November 2, 2021 | Cole Karr

NSDC joined the Government Finance Officers Association (GFOA) and 27 other national organizations in a letter to Congressional leadership calling for flexibility for infrastructure financing and the exclusion of tax-exempt municipal bonds in the Build Back Better Act’s proposed Alternative Minimum Tax (AMT) on corporations.

In its current form, the $1.75 trillion Build Back Better Act would impose a 15 percent corporate AMT without excluding interest earned on municipal bonds. Of concern is what this means for entities that currently hold approximately one-quarter, or $1 trillion, of all outstanding tax-exempt bonds – primarily banks and insurance companies.

The GFOA-led letter sounds an alarm of what this policy shift could mean for municipal issuers.
“[T]he Congressional Research Service estimates that subjecting private activity bonds to the individual AMT has raised the interest cost of those bonds by 50 basis points,” the letter reads. “[W]e do not know whether the effect would be identical, but can safely conclude that subjecting an even broader array of state and local government and non-profit bonds to this new tax will raise community borrowing costs. Considering the size of the municipal bond market – with over $4 trillion in debt outstanding – the costs will be significant and, again, will be borne by our communities, not by the holders of the bonds.”

The coalition also urged Congressional leaders to consider adding measures to the Build Back Better Act that have already earned the House Committee on Ways and Means’ endorsement. Such policies would enhance federal efforts supporting infrastructure investment including the reinstatement of tax-exempt advanced refunding bonds. The letter also outlines support for increasing small issuer exception from $10 million to $30 million as well as the restoration and expansion of direct-pay bonds.

The House Committee on Rules is still considering the Build Back Better Act ahead of potential action on the House Floor later this week.  NSDC will update membership with further developments.