(November 14, 2017) - The House Republican’s Tax Cuts and Jobs Act tax reform bill (H.R. 1), as reported in the Current last week, maintained the tax-exempt status on municipal bonds but repealed the ability for advance refunding. Despite concerted push-back from the municipal and water sectors during Committee consideration, the House Ways & Means Committee maintained the advance refunding repeal when they passed the bill out of the Committee on a party-line vote November 9.  In response, NACWA spearheaded a series of letters from the water sector to Congress stressing the importance of preserving advance refunding. 

While the House bill now awaits consideration by the full House of Representatives, the Senate Finance Committee released its own initial tax reform proposal on November 9^th. NACWA is disappointed to report that the Senate Committee treated municipal bonds similarly as the House, preserving the tax-exemption but repealing advance refunding.

While NACWA is relieved that the House bill maintains the tax-exempt status for municipal-issued bonds for water and infrastructure projects, the advance refunding repeal is very concerning. Advance refunding is an important tool many clean water agencies have used to reduce financing costs when interest rates dropped.  NACWA’s own survey over the past week of Association members has reveled hundreds of millions of dollars in savings by public clean water agencies using advance refunding. 

Given the importance of this financing option, NACWA joined with other water sector organizations in sending letters to the Senate and House this week expressing strong opposition to the provision. We will continue raising awareness of the impact this change could have to individual States and Congressional Districts as negotiations advance. Many clean water agencies have shared examples so far, and we urge any others interested in reaching out to Congress to contact Kristina Surfus, Legislative Affairs Director at NACWA.

While there is significant Congressional support for municipal bonds in general, there appears to be less understanding of the significant cost implications that repealing advance refunding would create. NACWA is working hard to raise this awareness. But the municipal sector is unfortunately fighting against a numbers game: Congress needs to increase revenues in order to pay for tax cuts, and the advance refunding repeal was estimated by the Joint Committee on Taxation to increase revenues by $17.3 billion over a ten year period (2018-2027), making it an important “pay-for” provision to offset lost federal revenue from other proposed tax cuts.   

Overall, as NACWA looks at tax reform, the decision by Congressional leaders not to pair tax reform with infrastructure investment is a negative as it reduces the odds of a meaningful infrastructure investment package later this year. However, much remains up in the air as the House and Senate work to pass their respective bills and then maintain momentum and public support to reconcile the two bills. NACWA will continue advocating and keep members up to date over the coming weeks.