Two new videos, produced by the Government Finance Officers Association and supported by NACUBO, concisely explain issues facing the tax-exempt bonds community and provide policy recommendations for lawmakers.
The first video explains bank-qualified bonds and describes why small issuer exception limits should be increased. These limits dictate how much a tax-exempt bond issuer may issue annually while still qualifying to sell bonds directly to banks, known as bank-qualified bonds. Presently, an issuer may only issue bank-qualified bonds if they issue less than $10 million in tax-exempt bonds annually. This limit, set in 1986, hinders relatively small borrowers and their communities by denying access to the favorable terms that accompany working directly with a bank. The video recommends raising the small issuer exception limit to $30 million dollars, indexing future increases to inflation, and changing how the limit is calculated.
Currently, the small issuer exception limit is a measure of the combined value of bonds issued by multiple discrete organizations through a shared conduit issuer. Instead of measuring at the conduit-issuer level, the video recommends calculating the small issuer exception limit for individual borrowers.
Legislation that addresses these three priorities was introduced before Congress took its August recess. The Municipal Bond Market Support Act of 2019, co-sponsored by Reps. Terri Sewell (D-AL) and Tom Reed (R-NY), would raise the small issuer exception limit to $30 million, index annual increases to inflation, and disaggregate the measurement. Sewell said in a press statement that increased access to bank-qualified bonds will “help local governments and nonprofits afford critical construction projects and stimulate their economies.” NACUBO has written a letter thanking the sponsors of this legislation.
The second video focuses on advance refunding of tax-exempt municipal bonds. Advance refunding is a public financing tool that was removed under the Tax Cuts and Jobs Act of 2017. The video discusses how advance refunding helps municipalities and nonprofits take advantage of favorable interest rates and argues for its reinstatement. Similar to a homeowner refinancing their mortgage, advance refunding enables debt refinancing and has the potential to save users significant sums of money. As the video suggests, money saved by a college or university can be reinvested in the institution and its community.