Municipal Bonds Policy Update

Transcription

1 Municipal Bonds Policy Update ACI-NA Economics and Human Capital Conference April 22, 2013 Portland, Oregon

2 Municipal Bonds- Target to Raise Federal Revenue There are several proposals being talked about that would impact municipal bonds and private activity bonds (PABs). These could either happen in the next big deal or tax reform. Why are municipal bonds on the table? They are scored as a huge loss of federal revenue to the federal government. According to the last estimates done by GAO in February 2008, the federal government was slated to lose $40.5 billion in 2012 alone. The Congressional Joint Taxation Committee (JTC) did their own analysis and found a loss of $42 billion for 2011.

3 Bond Proposals in President s FY14 Budget One proposal included in the President s FY14 Budget Proposal is known as the Personal Exemption Phase-out (PEP). Would phase-out exemptions for very high income individuals. The Impact of PEP on Municipal Bonds: The proposal would require interest earned on municipal bonds to be reported as a deduction in order to continue to make them tax free. For those in the higher tax bracket they would be taxed on a portion of the interest earned on municipal bonds under the PEP proposal. Under the current tax code, interest earned on municipal bonds must be reported on tax forms, but is not included in income calculations. What this means for Airport Bonds: It would make interest rates on airport bonds higher, because investors would require a greater rate of return on their investments to offset the increased tax burden. It is estimated that municipal bonds costs could rise by basis points.

4 Bond Proposals in President s FY14 Budget America Fast Forward (AFF) Bonds- Direct Payer Bonds: An optional alternative to traditional tax exempt bonds. Like Build America Bonds (BABs), AFF Bonds would be conventional taxable bonds issued by State and local governments in which the Federal government makes direct payments to State and local governmental issuers in the form of a refundable tax credits. The subsidy rate would be 28%. The proposal would be effective for bonds issued beginning in The Administration does not provide details on the size of the program. Important Facts to Know about Direct Payer Bonds: Airports would be eligible to issue these bonds if they met the criteria and were selected. Airports would then issue the taxable bonds and each year the airport would receive a subsidy, at a rate of 28%, from the federal government. The funds that the government would have to offer for those subsidies would be limited, therefore limiting the size of the program itself. Subsidy rates for BABs were subject to sequestration and therefore, issuers of BABs are expected to receive small subsidies in FY2013. Could be the same for AFF.

5 Tax Reform Update The House Ways and Means Committee and the Senate Finance Committee have started work on comprehensive tax reform. Bond Proposals in President s FY14 Budget It is expected that both Committees will continue to hold hearings and explore proposals for reform through the summer and fall. ACI-NA submitted 2 sets of comments on bond issues to the House Ways and Means Committee: Specifically on airport bonds stating the position of airports on tax exempt Bond bonds Proposals and the AMT in penalty President s on PABs. FY14 Budget With our coalition of municipal issuers, the American Association of Port Authorities and the Education Finance Council. ACI-NA also continues our leadership work with the Municipal Bonds for America (MBFA) coalition, which also submitted comprehensive comments on municipal bond exemption to the Ways and Means committee.

6 ACI-NA Top Priority: Protecting Municipal Bonds ACI-NA Action on Protecting Municipal Bonds Joined a new coalition run by the Bond Dealers of America called Municipal Bonds for America. We are the coalition s leadership for Government Affairs- developing a legislative and messaging strategy on the importance of municipal bonds. Developed a white paper on the importance of municipal bonds to airports financing to hand out on the Hill. Working with the Government Finance Officers Association in a coalition with the National League of Cities, the National Association of Counties and other municipal organizations. Helped write H.Res.112 that was introduced in the House that recognized the 100 th anniversary and importance of tax free municipal bonds. Meeting with House and Senate tax committee members to advocate for municipal bond exemption and AMT relief for PABs.

7 ACI-NA Government Affairs and Bonds For more information on ACI-NA s work on Capitol Hill and with industry partners, please contact: Annie Russo Senior Director of Government and Political Affairs arusso@aci-na.org