Legislation would reinstate the ability to issue tax-exempt advance refunding bonds

February 26, 2021

by Paul Ciampoli
APPA News Director
February 26, 2021

Sens. Roger Wicker, R-Miss., and Debbie Stabenow. D-Mich., on Feb. 25 introduced legislation that would reinstate the ability to issue tax-exempt advance refunding bonds. The bill is supported by the American Public Power Association.

The Lifting Our Communities through Advance Liquidity for Infrastructure (LOCAL Infrastructure) Act of 2021 is cosponsored by Sens. John Barrasso, R-Wyoming, Michael Bennet, D-Colo., Jim Inhofe, R-Okla., Tammy Baldwin, D-Wis., 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-Arkansas, and Jacky Rosen, D-Nev.

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.

The Tax Cuts and Jobs Act of 2017 eliminated the ability to issue advance refunding bonds and since that time, APPA has worked to put back in place advance refunding bonds.

A companion bill to the LOCAL Infrastructure Act of 2021 has not yet been introduced in the House.

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