Legislation Would Restore Advance Refunding for Local Governments
U.S. Senators Roger Wicker, R-Miss., Debbie Stabenow, D-Mich., Shelley Moore Capito, R-W.Va., Michael Bennet, D-Colo., John Barrasso, R-Wyo., Bob Menendez, D-N.J., Jerry Moran, R-Kan., and Tom Carper, D-Del., today introduced the Lifting Our Communities through Advance Liquidity for Infrastructure (LOCAL Infrastructure) Act. As the U.S. deals with the economic effects of the COVID-19 outbreak, the legislation would amend the federal tax code to restore state and local governments’ ability to use advance refunding to manage bond debt and reduce borrowing costs for public projects.
“The coronavirus outbreak has placed enormous pressures on state and local governments,” Senator Wicker said. “Restoring advance refunding is a proven way to give our local leaders the ability to manage existing debts, reduce costs, and free up additional money for much-needed local infrastructure projects. At a time when interest rates are at historic lows, Congress should allow our local governments to seize this opportunity and pass along savings to their communities.”
“The extraordinary strain that the COVID-19 crisis is putting on state and local budgets will last years and make it that much more difficult to fund important infrastructure projects. That is why I have come together with Senator Wicker to introduce the LOCAL Infrastructure Act, which will make it less expensive for state and local governments to invest in hospitals, roads, schools and other critical infrastructure,” said Senator Stabenow.
“Throughout this pandemic, I’ve heard directly from our local leaders about the challenges they are facing and how Congress can help alleviate these burdens,” Senator Capito said. “One of these challenges is the lost revenue that state, counties, and cities are experiencing because of this emergency, which has caused a strain on their budgets. The LOCAL Infrastructure Act is another tool that provides these local governments the flexibility needed to generate savings. I’m proud to support this legislation and will continue working to deliver commonsense solutions like these to support our local governments during this difficult time.”
“As a result of the COVID-19 crisis, state and local governments are facing unprecedented budget shortfalls while working overtime to care for their communities and plan for the future,” said Senator Bennet. “Providing federal relief for our state and local governments has been one of my top priorities since the beginning of the COVID-19 outbreak. By restoring advance refunding, which has already been proven to work well for state and local governments, this bill will make it easier for state and local governments to make desperately needed investments in crucial infrastructure projects.”
“By restoring advanced refunding bonds, this legislation would allow state and local governments to refinance their existing tax-exempt bonds and take advantage of lower interest rates,” said Senator Menendez. “This will free up much needed capital for states and municipalities to make critical infrastructure investments at a time when local revenues are down and resources stretched to the max to combat COVID-19. These funds can be used to repair roads and bridges, upgrade aging water systems and expand transit options.”
“Today is July 1st, the day nearly all states and thousands of local governments begin their new fiscal year. Unfortunately, this year, cities and states across this country won’t be starting off with a clean slate due to the unprecedented strain that the coronavirus pandemic has put on their budgets. As a former Governor and State Treasurer, I know what this lost revenue will mean for cities and states that were already stretched thin, especially when it comes to crucial infrastructure projects that help drive local and regional economies. It’s clear that states and local governments need access to every financing tool in the toolbox right now so that they don’t have to delay providing communities with clean water, safe roads, schools, parks, transit and other critical infrastructure. The LOCAL Infrastructure Act will help enable our communities to invest now in a stronger, safer, more connected future,” Senator Carper said.
The senators’ legislation comes in response to calls from state and local leaders for the federal government to provide additional support to communities as they assess the impact of the coronavirus outbreak on their budgets and begin planning for the future.
Advance refunding would allow state and local governments to refinance outstanding municipal bonds to more favorable borrowing rates or conditions before the end of the initial bond term on a tax-exempt basis. This process is very similar to how a homeowner may refinance the mortgage on their property to lock in a lower interest rate.
The federal tax-exempt debt could be refinanced only once, but local communities would be able to take advantage of the lower interest rates to generate additional savings on existing bonds. Local governments could reinvest these savings to fund infrastructure, education, health care, or other capital improvement projects.
Advance refunding has saved state and local governments billions of dollars over decades, but has been unavailable to state and local governments since 2017.
Among other organizations, the senators’ legislation is supported by: The National League of Cities, United States Conference of Mayors, National Association of Counties, National Conference of State Legislatures, American Hospital Association, American Public Power Association, American Society of Civil Engineers, American Public Works Association, National School Boards Association, Government Finance Officers Association, and National Association of Bond Lawyers.
Click here to read a one-page outline of the legislation.
Click here to view the full text of the legislation.