story. Now, I know the CDFA has plenty of good stories to tell, especially through rural America, which is very helpful these days.
Mitchell Smith:
Mitchell Smith:
Yeah. And that's a nice little segue to the other element of our big priority legislative package farming. The COVID-19 pandemic showed us that our food supply chain and our general supply chain is not as secure as we thought it was, and allowing cheaper access to purchase farms or farm equipment or livestock is vital to our national security and our food supply chains. And so therefore, on the other side of MAMBA, we have reforms to first-time farmer bonds, known as Aggie Bonds. We want to increase the small issue bond proceed limit in that space to $1 million. Currently, it's tied to inflation, but the last raise happened this year and it's only $616,000, which if you're buying any real estate right now, you know that that's just not going to make a huge dent. One of our board members and general members here from Chester County Industrial Development Authority told me he's seen a couple of deals come across his desk in the 40 to 60 acre range that are costing $3 million to $4 million.
And so that's just $616,000 is maybe 25% if you're lucky. So coming up with the rest of that financing, especially with the markets and the interest rates increasing, that's a tough ask for a starting beginning farmer. And then finally the last little point there is to modify or at least align the definition of what is considered substantial farmland. The farm bill in 2014 changed the definition from median to average for substantial farmland for the Farm Services Agency, but they didn't make the change in the IRS code. And so, just we want to align to make all the paperwork and the terms make sense and be common sensical for the people are relying on these tools to make a living.
Brett Bolton:
Brett Bolton:
Sure. Sure. So this congress following the election last year, I guess it was, it's split, divided government. Are you guys watching any particular vehicles that can pass a tax title? You just mentioned the farm bill, so I assume that's something you're watching. Any real expectations of mini financing being passed through either chamber of Congress and signed into law this year?
Mitchell Smith:
Mitchell Smith:
Well, I'm sure you're hearing the same things about the potential for the farm bill to be a little delayed as I am, obviously it has a tax title that is a potential avenue for us. We're working right now to get MAMBA reintroduced in this Congress. We're talking with a few offices. There's some definite interest in helping us reintroduce it again. Of course, we are a bipartisan organization, we won't introduce anything unless it has both a Republican and a Democratic co-sponsor because as you know, anything that's one party or the other is just going to be a dog fight and probably not going to pass just because of the nature of the partisan politics.
And so, we want to make sure that it's got broad-based support and it's sponsored by both parties. Both parties think it's a good idea. I'm sure that you've also noticed with this new Congress that the new members are a little different in ideological bent, and so we are hopeful that there's a potential that there's some people coming into the space who see these tools in a different light than maybe have been in the past decade. And so, I think we're hopeful that we have the ability to not only introduce it, but maybe get it across the finish line this year. Of course, a hundred thousand things have to happen in the right order and at the right time for it to happen, but I don't have to tell you that.
Brett Bolton:
Brett Bolton:
Yeah. No, that's helpful. And I do appreciate your optimism. Sometimes I feel like we get too bogged down in this space and negativity, so that's refreshing to hear.
Mitchell Smith:
Mitchell Smith:
Yeah. I think that's why my boss secretly brought me on, just the fresh eyes, the fresh face, because I can only imagine just the frustrations of just timing again, putting forth your legislative baby and just to have it not work out. So I'm excited to give it my best shot over the next few years. If it doesn't pass in this Congress, maybe the next one.
Brett Bolton:
Brett Bolton:
Yeah. And we're looking forward to working with you on that. Finally, clearly we're a bond fixed income focus group. We've expanded this conversation a little bit beyond that already today, but anything else the CDFA is looking at whether legislative regulatory in the next year or two that we should be on the lookout for?
Mitchell Smith:
Mitchell Smith:
Well, unfortunately, we've all seen the aftermath of the train derailment in East Palestine, Ohio. Were based in Columbus, Ohio, so it's in our backyard. And in years past during natural disasters, special categories of tax-exempt bonds have been created called Disaster Recovery Zone Bonds of different stripes, it happened after September 11th, it happened after several hurricanes in the Gulf region, it happened after flooding along the Mississippi River. And we are reframing that to include both manmade disasters and natural disasters to allow for this permanent category so that these communities can start accessing funds right away. Obviously, there's some guardrails put on the legislation so that people can't just abuse this as a financing tool, but it would allow Congress to not have to worry about re-upping every time, going through the partisan fights that inevitably will happen, and it just being a tool that is there in addition to any recovery money provided by the EPA or FEMA.
So we're keeping an eye on that. We've introduced some people to the idea and people obviously aren't against helping communities, especially East Palestine continues its recovery efforts and it's going to take months, if not years, and the environmental fallout from that, who knows how long that'll take. In addition to that, you brought up the farm bill, it's generally important to a lot of CDFA members in addition to our legislative packages because it's a appropriation through the farm bill, and we do a lot of work with rural communities for rural development, broadband, food system financing. It's a big deal to our members, and so we pay close attention to that. Obviously, we're all watching the fallout of the Silicon Valley Bank and what that means for the markets. We're hoping that the steps taken by the Fed and the Treasury are helping to ensure some confidence in the system, and this is just going to be a blip in the radar and not turn into something a little larger and a little more disastrous for the economy.
And then finally, I think you're probably dealing with this, I know I've talked to a lot of other people in trade associations that are dealing with the so-called Silver Tsunami. A lot of our members are seeing a turnover and we're having a lot of young people come into this space or mid-level people who have experience in the job market, but maybe not specifically with bonds or tax increment finance, revolving loan funds, things of that nature.
So we're seeing a lot of interest in our education, and we have several great courses alongside our national sponsors to cover things like TIF, revolving loan funds, bonds. We just had a really successful week of bond courses that was really well-received. And so, that's something that we're talking about. It's not a regulatory thing, but it is important to our members. And I guess finally to circle back to the beginning of our conversation, I think all the federal money that's been poured out in those various large packages, trillions of dollars, I've seen both in our members and then just in articles on NPR or Forbes or whatever, that a lot of these smaller communities are having trouble just navigating the various programs, the money, how to get access to it. So we try to cover that in one of our webinar series on federal financing. So these are all things, but it's hard to keep track of 500, 600 members and what they all want, but we're here to help.
Brett Bolton:
Brett Bolton:
That's great. And that last piece is wonderful. I received questions on the IRA or the IIJA constantly for guidance. I think following COVID, there was just so many packages that came out in such quick order that it was hard to keep track of all the money flow. So that's very helpful and I'm sure very appreciated.
Mitchell Smith:
Mitchell Smith:
Yeah, that's our hope. If you don't mind, I'm going to take a second just to plug our own little conference here. I know you're traveling to Dallas this week for your conference, CDFA has Federal Policy Conference coming up in Washington, and we have a federal grant writing workshop dedicated solely to bringing people from federal agencies to help people put their best foot forward in the grant writing space. Those applications are very cumbersome, they're very detail-oriented, and we want to be able to help our attendees understand the best practices, how to set themselves apart and maybe get some of that great federal money.
Brett Bolton:
Brett Bolton:
Good. Excellent. No, that's great. And I'm looking forward to speaking with your folks at that event, talk a little bit of bonds.
Mitchell Smith:
Mitchell Smith:
That's right. We're excited about it too. It's going to be a great panel.
Brett Bolton:
Brett Bolton:
Good. Well, Mitchell, I hope this is a start of a good partnership. I know our members will appreciate your insights and a little bit different perspective than what they normally hear from us. So I appreciate your time today and we look forward to working with you.
Mitchell Smith:
Mitchell Smith:
I really appreciate you having me, allowing me to ramble on about all of our interests here. But in all seriousness, I hope it does show a good start of a relationship between BDA and CDFA, and we can help communities find good sources of financing for their various infrastructure and community needs. And I really appreciate you having me today.
Brett Bolton:
Brett Bolton:
Thank you.