DC Insights – Quarterly Edition

Muni Outlook: Election 2022

July 2022

While the Senate is far from a lock, at this time the BDA predicts that both Chambers of Congress will flip to Republican control, likely leading to a tough policy environment heading into the 2024 Presidential election.

However, key provisions such as the reinstatement of tax-exempt advance refundings, raising the BQ debt limit, and a new direct pay bond exempt from sequestration remain outstanding. What impact, if any will a change in Committee leadership and direction have on these BDA priorities? House Outlook Over the past decade, several attempts to curtail the tax exemption or change the tax treatment of fixed income tools have emerged from the House. From the deficit reduction plans in the early 2010's, to efforts during the Tax Cuts and Jobs Act (TCJA) debates of 2017 in which the House attempted to eliminate PABs and succeeded in barring tax-exempt advance refundings, House Republicans have been more willing to use the tax-exemption is a possible means of debt reduction. This threat remains, however, due to extensive advocacy from the muni community, the caucus, and especially the Republican contingent sitting on the House Committee on Ways and Means have become more friendly towards the tax-exemption in the past decade. While leadership roles for the Committee have yet to be decided, Ranking Member Kevin Brady (R-TX) plans to retire leaving the potential Chairmanship up for grabs. Beyond the change in Chair, there are a few key names to watch in the coming year: - Rep. David Kustoff (R-TN) a close ally to the BDA, recently was reassigned from the House Financial Services Committee to the House Committee on Ways and Means. Mr. Kustoff has long been a fixed income advocate, and his presence on the tax writing Committee in the years ahead may prove invaluable. - Rep. Jackie Walorski (R-IN) last year become the Co-Chair on the House Municipal Finance Caucus, a key group that consistently introduces legislation that addresses BDA and the broader issue community priorities. Senate Outlook. Senate Finance has long been in strong support of muni finance policy. Both parties have proposed and delivered legislation, typically in a bipartisan fashion. As well, the Senate Committee on Finance Republicans also protected provisions such as private activity bonds during the TCJA debates of 2017 and many of these champions remain veteran Members of the Committee. The Committee will likely be Chaired by Senator Mike Crapo (R-ID) if Republicans regain power. Mr. Crapo has long had a favorable outlook of fixed income co-sponsoring legislation in past to increase the BQ Debt limit and last year pressed for the expansion of PABs. Other names to watch include: - Senator John Cornyn (R-TX) was a key ally during the 2017 tax reform. Mr. Cornyn publicly defended private activity bonds on numerous occasions, and worked to ensure they were unchanged in the final package. He has also sponsored and cosponsored legislation this Congress to increase bond usage. - Senator Roger Wicker (R-MS) this Congress has introduced bipartisan legislation that would reinstatement municipal advance refundings and create a new direct-pay bond exempt from sequestration, the American Infrastructure Bond.