Muni market breathes 'sigh of relief' over Senate tax plan

From Reuters - November 10, 2017

CHICAGO/NEW YORK (Reuters) - The U.S. Senate Republican tax bill helped soothe nerves in the municipal bond market on Friday, just over a week after the House of Representatives proposed changes that would decrease its future supply of tax-free debt.

While House Republicans sought to remove federal tax exemption for private activity bonds (PABs), an outline of the Senates proposal released late on Thursday does not include that provision among its list of revenue raisers.

When the Senates plan came out with no change to the tax exemption for private activity bonds, I think it gave the market a chance to take a sigh of relief, said Alan Schankel, a managing director at Philadelphia-based Janney Montgomery Scott.

The termination of tax-exempt PABs in the House bill sent shock waves through the $3.8 trillion market after the Ways and Means Committee introduced it on Nov. 2.

Almost $102 billion of the bonds, which are issued through states and local governments for economic development projects, airports, and nonprofits like hospitals, were sold in 2015, according to a recent report from Wells Fargo Securities. That accounted for 27 percent of overall long-term municipal debt sold that year.

The House plan contends that eliminating the bonds will raise $38.9 billion for the federal government between 2018 and2027.

Analysts have questioned that figure, arguing that it was wrong for lawmakers to assume that PAB issuers would sell a similar amount of taxable bonds for their purposes under the House plan.

We feel more comfortable about (PABs) future long term with the Senate bill, said Tim Fisher, legislative and federal affairs coordinator for the Council of Development Finance Agencies, adding that his group plans to keep to keep up pressure on the House.



Continue reading at Reuters »