Municipal Bonds

Advance Refunding Bonds

While Members of Congress preserved tax-exempt municipal bonds in 2017’s Tax Cut and Jobs Act, they eliminated a tool that towns and townships use in conjunction with municipal bonds to save money for our constituents. Advanced refunding bonds enable local governments to refinance bond issues and take advantage of more favorable interest rates. This saves our constituents money because it reduces the long-term costs of infrastructure projects like roads, bridges and fire stations, and allows us to pour those savings back into our communities. NATaT supports H.R. 5003, which would reinstate advance refunding bonds. It was introduced on February 13, 2018, by Reps. Randy Hultgren (R-IL) and Dutch Ruppersberger (D-MD).

High Quality Liquid Assets (HQLA)

NATaT also supports legislation that would treat certain municipal bonds as high quality liquid assets (HQLA) when calculating a bank’s liquidity. H.R. 1624/S. 828 would amend a 2014 rule approved by the Federal Deposit Insurance Corporation, the Federal Reserve, and the Office of the Comptroller of the Currency that established a minimum liquidity requirement for large banking institutions and identified acceptable investments – deemed HQLA – to meet this requirement. All municipal bonds were excluded from the list of acceptable investment categories that can be deemed HQLA. These bills would change that ruling and allow certain municipal securities to be deemed HQLA. Excluding municipal bonds makes them less marketable and will ultimately result in higher borrowing costs for local governments.

The House passed H.R. 1624 on October 3, 2017 by voice vote. The Senate passed S. 828 as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act, S. 2155, a Dodd-Frank reform bill, on March 14, 2018 by a vote of 67-31. For the legislation to proceed to the President, either chamber has to pass the other’s bill. The Senate seems unlikely to pass H.R. 1624, as they have refused to do so for two congresses now. The likely path forward would involve the House passing S. 2155, but House Financial Services Chairman Jeb Hensarling (R-TX) will not do so until the Senate agrees to some of his Committee’s Dodd-Frank reform provisions.


To learn more, download the full tax policy paper.