SIFMA officials believe that federal programs are not meeting the demand to fix America’s infrastructure, which will lead to further delays in the maintenance of highways, bridges, hospitals, airports, schools, and other critical projects.
In an opinion piece recently published in Bond Buyer, Leslie Norwood, managing director and associate general counsel and head of Municipal Securities at SIFMA, said this under-investment trend would only lead to further financial burdens on state and local governments.
Before 2018, infrastructure projects were funded using tax-exempt advance refunding bonds. This allowed state and local governments to save billions in interest costs by using proceeds from one bond issuance to essentially pay off another bond, Norwood said. This happened because the new bond was issued at a lower interest rate than the original obligation. This freed up states and localities for new investments in infrastructure and other important public projects.
However, state and local governments can no longer do this as the Tax Cuts and Jobs Act of 2017 eliminated advance refundings. Norwood estimates that state and local issuers are currently forgoing about $4 billion of savings.
Norwood and SIFMA said it is imperative to restore and create additional vehicles to assist in resolving this need. Preserving the tax-exemption, which is the financing mechanism for most infrastructure projects that state and local governments undertake, is crucial. Further, SIFMA supports restoring the ability of state and local governments to advance refund their securities.
But more is needed to be done, Norwood said. An expansion of federal investment in infrastructure should include the authorization of a new direct-payment bond program and an increase in the volume cap for private activity bonds. Bank qualified tax-exempt bonds would support investment in small and rural communities that may have difficulty accessing the capital markets. Public-private partnerships (P3) can also help by leveraging capital markets for creative financing options through municipal bonds.
“Initiatives for infrastructure finance should recognize the need for a partnership among federal, state, and local governments as well as private investors and developers. Tax credits for equity investors and availability of tax-exempt financing for P3 projects as exists for traditional municipal bond-financed initiatives are other useful options,” Norwood wrote.
Norwood concluded by saying the recent dialogue between Trump Administration and Congress on this issue is an important step toward bringing America’s infrastructure into the 21st-century. Restoring advance refundings and implementing other tools is a good place to start in closing the financing gap.