Legislation Would Restore Advance Refunding for Local Government
U.S. Senators Roger Wicker, R-Miss., and Debbie Stabenow, D-Mich., today introduced the Lifting Our Communities through Advance Liquidity for Infrastructure (LOCAL Infrastructure) Act of 2021. 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. This initiative could provide a boost to local communities across the nation as the U.S. deals with the economic effects of the COVID-19 outbreak.
“The coronavirus pandemic has placed enormous stress on state and local governments,” Wicker said. “Restoring advance refunding would help state and local governments manage their existing debts and help free up additional capital for much-needed local projects related to infrastructure, including water and wastewater systems, healthcare, education, and other essential activities. 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.”
“Over the past year, I’ve heard first hand from local leaders about the strain the COVID-19 crisis is putting on state and local budgets. That’s why I partnered 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.
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.
Original cosponsors of the legislation include: John Barrasso, R-Wyo., Michael Bennet, D-Colo., Jim Inhofe, R-Okla., Tammy Baldwin, D-Wisc., Shelley Moore Capito, R-W.Va., Bob Menendez, D-N.J., Jerry Moran, R-Kansas, Jeanne Shaheen, D-N.H., Lisa Murkowski, R-Alaska, Chris Van Hollen, D-Md., Deb Fischer, R-Neb., John Boozman, R-Ark, and Jacky Rosen, D-Nev.
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.