Water sector urges advance refunding as House panel moves on tax reform

The House Ways and Means Committee approved a comprehensive tax reform bill by a party line vote last week, sending the measure to the House floor. The full House is expected to consider the bill this week.

The Tax Cuts and Jobs Act (H.R. 1) is the House Republicans’ plan for the largest federal tax code overhaul since 1986, and it generally aims to reduce personal and business rates while removing many exemptions and deductions.  The bill would preserve the ability of communities to issue tax-exempt municipal bonds to fund water and wastewater infrastructure, but it would also prohibit bond issuers from advance refunding outstanding bonds.

Under current law, bond issuers are entitled to a one-time option to reissue outstanding municipal bonds when interest rates decrease.  According to data from the Government Finance Officers Association, between 2012 and 2016 states and localities advance refunded 941 tax-exempt municipal bonds that funded water and wastewater infrastructure, saving communities and ratepayers an average of $1.4 million in interest costs each time.

RELATED: GOP tax plan preserves muni bond exemption, eliminates new PABs

In response to the GOP plan, water and wastewater sector organizations – the Association of Metropolitan Water Agencies (AMWA), the National Association of Clean Water Agencies (NACWA), the American Water Works Association (AWWA), the Water Environment Federation (WEF), the American Public Works Association (APWA) and the WateReuse Association – wrote to the Ways and Means Committee members last week. The associations expressed concern that the bill would curtail the ability of communities to reduce infrastructure financing costs through advance refunding.

But Republicans on the panel rejected an amendment proposed by Rep. Terri Sewell (D-Ala.) that would have struck from the bill the provision that eliminates advance refunding bonds.  Another rejected amendment would have removed bill language that eliminates tax-free interest on private activity bonds.

GOP leaders do not plan to entertain floor amendments to H.R. 1 if it goes before the full House as expected this week.  While this should secure the preservation of tax-exempt municipal bond interest in the bill, which has been AMWA’s top priority for tax reform, it will also prevent further attempts to remove the bill’s prohibition on advance refunding.  The association will continue to advocate in support of tax-exempt municipal bonds and advance refunding when the Senate considers its own tax plan.

Some information contained in this news update appeared in the Association of Metropolitan Water Agencies’ weekly Monday Morning Briefing for Nov. 13.

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