Communities would once again be able to advance refund tax-exempt municipal bonds under legislation introduced in the House of Representatives on February 13. The measure would undo a provision enacted in last year’s tax reform bill.
Sponsored by Reps. Randy Hultgren (R-Ill.) and C.A. Dutch Ruppersberger (D-Md.), H.R. 5003 would reinstate the federal tax exemption on interest earned on advance refunded bonds that was eliminated in last year’s Tax Cuts and Jobs Act. The previous law allowed communities to advance refund bonds and reissue municipal debt when interest rates fell, thereby reducing interest costs. The interest earned by investors on advance refunded bonds continued to be tax-free, making them attractive to investors and keeping rates down. But last year’s tax bill eliminated those benefits, thus eliminating savings opportunities for many communities.
In a statement Rep. Hultgren’s office said the elimination of tax-exempt advance refunding “makes it more expensive for states and local governments to take advantage of a favorable interest rate environment.”