The Bond Buyer
The development finance community is joining forces with municipal bond advocates to fight for the preservation of tax-exempt munis and the expansion of private activity bonds, which were nearly snuffed out by tax reforms enacted by the Tax Cuts and Jobs Act in 2017.
“The good news is the community has been very well organized this time,” said Eric Silva, CDFA legislative representative, North South Government Strategies.
“In 2017 we didn’t really see it coming, because nobody believed it would be a good policy choice for Congress. This time, we predicted that it would be coming because we knew how many dollars signs there were on the chart.”
The comments came during panel discussions at the Council of Development Finance Agencies’ Federal Policy Conference happening this week in Washington D.C.
The efforts seem to be paying dividends in Congress as evidenced by
“We’ve seen two separate letters where thirty members of the Republican caucus in the House go on the record and say that they don’t believe that municipal (bonds) should be on the table,” said Silva.
Municipal bonds and PABs are both in the danger zone even as housing advocates are celebrating the
Housing trade groups are also pushing for the passage of the Neighborhood Homes Investment Act of 2025. The bill seeks to establish a federal tax credit for building or renovating affordable, owner- occupied housing in distressed areas.
Supporters are already considering a back-up plan that might sacrifice the bills in exchange for keeping the credits and PABs by rolling them into a larger tax bill.
“No one expects those bills to get voted on in the House and Senate and signed by the President,” said Kevin Wilson, a partner at Novogradac & Company LLP.
“Having these bills and features with broad bipartisan support provides a mechanism so certain attributes of those bills can be pulled into a broader bill.”
As Congress moves towards eventual budget reconciliation, observers are hearing chatter about not eliminating the tax-exempt status but instead, limiting it.
“We have already seen some proposals and some key members who have indicated their support of the municipal bond tax exemption sponsor bills that would limit the full exemption based on certain characteristics of the issuer,” said Paige Mellerio, legislative director for finance, pensions and intergovernmental affairs, for the National Association of Counties.
Kicking the can down the legislative road also has a strong legacy.
“Watch out for the gimmicks,” said Silva. “Congress has not been afraid of playing budget gimmicks, which is to put something on paper that is a phase-out, knowing that a future Congress is going to fight to bring it back in. They have no problem doing that. They’ve been doing that forever.”
Privatization is also a recurring theme in guessing about what may happen if the tax exemption is struck down or limited.
“I think all of our innovation solutions are going to be grounded in how to capture public good out of a meta trend towards privatization that’s happening across the government,” said Sarah Brundage, president & CEO, of the National Association of Affordable Housing Lenders.
“I think we will end up streamlined, whether we like it or not, and I think innovation is going to have to be grounded in public-private partnerships.”