Groups Urge Congress To Prevent The Potential Elimination Of Bond Payments

by Paul Ciampoli
APPA News Director
June 27, 2022

The American Public Power Association (APPA) and 13 other members of the Public Finance Network recently urged leaders of the House and Senate Budget Committees to prevent the potential elimination of direct payment bond payments starting in 2023.

The June 21 letter stems from concern that unless Congress acts to waive the Pay As You Go Act (PAYGO) in relation to the American Rescue Plan Act (ARPA) enacted last year, payments to issuers of direct pay bonds will be eliminated in 2023 through 2026.

At the end of 2021, Congress moved to prevent PAYGO from applying to ARPA in 2022. However, Congress failed to provide a permanent fix to the problem. Based on Office of Management and Budget data, unless Congress acts, direct payment bond payments will be cut by $14 billion — roughly eight percent of which would fall on public power issuers.

“As we collectively worked to emerge from the Great Recession over a decade ago, state and local governments utilized options made available to stimulate the economy and undertook several hundred billion dollars in critical, long-term infrastructure obligations through the issuance of direct subsidy bonds,” the letter noted.

At the time, the understanding was that federal payments related to these bonds would not be subject to the appropriation process and would not be subject to sequestration. “To our dismay, the federal government appears on the brink of completely reneging on this deal by eliminating $14 billion in payments to state and local entities,” APPA and the other groups said.

Specifically, unless new legislation is enacted that will waive PAYGO) as it relates to the budgetary effects of ARPA, thousands of state and local entities will not receive any Build America Bond (BAB), Qualified School Construction Bonds (QSCB), Qualified Zone Academy Bonds (QZAB), New Clean Renewable Energy Bonds (New CREB), or Qualified Energy Conservation Bonds (QECB) payments otherwise guaranteed to them under the law. 

The letter notes that entities that issued these bonds — generally in 2009, 2010, and 2011 — did so in partnership with the federal government.

Payments to issuers of the special purpose bonds “are already laboring under a steady stream of cuts triggered by the Budget Control Act of 2011 due to the failure of the Joint Select Committee on Deficit Reduction,” APPA and the other groups said.

These “Joint Committee Reductions” began in 2013 and are now expected to continue through 2031. Joint Select Committee reductions will have cut payments by nearly $3 billion by the end of Fiscal Year 2022 and will cut payments by another $1.6 billion by the end of Fiscal Year 2031.

“Allowing Joint Committee Reductions to continue is a travesty,” the groups argued. Allowing PAYGO to eliminate these payments entirely “would be catastrophic: to communities that stepped up during the Great Recession to try to create jobs when job creation was desperately needed; to students in schools that are already underserved; and to renters and homeowners that are already struggling to pay utilities, taxes, and other bills.”

As a result, the groups said that they hope that Congress “will overcome its differences and fix this problem for all Americans.”

Those also signing the letter include, among others, the Large Public Power Council, American Public Gas Association, U.S. Conference of Mayors, National League of Cities, National Association of Counties, and Government Finance Officers Association.